A recent report revealed that international beer companies have paid tens of millions in taxes to the junta since the coup, but while some have called on them to end all payments, industry experts say this is unrealistic.
Ko Thet* was one of many who began boycotting Myanmar Beer shortly after the 2021 military coup. The business owner in Yangon wanted to undermine the military by cutting off one of its revenue streams, even if it meant going without his favorite drink.
“I used to drink Myanmar Beer before the coup because I liked its taste the most. But I haven’t drunk it since because it’s produced by a military-owned business,” he explained.
Myanmar Brewery, owned by military conglomerate Myanma Economic Holdings Limited, was one of the most visible targets of a mass boycott against military-linked enterprises as consumers snubbed Myanmar Beer, the nation’s top-seller, as well as the brewery’s lesser-known brands, Andaman Gold lager, and Black Shield stout. Sales dropped by an estimated 80-90 percent and wiped out nearly US$1 billion in MEHL’s value.
Rather than putting money directly in the military’s pocket, Ko Thet has turned to Tiger, manufactured in Myanmar by Dutch brewery Heineken, and Tuborg, also produced in the country by Denmark’s Carlsberg, even though these beers are slightly more expensive.
However, Heineken and Carlsberg, along with Thai beverage company ThaiBev, have recently found themselves in hot water. Investigative activist group Justice For Myanmar has criticized them for paying tens of millions of dollars in taxes to the junta, which has killed about 3,500 civilians and locked up more than 21,000 political prisoners, according to the monitoring group Assistance Association for Political Prisoners.
JFM said the companies should stop making tax payments that “help the junta buy arms, fuel and equipment and pay soldiers, supporting ongoing war crimes and crimes against humanity”. Instead, the activist group said taxes should be paid to the National Unity Government, a parallel administration appointed by elected lawmakers deposed in the coup, which the junta has labelled a terrorist organization.
The JFM report, published last month, urged compliance with the NUG’s investment guidance, to withhold all taxes to the junta and “instead discharge such payments to an escrow account”. The parallel government could later access this protected account to fund public services.
The report also cited ethical business principles and guidelines issued by the United Nations and the Organization for Economic Cooperation and Development, which compel these companies to mitigate and remedy breaches of human rights, and “to responsibly disengage [from Myanmar] if they cannot end their links to severe human rights violations”.
While many were quick to criticize Heineken, Carlsberg and ThaiBev for helping to fund the junta, industry experts caution that for international companies operating in Myanmar, diverting tax payments is unrealistic. They say that for the safety of the companies’ staff and assets, remaining in the country requires abiding by the law, even if it’s being enforced by a military regime, while leaving risks of handing more business – and money – over to the armed forces.
‘In it for the money
Carlsberg first entered Myanmar in 1993, when the country was under the previous junta, and just five years after the military slaughtered thousands during the 1988 pro-democracy uprising.
Myanmar law requires foreign drinks companies to have a local partner, so Carlsberg teamed up with Myanmar Golden Star Group, a family-run business empire with interests in the beverage industry, banking, and hospitality. Heineken entered the country two years after Carlsberg, initially as a joint venture with MEHL, but the partnership was short-lived. Both beer giants exited Myanmar in 1996 amid an international boycott campaign.
However, JFM’s April report claims that the following year, Carlsberg entered into a joint venture with another military conglomerate, Myanmar Economic Corporation, and Myanmar Golden Star, to set up Dagon Beverages through a subsidiary, possibly in violation of European sanctions. Carlsberg’s Global Head of External Communications said that the company has “launched an internal investigation into the circumstances related to the period 1997-2011”, but “currently have nothing more to add”.
Carlsberg and Heineken returned to Myanmar when Western countries relaxed sanctions in support of a now-aborted democratic transition. Both opened breweries in 2015, months before the NLD won a historic landslide election victory. Carlsberg resumed its partnership with Myanmar Golden Star and Heineken signed on with Alliance Brewery Company, owned by members of the same family as Golden Star.
Given the large start-up costs and the continued dominance of Myanmar Brewery, at least until the coup, it’s unclear whether either company has turned a profit in the years since. In its 2021 report, Heineken said its Myanmar beer volume “outperformed the market and grew in double digits” but made no mention of Myanmar in its report the subsequent year. Carlsberg was also vague, only noting that it was third in the market both years and had a 12pc share in 2022.
All of this paints a picture of companies that, while susceptible to public pressure and Western sanctions, are mostly concerned with the bottom line.
“Heineken and Carlsberg were perfectly positioned when they re-entered Myanmar because they had already planned the construction of two of the largest breweries in the country in the 1990s and had built trust with their joint venture partners,” said Mr Luke James Corbin, a small batch brewer and author of Heritage Drinks of Myanmar. “These are huge corporations with hundreds of breweries around the world and their modest investments in Myanmar were gambles worth making. These companies are in it for the money – the more, the better.”
The payments revealed in the recent JFM report fall under Myanmar’s Special Goods Tax, which ranges from 5 to 60 percent and is applied to the sales value of select goods, including alcohol, tobacco products, and certain automobiles. For beer and some spirits, the highest rate is applied.
From just October to December 2021, Grand Royal Group, a whisky manufacturer and subsidiary of ThaiBev, topped the list of taxpayers in the industry outed by JFM, paying K25.9 billion ($14 million) for that quarter. Heineken Myanmar came second, paying K16.8 billion ($9.3 million), followed by Carlsberg Myanmar, which paid K7.1 billion ($3.9 million). Another one of ThaiBev’s Myanmar subsidiaries produces Chang Beer, on which it would also have to pay SGT but these figures have not been made public. Extrapolated out for the year, JFM estimates the companies could be paying over $150 million annually.
The SGT is collected by the International Revenue Department and contributes to the national budget. However, since the coup, the IRD, along with other government ministries and departments, has fallen under the control of the military.
“100% of taxes paid by companies goes to the military junta, which illegally controls the Internal Revenue Department and has unlawfully issued its own tax laws. We highlighted SGT because companies subject to it are paying particularly high taxes,” Daw Yadanar Maung, a spokesperson for JFM, told Frontier.
‘Do we avoid eating at restaurants?’
But while international beer brands may not enter Myanmar for altruistic reasons, experts caution that pulling out now – “to end their links to severe human rights violations” per the UN and OECD guidelines – could end up doing more harm than good.
In 2015, Japanese beverage company Kirin Holdings Co Ltd entered into a joint venture with Myanmar Brewery, buying a majority 51pc stake in the company. The company stuck with its military-backed partner during the army’s bloody crackdown on the Rohingya in 2017. However, after the coup, when the brewery reported a nearly 50pc drop in revenue and profits, Kirin announced it would sell its shares, claiming the military’s seizure of power contravened its human rights policy. After a year of seeking out international buyers to no avail, the Japanese company sold its stake in the joint venture to MEHL.
“With Kirin’s withdrawal, it’s now 100pc owned by MEHL, so instead of getting 49pc of profits they will get 100pc, nless they sell a share to a new partner,” said Ms Vicky Bowman, Director of the Myanmar Centre for Responsible Business.
While Kirin pulling out may have ultimately benefitted the military, Bowman said Kirin had more of an obligation to withdrawdefense because its business partner was a sanctioned military conglomerate whose funds directly support the military.
“MEHL shareholders are battalion welfare funds, and serving and retired military [personnel]”, she said. “They receive the dividends as a supplement to their pensions or salaries.”
Taxes, on the other hand, fund the entire state budget, not just the military.
“While the state is currently run by generals, and they, therefore, determine how the budget is allocated, without parliamentary debate or oversight, the tax revenue is still received by the state, not the military. It funds the entirety of public sector spending including health, education, and administration, as well as on-budget defence spending,” said Bowman.
However, between October 2021 and March 2022, the Ministry of Defence received 19pc of the $4.46 billion national budget, the second largest chunk after the Ministry of Planning and Finance. During those six months, tax revenue was around $760 million, roughly half of which came from SGT. During the three-month period, JFM has records for, Heineken, Carlsberg and ThaiBev accounted for approximately 7pc of total SGT revenue.
Compared to Kirin, Bowman said Heineken and Carlsberg have less of a legal obligation to leave Myanmar, and that if they did, their local partners or replacement companies would still have to pay the same taxes to the regime. If their revenue fell, the main winner would likely be the Myanmar military.
“If those breweries’ share of the beer market, and therefore their profits and their taxes, subsequently shrank, the likely beneficiary would be Myanmar Beer, who dominated the market before these two brands entered,” she said.
Corbin said that, despite the JFM campaign, Heineken, Carlsberg or ThaiBev are unlikely to prompt as much public outrage as Kirin.
“The fact that Carlsberg and Heineken pay taxes, which goes through the sit-tat at the moment, is not going to mean one iota to a Burmese beer drinker in Myanmar who don’t have many choices,” he said, using a Burmese term for military. “Even if they pay these taxes, they’re still going to be preferred to the military-owned beers.”
“All businesses are supposed to pay tax. I think there’s an understanding among people who oppose military rule that there’s a difference between direct revenue streams, like military-owned businesses, and private enterprises in Myanmar that are paying tax.”
This is true for Ko Aung Si*, a university student in Ayeyarwady Region.
“I have no plans to stop drinking because they are paying taxes to the government,” he said. “If you eat at a restaurant you have to pay commercial tax to the government, so do we avoid eating at restaurants? If we act like this all the time we won’t be able to do anything.”
Although still upheld by many, even the campaign against Myanmar Beer may be losing steam more than two years on, and removing alternatives, or damaging their reputations, could only further depress the boycott.
A liquor shop owner in Yangon told Frontier that immediately after the coup, military beer sales plummeted, but now “people are choosing Myanmar Beer again”. He estimated that for every 20 cans of Myanmar Beer, he sells 18 cans of Heineken-produced beer, and he doesn’t carry Carlsberg because it’s too expensive for his clientele.
Closing time?
Mr Richard Horsey, a senior advisor on Myanmar at the International Crisis Group, said there isn’t a scenario where companies like Heineken and Carlsberg can operate in the country without paying taxes to the junta-controlled IRD.
“The [junta] has no legitimacy as a governing authority, but they are running the tax system and the central bank and they have an enforcement capability,” explained Horsey, who also co-authored a chapter on the political economy of beer in Myanmar in the edited volume, Beer in East Asia.
Horsey also said paying taxes to the NUG is unrealistic and could have serious consequences.
“If the regime were to find out that these companies were paying money to what they consider a terrorist organization, that would put all company staff in Myanmar at great risk of being arrested,” said Horsey. He added this would “almost certainly result in the seizure of the company’s assets”, allowing the military to acquire more property without having to pay for it.
“And, even if these companies could pay taxes to the NUG and keep it secret, they would still be required to pay taxes to the regime. No business is going to pay tax twice to two different authorities.”
Talking to Frontier, JFM said that in addition to diverting tax payments, the companies should release a “human rights due diligence assessment”.
“If, after such an assessment, the companies decide that remaining in Myanmar is the least worst option for their human rights impacts, they should disclose the measures they are taking to remedy the human rights violations they are enabling by bankrolling the illegal junta, in consultation with the NUG,” said Yadanar Maung.
While the recent revelations pushed Heineken and Carlsberg to finally speak about their businesses in Myanmar, they are yet to release any kind of human rights assessment. “Public pressure has not been sufficient to induce them to do so,” Corbin said. “These are corporations operating on long-term business plans and will try and ride out their investment for as long as they can.”
In a statement sent to Frontier, Carlsberg spokesperson Ms Tanja Frederiksen said that the company “conduct[s] human rights due diligence to identify the areas of human rights that could be adversely impacted by our value chain”, but the outcome will only be made public “when finalised”.
Frederiksen also defended the tax payments, stating that “as a company, we are subject to local laws in all the markets we operate in” and are “obliged to pay taxes and duties, whether in Myanmar, Denmark or any other market”.
Heineken similarly said in a statement to JFM that, “as a responsible business under local and international standards, we are obligated to pay taxes in all markets we operate in. Fulfilling our obligations in Myanmar does not represent our support to the government in question.” The company added, “[We have] done our due diligence and are assured that our Myanmar business has no ties with the military”.
Neither company indicated that they would leave Myanmar anytime soon. ThaiBev, meanwhile, has made no public statements and did not respond to Frontier’s request for comment.
Frederiksen said that Carlsberg has “chosen to stay in Myanmar” as it is “not an automatic reaction for us to withdraw from a country when terrible things like this happen”.
Heineken said in a statement to Frontier that it “believe[s] that the people of Myanmar are better off with us present in the country supporting jobs and communities than without us present”. The company said, “by maintaining our presence, we are living up to our long-term commitment to our employees and the communities related to our business”.
Ko Zarni*, a member of the Heineken distribution team in Yangon, told Frontier the company has even been “seeking new employees in recent months”. He also said that demand has been high and many of his customers complain because “we can’t supply as much beer as they want”.
Source: FrontierMyanmar
