Noting that Myanmar government target of a 10% tax-to-GDP ratio by 2018 is feasible, the Paper says that this would require "deep reform of the tax system, including simplifying the system and easing administrative constraint to collection, extending enforcement and creating incentives for compliance, and expanding the coverage of the existing tax instruments."

According to the Paper on 'Fiscal Management in Myanmar', the government should also avoid using the tax system for nonrevenue purposes. Widespread use of tax incentives to boost capital accumulation and consumption of certain goods is usually a suboptimal choice, as it delivers poor results in terms of investments and complicates the tax system, raising administrative costs and hurting compliance. Moreover, tax incentives are an instrument that is difficult to narrowly target, unlike expenditure programs.

The Paper has suggested that the Government should consider shifting the balance more toward indirect taxes through more widespread enforcement of a flat and simpler consumption tax. It would provide more stability to the country's revenue system. From the private sector perspective, compliance with sales taxes could also contribute to the development of the accounting and audit systems required for compliance with direct taxation.

It has observed that the new Union Taxation Law, enacted in April 2014, has changed commercial tax to a simple 5% tax imposed on all sales of most goods, with no opportunity for producers and distributors to claim drawback on inputs. While in the long run, it is best for Myanmar to move to a VAT type system that allows drawback, given current capacity constraints, this move is a sensible one and should enable increased revenue collection without being too distortionary.

As put by the Paper, "With respect to direct taxation in the form of income and profit taxes, reducing the number of exemptions and simplifying the tax structure can deliver significant improvements in compliance. The new Union Taxation Law includes several important steps toward simplifying direct taxation. For personal income tax, five brackets and a raised threshold, have replaced the previous unwieldy system of 12 brackets. The law also reduces differences in the rates at which different sources of income are taxed."

These changes reduce the incentive for avoidance and misreporting, and can also allow the tax base to grow into the tax system as the country develops. Further reduction in the number of brackets for personal income tax, e.g., to two or three, would further improve the direct taxation system.

A comprehensive reform strategy will also be needed to tackle the multiple bottlenecks and administrative difficulties hampering tax collection and compliance.

The Paper has also pitched for introduction of property tax by both the central and subnational governments.