The Lao Ministry of Finance is considering raising the value-added tax (VAT) rate from 7 to 10 percent in an effort to boost government revenue and support the economy.
The VAT set at 10 percent would be a return to the original rate – implemented from 2010-2021. It was only from 1 January, 2022, that the country adopted a 7-percent VAT rate on import of goods and services.
The ministry has pointed to several factors in favor of raising the VAT rate, including the fact that the current value has not been as effective in stimulating the economy as predicted. The number of businesses registered under the Value Added Tax Law is currently lower than expected, and the government needs to increase revenue to reduce the budget deficit and stabilize the kip currency, according to the government’s finance department.
A new draft legislation to increase the VAT rate is expected to be completed this year and be effective in early 2024.
In addition to raising the VAT rate, the Ministry of Finance is also considering other measures to improve the tax system. These measures include speeding up the development of a mechanism to refund businesses the taxes they have paid, in place of tax exemptions. This would help to reduce the amount of government financial loss through tax exemptions while providing support to local businesses.
The government is also considering reviewing the ombudsman system to determine which ones should be given priority, and which ones can be reduced or eliminated.