Value Added Tax in Lao PDR: Agenda for the Future

Duangchay KEOMIXAY1

Visiting Scholar

Policy Research Institute, Ministry of Finance, Japan

1 The views expressed are those of the author and do not represent the views of the Policy Research

Institute.

Contents Abbreviations ............................................................................................................... 1

1. Introduction .............................................................................................................. 1 2. Literature Review..................................................................................................... 2 2.1. Definition of the Value Added Tax .......................................................................... 2 2.2 Characteristics ............................................................................................................ 2 2.3. Methods of calculating VAT .................................................................................... 3 2.4. The necessity to introduce value added tax instead of turnover tax .................... 5 2.5. The conditions for using value added tax ............................................................ 6 3. Overview of the Value Added Tax in Lao PDR ...................................................... 8 3.1. Persons subject to payment, collection and contribution of VAT ....................... 8 3.2. The obligations and option for registering into the VAT system in Lao PDR .... 9 3.3. Goods and services subject to VAT ..................................................................... 9 3.4. Goods and services that are not subject to VAT ................................................ 10 3.5. Calculation of the value added tax in Lao PDR ................................................. 11 3.6. VAT Deduction and Refund .............................................................................. 13 3.7. Revenue performance of value added tax in Lao PDR ...................................... 14

Figure 1: Performance of VAT (Billion LAK, %) ..................................................... 15 Figure 2: The comparison of VAT revenue to other tax revenues (Million LAK).... 15 Table 1: Summary of tax revenue from FY2010/11 -2015/16 (million kip) ............. 16

3.8. The experience of the VAT or consumption tax in Japan ................................. 16 Table 2: A comparison between VAT implementation in Japan and Laos ............... 20

3.9. Lesson learned by Lao PDR. ............................................................................. 21 4. Analysis and Discussion of the Value Added Tax in Lao PDR ............................ 22 4.1. Laos should broaden its VAT base .................................................................... 22 4.2. Small businesses lack adequate bookkeeping .................................................... 23 4.3. Develop a more extensive ICT system .............................................................. 24

Table 3 Population, tax authorities and taxpayers ..................................................... 25 4.4. Tax education and tax consultation .................................................................... 25 4.5. Reduce exemptions as much as possible ........................................................... 25 5. Conclusion ............................................................................................................. 26

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Figure 1: Performance of VAT (Billion LAK, %) ..................................................... 15

Figure 2: The comparison of VAT revenue to other tax revenues (Million LAK) .... 15

Table 1: Summary of tax revenue from FY2010/11 -2015/16 (million kip) ............. 16

Table 2: A comparison between VAT implementation in Japan and Laos ............... 20

Table 3 Population, tax authorities and taxpayers ..................................................... 25

Abbreviations

ASEAN - Association of Southeast Asian Nations

GST - Goods and Services Tax

ICT - Information and Communications Technology

Lao PDR - Lao People Democratic Republic

NTA - National Tax Agency

NTC - National Tax College

OECD - The Organization for Economic Co-operation and Development

SMEs - Small and Medium Enterprises

VAT - Value Added Tax

WTO - World Trade Organization

Abstract This study assesses VAT policy and administration in Lao PDR. The main objective of

the research is to assess and identify problems related to VAT administration in Lao PDR

and to propose an agenda for the future.

To fulfill this objective, secondary data were used. Secondary data comes from sources

such as official documents, the internet and other relevant materials.

The Value Added Tax (VAT) has been implemented in Lao PDR since October 2010,

when it replaced the turnover tax, which is inherently troublesome in terms of both revenue

leakage and the fact that it is imposed on every stage of the production-distribution chain.

The tax base at any single stage includes the sales value of the goods plus the tax charged

accumulatively in previous stages. A serious problem with this tax is the “cascading effect,”

literally understood as the tax-on-tax effect. VAT eliminates the cascading problem; it is

generally more broad-based and entails a trail of invoices that helps improve tax

compliance and enforcement.

Even after implementation of VAT in Lao PDR, there are still many issues related to

VAT administration, particularly for small and medium enterprises that don’t have any

experience on VAT systems and for some local tax authorities that don’t clearly understand

the procedures for collecting the tax. Ultimately, these obstacles make VAT revenue

collection not as efficient as it should be.

To overcome these identified challenges, constructive recommendations will be made

in order to help alleviate the problems.

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1. Introduction

Taxes play a very important role for every state. Taxes are not only a basis for the State

to mobilize funding resources for regular activities but also an important tool for the State

to achieve macroeconomic objectives. A good and reasonable tax system will have a

positive impact on the process of economic growth, encouraging investment in all

economic sectors and moving the economy in a positive direction.

The rise of the value added tax (VAT) around the world has been one of the most

important tax developments in the recent century (Bird, 2007). Like many countries, Lao

PDR introduced a VAT in 2006. However, the start date was postponed because of the lack

of implementation guidelines. The value added tax finally came into effect in October 2010

and replaced the turnover tax2 after Lao PDR was integrated into several international

organizations, including ASEAN and WTO. Lao PDR needs to harmonize the regional

economy. When the ASEAN Economic Community was formed in 2015, member

countries shifted from earning income from tariffs to VAT as a way to maintain national

revenue; therefore, implementation of the VAT has had to replace the turnover tax and

import duties levied by custom authorities with an aim of mobilizing internal revenue

collection and bringing transparency to an indirect tax system.

At present, VAT is a significant source of tax revenue in Lao PDR, with more than 27%

of tax revenue being collected through VAT. More importantly, it contributes to the day by

day increase in total revenue (Department of Fiscal Policy, 2016). However, while revenue

from VAT has increased, revenue collection is not as efficient as it should be. This is due

to the implementation of VAT in Lao PDR still encountering troubles, such as some small

and medium enterprises that don’t have any experience with VAT systems, the matter on

accounting rule, and bookkeeping at small and medium enterprises (SMEs). In fact, there

are some enterprises still not yet registered in the VAT system, especially among small and

medium enterprises. Moreover, some tax authorities still don’t clearly understand the VAT

system.

In this research, I want to examine VAT policy as well as explore how to implement

the VAT more efficiently so that there is an increase in tax revenue in Lao PD. I will

consider this issue by describing the practice of VAT implementation in Japan and

2 A turnover tax is the tax imposed on every stage of the production-distribution chain. The tax base at any

single stage includes the sales value of the goods plus the tax charged accumulatively in previous stages. A serious problem with this tax is the “cascading effect,” literally understood as the tax-on-tax effect.

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summarizing the important lessons Lao PDR can learn from their VAT system. This

research considers this problem in the sense of state management and with a focus on policy

mechanisms, especially regarding the official introduction of VAT in 2010 up to the present.

The methods used in this research include methods of comparing statistics, analysis and

synthesis.

I will assess administration of the VAT in Lao PDR by considering the following major

questions:

• What is the problem in the implementation of VAT in Lao PDR?

• How is the VAT being implemented in Lao PDR?

• How can the VAT be implemented more efficiently in order to raise tax revenue in

Lao PDR?

2. Literature Review

2.1. Definition of the Value Added Tax

“The value-added tax (VAT), known in some countries as a goods and services tax

(GST), is a type of general consumption tax that is collected incrementally, based on the

surplus value, and added to the price of a good at each stage of production. It is usually

implemented as a destination-based tax, where the tax rate is based on the location of the

customer. As of 2016, there are 166 countries operating a VAT, including all OECD

members except for the United States, which uses a sales tax system instead” (OECD,

2016).

The Value Added Tax Law in Laos, named No. 52/NA and dated 23 July 2014,

mentions that Value Added Tax (VAT) is an indirect tax payable by individuals, entities

and organizations that are the end users of goods and services in the Lao PDR.

2.2 Characteristics

The value added tax is a method of taxing, by installments or in stages, final consumer

spending in the economy. The method consists of levying a tax on value added to a product

or service at each stage of the production and distribution process. For this purpose, "value

added" is taken simply as the difference between a business’s sales and purchases. Thus, if

a firm buys some equipment worth $100 and then sells the product or service it produces

for $150, its value added is $50. As will be seen presently, the sum of revenues collected

from a tax on value added at different stages of production and trade is equivalent to a tax

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on the aggregate of value added, or the price of the product in question at the final or retail

point of sale.

To put it differently, the VAT is a multi-stage tax, similar to the turnover tax except

that it is levied on the value added at each stage of production and trade and not on the

gross turnover of the dealer. This difference is crucial in that it ensures that each input

going into a final consumer output is taxed once and only once and not cumulatively as

under a cascading turnover tax. Although under a VAT, the tax is realized from

producers and sellers of capital goods, the base turns out to be only the final

consumption, and business firms are allowed to recover the tax paid on capital goods in the

same manner as on other business inputs.

This is the form in which the tax is levied in most countries. When the base is

comprehensive and includes all final goods and services consumed, in the aggregate it is

equivalent to the total consumer spending in the economy. This is called the

consumption type VAT. Commonly, the base of the consumption type VAT comprises all

domestically produced goods and services minus government services and exports, plus

imports. An alternative form of VAT is the "income type." Yet another rare form of VAT

is the “gross product type.”

In the income type, VAT is initially levied on both consumption and capital

goods, but the tax on capital goods is then credited over the economic life of

the goods, in accordance with a depreciation schedule similar to the one used for income

tax purposes. It is called “income type” because its base is equivalent to the total income

generated during a given period. When no deduction is allowed for purchase or

depreciation of capital goods, the base becomes even broader and the tax is called

gross product VAT. (National Economic Development Office, U.K. (1971)

2.3. Methods of calculating VAT

There are two main methods for calculating VAT: the credit-invoice or invoice-based

method and the subtraction or accounts-based method. Using the credit-invoice method,

sale transactions are taxed, with the customer informed of the VAT on the transaction, and

businesses may receive a credit for VAT paid on input materials and services. The credit-

invoice method is the most widely employed method, used by all national VATs except for

in Japan. Under the subtraction method, at the end of a reporting period, a business

calculates the value of all taxable sales and then subtracts the sum of all taxable purchases;

the VAT rate is applied to the difference. The subtraction method is currently only used by

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Japan, although subtraction method VATs often use the name "flat tax." With both methods,

there are exceptions in the calculation method for certain goods and transactions, created

for either pragmatic collection reasons or to counter tax fraud and evasion.

How the two methods operate is demonstrated in the examples given in table below.

Methods of Calculating a Value Added Tax

Primary producer

(cotton)

Clothes

maker

Wholesale

dealer

Retailer Total

A. Subtraction Method

- Sales 100 200 250 300

- Purchases 0

…..

100

…..

200

…..

250

…..

- Net receipts (value

added)

100 100 50 50

- VAT rate 10% 10 10 5 5 30

B. Tax-Credit or Invoice Method

VAT due on sales 10 20 25 30

Less: VAT paid on purchases

0 …..

10 …..

20 …..

25 …..

VAT rate 10% 10 10 5 5 30

Under the subtraction method, the tax for a given accounting period is calculated by

multiplying the total value of sales minus the total value of purchases by the tax rate. Under the tax-credit or invoice method, the tax is calculated separately for each

purchase or sale; it is included in the sale price at each stage of production and distribution

and shown separately on all invoices (except in the case of retail sales to final consumers).

In determining the tax payable for a given tax period, say a month or quarter, the dealer has

only to deduct the total amount of VAT paid from the tax charged by him on his sales. The

difference represents the VAT payable to the government for the period.

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2.4. The necessity to introduce value added tax instead of turnover tax

Many countries have introduced the VAT to replace the turnover tax or some type of

single-stage sales tax. The replaced taxes are inherently troublesome in terms of revenue

leakage, economic inefficiency, or both. The relative advantages of the VAT are illustrated

below.

The turnover tax is imposed on every stage of the production-distribution chain. The

tax base at any single stage includes the sales value of the goods plus the tax charged

accumulatively in previous stages. A serious problem with this tax is the “cascading effect,”

literally understood as the tax-on-tax effect. The tax generates a trail of accumulated

distortions carried from the first stage of production to the last stage of retail sales

distribution. To gauge how bad the cascading effect is, one may simply imagine a situation

in which a smart enterprise “negotiates” with his partners to vertically integrate; by

colluding, they can avoid a large part of the tax burden.

VAT is a tax on consumption, which is widely collected on all organizations and

individuals consuming goods and services, and it allows for an increased state budget.

The deduction of VAT paid at the input stage also has the effect of encouraging the

modernization of production and investment in reducing production costs.

For the tax office, VAT satisfies efforts to prevent tax evasion. Tax authorities can very

easily check for cases where a declaration is incorrect.

For taxpayers, VAT is an advanced tax measure that improves the self-discipline and

obligation of taxpayers.

Although VAT is still new to Lao PDR, the tax system is not new to other countries.

The modern concept of VAT was first introduced in France in 1954. In Lao PDR, VAT

was introduced on October 1st, 2010 and designed to replace the turnover tax, which was

a staple of taxation in Laos for many decades. A turnover tax is applied at every stage in

the supply chain, without any deduction for the tax paid at earlier stages; this created what

we call a cascading tax problem. On the other hand, when implementing economic

integration, the principles of international relations must be adhered to, or the revenue of

some taxes such as import duties and income taxes will be affected. To that point, VAT

comes with a wide range of adjustment and stability that will be used by the country to

meet the need for greater revenue to support the state budget.

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2.5. The conditions for using value added tax

Enterprises and tax authorities need to have technology and systems

All enterprises have to enhance their accounting system and should have point of sale

terminals, invoice and information technology systems, and management reporting systems.

On the other hand, tax authorities also need modern technical equipment for the

management of tax collection; comprehensive and modern computer systems will facilitate

the management of tax collection. Value added tax is a tax that, when taxed at the next

stage, is closely related to the tax in the previous stage; thus, tax collection management

must closely control the sales and purchases of business establishments. Accordingly, tax

authorities need to have a completely modern computer system to serve the work of

management, synthesis, inspection and collection of data and documents required for

calculating tax quickly and accurately.

Qualification of tax officials

The application of VAT to its own characteristics and to the calculation of all stages

of the business process requires that the tax officer have sufficient qualifications and

capacity to carry out technical procedures as well as to properly calculate and manage the

collection of taxes in accordance with the law and the State and to combat tax evasion.

State management by the legal system

Organized implementation and management of taxes in general and VAT in particular

is essential for a country to ensure the effectiveness, feasibility and utilization, exploitation

of VAT and to contribute significantly to the state budget. Therefore, state management of

VAT is should be at the core of VAT application for each country; the State should issue a

proper VAT policy to promote the implementation. The State must promulgate tax laws to

ensure the effectiveness and to combat the negative status of tax evasion. In order to achieve

the above objectives, the State must have a VAT law and guiding documents suitable to

reality. This is the first condition for the implementation of VAT in a country. The effective

implementation of tax law, ensuring the equality in tax obligations, and the prevention of

revenue loss is very important. In order to create favorable conditions, management should

coordinate with the VAT Law and the guiding documents.

Management of tax collection

It is important to determine accurately the amount of tax payable, and it is also

important for taxpayers to pay taxes in a timely and adequate manner. Tax offices must

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take measures to urge taxpayers to fulfill their obligations and strictly comply with

sanctions for handling of late tax payment and shortfall payment.

In order to implement the above mentioned management contents, it is necessary to

meet some basic conditions as follows:

+ High-efficiency tax administration apparatus with a strong and qualified staff who are

always enthusiastic, dedicated and highly responsible in their work.

+ Clear and efficient tax administration process, facilitating taxpayers in fulfilling their tax

obligations.

+ Strong sanctions in the management of tax collection to prevent and handle in time any

negative acts that may occur.

+ An effective coordination between tax authorities and concerned agencies in the process

of tax collection management.

Tax inspection and supervision

Tax inspection and supervision is one of the most important components of tax

administration; it is important in order to detect and promptly handle cases of tax fraud and

tax loss limitation, especially in the self-calculation mechanism, self-declaration, self-

payment, and the role of inspection and supervision. Contents of tax inspection and

supervision include: inspecting and supervising the observance of regulations on tax

registration, declaration and payment, and observance of regimes on books, accounting,

invoices and vouchers.

The stable development of the economy

Value added tax depends on market fluctuations and prices of goods and services on

the market. If the market and prices fluctuate significantly between the prices of goods and

services purchased and sold, there is a big change. This fluctuation will either result in a

sudden increase in the amount of state taxes (as the output price rises) or in the government

being unable to collect more taxes and having to pay a large amount of tax (when the output

prices fall sharply). This is both detrimental for the State and the taxpayers, as well as the

related parties. Thus, the stability of the economy as well as a good implementation of

monetary policy are important conditions for economic development and the application of

policies regarding VAT policy.

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3. Overview of the Value Added Tax in Lao PDR

3.1. Persons subject to payment, collection and contribution of VAT

According to the instruction of the Minister of Finance on the implementation of the

Law No. 0077/MOF on Value Added Tax, from the date January 11, 2017 persons subject

to VAT payment are Lao and foreign individuals, entities and organizations that import,

purchase or consume goods and services in the territory of the Lao PDR.

Persons subject to collection and contribution of VAT includes business operators

registered in the VAT system with the tax authority as follows:

a. Business operators registered in the Lao PDR and who supply goods and services

whether as the primary or secondary businesses, with profit or not.

b. All governmental organizations that operate business the same as or similar to

the business of the VAT payer, or in any following activities shall be considered

as VAT payers:

- Providing telecommunication and post services;

- Selling water, gas, electricity and heat energy;

- Transporting services of goods via seaport and airport;

- Passenger transportation;

- Sale of goods produced for sale;

- Sale of agricultural products produced for sale;

- Organizing products fair and exhibition;

- Warehousing services;

- Conducting business advertising campaign;

- Conducting activities in tourism;

- Operating store, cooperatives and restaurants.

Governmental organizations shall be considered as operators of businesses the same as

or similar to businesses of VAT payer when they operate their businesses with an unfair

competition with the VAT payer (in a comparable situation).

c. Non-resident individuals, legal entities and organizations in the Lao PDR that

supply goods and services in the Lao PDR either by themselves or through a

main contractor, an agent or a sub-contractor are obliged to register in the VAT

system regardless of amount of annual business turnover.

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3.2. The obligations and option for registering into the VAT system in Lao PDR

Lao PDR-based businesses with an annual turnover of at least 400 million kip

(approximately US $50,000) are obliged to register for VAT and comply with the VAT

Law. This is also the case for businesses not based in Lao PDR that supply goods or services

in the country, regardless of their annual turnover. Moreover, Lao PDR-based businesses

with annual turnover below 400 million kip can be voluntarily registered as a VAT

Taxpayer.

Businesses and organizations of the government mentioned above are obligated to be

registered in the VAT system if their annual business turnover is LAK 400,000,000 or over.

On the other hand, businesses and organizations of the government mentioned above

that are not obliged to be registered in the VAT system (those with annual business turnovers

less than LAK 400,000,000), can be voluntarily registered in the VAT system provided that

they hold valid enterprise registration certificates or concession licenses, maintain account

in accordance with the accounting standard of the Lao PDR, and use VAT invoice in

compliance with relevant laws and regulations.

3.3. Goods and services subject to VAT

Goods and services subject to VAT include goods imported into the territory of the Lao

PDR, and goods and services as well as fixed assets supplied, self-consumption or given to

others in the Lao PDR by the VAT payers, whether receive financial consideration or other

benefits. Such goods and services also include those supplied by non-residents who are not

registered or incorporated in Lao PDR. The details are as follows:

1. Goods imported into Lao PDR.

Goods imported into the Lao PDR, including goods imported from a special or specific

economic zone by individuals, legal entities and organizations, shall be considered as goods

subject to VAT regardless of tax payer status; except from this are the list of goods

determined in Article 12 of the VAT Law as well as goods subject to VAT exemption in

accordance with a contract, treaty, or resolution approved by the National Assembly.

2. Supply goods (sale) in the Lao PDR by VAT payer.

- Goods or assets of enterprise supplied (sold), consumed or used for other purposes by

the VAT payers.

- Goods or assets of an enterprise used by VAT payers for a particular purpose at no

cost.

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- Goods supplied or granted to others by VAT payers, whether receive consideration or

not and whether it is one-time or several-time payment, including the supply by VAT

payers that operate business subject to VAT exemption such as: a commercial bank,

micro financial institute and so others.

- Goods or assets of enterprises kept by VAT payers or their successors at the time of

winding up the operation of business subject to VAT.

- Goods sold by VAT payers in the Lao PDR prior to the declaration of import duty of

the Lao PDR, whether sold within or outside the territory of the Lao PDR, shall be

considered as goods subject to VAT.

3. Services subject to VAT.

- VAT payers operating service business consumes or grant to others its own assets and

goods, whether generating income or not.

- Services supplied by VAT payers to themselves, their employees or others for fee.

- Natural resources excavating and transporting service by other persons than a

concessionaire.

3.4. Goods and services that are not subject to VAT

- Goods distributed as company sample products or for market entry to buyers or

potential buyers for free or in an appropriate price.

- Personal properties of VAT payers (not enterprise properties) that the VAT payers

supply to others such as: personal vehicles sold by the VAT payers operating computer

trading business.

- Goods and services that VAT payers supplied to victims of disasters or natural

disasters in a non-profit manner.

- Goods and services supplied by individuals, legal entities and organizations which are

not VAT payers in the Lao PDR.

There are additional goods and services subject to VAT exemption, as mentioned in

Article 12 of the VAT Law. They are as follows:

1) Importation and domestic supply of agricultural plants by individuals, legal entities

or organizations, for either professional or personal use.

2) Domestic sale of animals: the sale of animals subject to VAT exemption refers to the

sale of all kinds of non-processed or initially processed, fresh or non-spoiled, alive or

dead animals in whole or in part.

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3) Forestation service, planting of industrial trees, fruit trees and medical trees planted

by individuals, legal entities, or other organizations.

4) Importation and sale of plant varieties, breeding animals, animal feed, and other raw

materials for production of animal feed by individuals, legal entities or organizations,

for either professional or personal use.

5) Importation and sale of pesticides, animal medicines, bio fertilizer, chemical fertilizer

and raw materials for producing the aforementioned products.

6) Importation and sale of machines or equipment for agricultural production by

individuals, legal entities, or other organizations, for either professional or personal

use.

7) Importation of chemical substances: chemical imports are exempted from the VAT if

they are to be used for searching, testing, or scientific research by a government

organization and VAT payer.

8) Importation of airplanes and equipment for domestic and international air transport.

9) Importation of fuel and other oils for plane gasoline, engine oil, lubricant, brake oil,

hydraulic oil, or to serve the international air transport service.

10) And etc., with mention in instruction of the Minister of Finance on the

Implementation of the Law on Value-Added Tax.

3.5. Calculation of the value added tax in Lao PDR

1. Rate of Value Added Tax

- The ten percent (10%) rate is applied to goods and services that are imported, produced

and consumed in the Lao PDR and that are subject to VAT, including the export of

non-finished products from natural resources.

- The zero percent (0%) rate applies to raw materials, chemical substances, equipment,

machinery for production of domestic goods, and imports from foreign countries that

could not be produced domestically or for which domestic production does not meet

the demand. It also applies to investments that are registered as fixed assets and the

exportation of finished goods and natural resources overseas or to special economic

zones.

2. Calculation of the value added tax in Lao PDR

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The calculation of VAT shall be made during these three processes: importation of

goods from overseas or from special economic zones, supply (sale) of goods and services

domestically, and purchase of services from non-residents and unincorporated entities in

the Lao PDR. The details are as follows:

1) Importation of Goods.

An example of when the imported goods are subject to import duty: an import-export

company, as a VAT payer, imports 50 washing machines with value of LAK

50,000,000 for domestic distribution. Such importation is subject to 15% import duty,

10% excise tax and 10% VAT.

Method for calculating VAT for such imports:

- Cost, Insurance, Freight (CIF) = LAK 50,000,000

- Import duty 50,000,000 x 15% = LAK 7,500,000

- Excise tax (50,000,000 + 7,500,000) x 10% = LAK 5,750,000

- VAT taxable amount (50,000,000 + 7,500,000 + 5,750,000) = LAK 63,250,000

- Value-added tax 63,250,000 x 10% = LAK 6,325,000

Import duty and taxes payable by the importer are:

- Import duty = LAK 7,500,000

- Excise tax = LAK 5,750,000

- Value-added tax = LAK 6,325,000

Total payable import duty and taxes = LAK 19,575,000

2) Calculation of VAT from domestic supply (sale) of goods and services:

a. Calculation of VAT from the supply of goods:

1. The supply of goods is subject to a 10% VAT:

Example: A roofing tile manufacturing factory, as a VAT payer, sells roofing tiles in the

Lao PDR with a value, excluding VAT, of LAK 50,000,000.

VAT that the factory calculates and collects from its clients is:

- Basis of VAT calculation = LAK 50,000,000

- Value-added tax 50,000,000 x 10% = LAK 5,000,000

2. The supply of goods subject to excise tax and VAT:

Example: A VAT payer sells 10 air conditioners to a company with a value, excluding

VAT, of LAK 60,000,000, which is subject to 15% excise tax and 10% VAT.

VAT calculation method shall be as follows:

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- Excise tax 60,000,000 x 15% = LAK 9,000,000

- Basis of VAT calculation (60,000,000 + 9,000,000) = LAK 69,000,000

- Value-added tax 69,000,000 x 10% = LAK 6,900,000

3.6. VAT Deduction and Refund

The most significant characteristics of the VAT system are the mechanisms of VAT

deductions and refunds, which aim to minimize difficulties for business operators

difficulties, prevent double taxation, and support exportation.

1. VAT deduction

A VAT deduction is the amount of VAT allowed by law for VAT payers to compensate

their VAT payment made when importing goods, buying goods and services in the country.

VAT input comprises of deductible VAT and nondeductible VAT based on conditions

and actual use as below:

- VAT input related to imported goods, goods and services bought domestically with

official supporting documents and to be directly used in business is all deductible.

- VAT input related to goods and services with official supporting documents and they

are directly to be used in business and other purposes (indirect business or not related

to business) is deductible only for the VAT input directly related to business operation.

Therefore, VAT payers must separate the VAT input directly related to business

operation by recording in its special accounting. If fail to separate all VAT input, the

VAT input will be deductible.

2. VAT Refund

The refunding of VAT is the compensation of VAT paid by VAT payers in cash or by

bank transfer which is the amount of VAT when importing or buying goods and services

in the country;

1) The VAT payers who have the rights to get VAT refund comprises of:

a. VAT payers who have:

- Goods exportation subject to 0% VAT;

- Domestic supply of goods and services subject to 0% VAT;

- Supply of goods and services subject to VAT of the Lao PDR incurred in

foreign countries or in the special and specific economic zones;

b. Embassies, consulates;

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c. Governmental and nongovernmental organizations;

d. Foreign passengers, tourists;

e. Individuals, legal entities, and organizations pay VAT exceeds the amount

stipulated in the law.

2). VAT refund for those who pay VAT exceed the limited amount stipulated in the law,

such as those who wind up business, merge business, separate business, and whose

business is bankrupt in accordance with the law.

3). VAT refundable or nonrefundable to the embassies and consulates. There have some

recommendation in the instruction of VAT law no. 0077 date January 11, 2017.

4). VAT refund to international organizations and nongovernmental organizations.

5). VAT refundable or nonrefundable to travelers, tourists.

3.7. Revenue performance of value added tax in Lao PDR

Value added tax is an indirect tax that is collected on the promotion of value added to

goods and services occurring in all processes; it is also collected on the value of goods and

services imported into Laos. After changing from a turnover tax to VAT in 2010, revenue

has increased year by year since FY 2010/11 to FY 2015/16, with a record average of 14.2%.

The total VAT revenue generated was 36% from imported goods and services and 64%

from domestic products.

In FY2015/16, VAT amounted to 4,530 billion LAK, equal to 4.4% of GDP, and it

accounted for 84.2% of the revised budget plan, or under the plan 15.8%, which increased

by only 1.1% compared to the previous year. The value of VAT collected was 1,619 billion

LAK from imported goods and services, a figure that increased by 3.8% compared to the

previous year; on the other hand, 2,911 billion LAK was collected from domestic goods

and services, a figure that decreased by 0.3% compared to the previous year (Figure 1).

15

Figure 1: Performance of VAT (Billion LAK, %)

Data: Fiscal Policy Department, Ministry of Finance, Lao PDR

Figure 2: The comparison of VAT revenue to other tax revenues (Million LAK)

Data: Fiscal Policy Department, Ministry of Finance (final report)

3.1%3.4%

4.0% 4.0%

4.4%4.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16VAT from import (left axis) Domestic VAT (left axis) VAT to GDP (right axis)

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16Profit tax Income tax VAT Excise taxesImport duties Other tax Royalty of Resource Royalty of electricity

16

Table 1: Summary of tax revenue from FY2010/11 -2015/16 (million kip)

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Profit tax 1,592,150 2,196,034 2,187,842 1,784,857 2,129,155 1,753,176 Income tax 543,456 744,195 855,713 986,898 1,099,810 1,592,690 VAT 2,403,139 2,416,205 3,221,092 3,596,663 4,480,683 4,529,692 Excise taxes 1,947,594 2,344,314 2,733,712 3,269,504 3,363,018 3,634,852 Import duties 964,627 1,047,329 1,204,919 1,336,384 1,356,531 1,981,084 Other tax 842,725 1,203,969 1,429,521 1,990,189 1,907,609 1,748,138 Royalty of Resource 619,627 784,320 807,046 1,212,249 1,127,129 642,604

Royalty of electricity 195,317 178,486 212,048 370,753 354,951 368,636

Total tax revenue 9,108,636 10,914,851 12,651,893 14,547,496 15,818,886 16,250,871 The proportion of taxes to the total tax revenue (%) Profit tax 17.5% 20.1% 17.3% 12.3% 13.5% 10.8% Income tax 6.0% 6.8% 6.8% 6.8% 7.0% 9.8% VAT 26.4% 22.1% 25.5% 24.7% 28.3% 27.9% Excise taxes 21.4% 21.5% 21.6% 22.5% 21.3% 22.4% Import duties 10.6% 9.6% 9.5% 9.2% 8.6% 12.2% Other tax 9.3% 11.0% 11.3% 13.7% 12.1% 10.8% Royalty of Resource 6.8% 7.2% 6.4% 8.3% 7.1% 4.0% Royalty of electricity 2.1% 1.6% 1.7% 2.5% 2.2% 2.3% Tax revenue 100% 100% 100% 100% 100% 100%

Data: Fiscal Policy Department, Ministry of Finance, Lao PDR

As shown in Table 1 and Figure 2, since the introduction of VAT as a replacement for

the turnover tax in 2010, the proportion of VAT has become larger than all other tax

revenue. Therefore, VAT is an important source of tax revenue for the state budget.

3.8. The experience of the VAT or consumption tax in Japan

Japan has reformed its tax system many times, such as during the tax reform of 1994,

which was intended to help the nation cope with structural changes to the economy and in

society. Another tax reform in Japan was the consumption tax, for which necessary reviews

were made on special measures for medium-and small sized enterprises so that their tax

burden might be more widely shared by the members of society. The tax rate also was

raised to substantiate the consumption tax system, and local consumption tax was

established.

17

In FY2003, the government reexamined the whole taxation system to ensure a

sustainable tax system, taking into consideration the current economic and fiscal conditions.

Consumption tax will surely play an important role in the future due to the fact that Japan

will face an aging society with fewer children. To improve reliability and transparency in

the consumption tax scheme, the government drastically reformed the tax exemption

system applicable to small and medium enterprises. This consumption tax reform included

a decrease in the upper limits of taxable income eligible for tax exemption and also

introduced a new partial tax payment by interim tax return. The revised Consumption Tax

Law took effect on April 1, 2004 and now requires price indication inclusive of

consumption tax.

Outline of the consumption tax or VAT

Consumption tax is levied on the sale/lease of assets and the provision of services (asset

transfers, etc.) rendered in exchange for compensation as business activity by business

enterprises in Japan. The consumption tax is also levied on foreign goods received from

bonded areas. With regard to domestic transactions, business enterprises are liable to pay

consumption tax. As for importation, those who receive goods from bonded areas also need

to pay consumption tax.

Domestic and import transactions, except for certain transactions deemed non-taxable,

are subject to the consumption tax. The consumption tax rate is 8% (inclusive of the local

consumption tax rate of 1.7%). Although the consumption tax rate is scheduled to increase

to 10% (inclusive of the local consumption tax rate of 2.2%), this will not take effect until

October 2019. Moreover, the consumption tax rate will remain at 8% for food and

beverages, except for alcoholic drinks and dining out, as well as for newspapers published

more than twice a week (and based on a subscription contract).

1. Domestic transactions: the transfer or rental/lease of assets or the provision of services

as a business in Japan by an enterprise for consideration.

2. Import transactions: cargo retrieved from a bonded zone.

Financial transactions, capital transactions and certain transactions in the areas of

medical care, welfare and education are deemed non-taxable. Export transactions and

export-like transactions such as international communications and international transport

are exempt from the consumption tax.

Self-assessment and payment

Japan applies the mechanism of self-assessment and tax calculation, in which taxpayers

declare and pay tax obligations in combination with the tax deduction mechanism. In order

18

for this mechanism to operate effectively, Japan maintains an effective system of

examination and collection of information, providing a favorable environment for

taxpayers and assuring strict and reliable collection management system.

Enterprises engaged in domestic transactions (excluding enterprises that are exempt

from consumption tax) and parties engaged in import transactions must file and pay

consumption tax on their taxable bases by the methods and procedures provided for them.

If the amount of consumption tax on the taxable base of an enterprise (not including a tax-

exempt enterprise) is less than the amount of consumption tax on purchases calculated as

being deductible by the prescribed method, the shortfall is refunded by filing. In the case

of the prescribed cross-border supplies of electronic commerce by foreign enterprises,

Japanese enterprises who receive the provision of services or foreign enterprises who

provide the services are responsible for tax filing. To ensure that double taxation does not

occur at the production and distribution stages, a scheme has been adopted allowing the

deduction of consumption tax on purchasing from consumption tax on sales.

Deduction of purchase tax

Consumption tax on purchasing (receipt of the transfer or rental/lease of assets or the

provision of services from another party) may be deducted from consumption tax on the

taxable base when calculating the amount of consumption tax to be paid. The amount of

this deduction is limited, however, depending on the percentage of taxable sales. In order

for the consumption tax on the purchase to be deducted, both account ledgers and invoices

that describe certain matters have to be retained. For the prescribed cross-border supplies

of electronic commerce by foreign enterprises, only the consumption tax on the purchases

that are subject to the reverse charge system and the purchases that are received from the

registered foreign enterprises can be deducted. If taxable sales during the base period

amounted to 50 million yen or less, the product of consumption tax on the taxable base

multiplied by a given percentage determined by industry may be considered the

consumption tax on purchasing for the current taxable year and allowed as a deduction if

the prescribed notification is submitted to the director of the tax office.

It should be noted that documents to be retained in order for the consumption tax on

purchases to be deducted will change with the introduction of the reduced consumption tax

rate on April 1, 2017. Between April 1, 2017 and March 31, 2021, in addition to the account

ledgers and invoices that describe certain matters as before, account ledgers and invoices

indicating tax rate categories for separate accounting and the items of which are subject to

the reduced consumption tax rate have to be retained. After the introduction of a so-called

19

‘invoice system’ on April 1, 2021, qualified invoices issued by registered taxable

enterprises need to be retained.

Tax exempt enterprises

Enterprises whose taxable sales are 10 million yen or less for the base period (excepting

enterprises that have opted to be taxable) and that meet certain conditions are exempt from

consumption tax filing/liability for the current year. However, enterprises can elect to be

taxable enterprises if the prescribed notification is submitted to the director of the tax office.

A company that has no base period, such as a newly established company, and whose

capital at the start of the taxable year is 10 million yen or more cannot be a tax-exempt

enterprise in that taxable year.

Computerization systems

Technological innovation has been an important matter in tax and revenue collection.

The advent of new instruments to help businesses work more efficiently affects the way

taxes and revenues are collected.

Japan is actively using the advances in ICT in recent years to provide taxpayer services,

such as enabling individuals to file taxes from home. By using ICT such as filing assistance

on the internet and e-Tax, taxpayers can file tax returns conveniently without visiting tax

offices, at any time and without calculation errors.

E-taxes enable users to perform procedures for filing consumption tax, income tax,

corporation tax and other taxes. Use of tax and accounting software compatible with e-tax

enables taxpayers to digitally carry out the set of work, including accounts processing and

reporting, from data preparation to filing, which will reduce paperwork. E-tax also reduces

administration work, such as receiving tax returns at the counter, as well as document

management costs for tax authorities, thereby promoting efficiency in the tax

administration.

Tax consultation

Tax consultations are provided as part of taxpayer services so that taxpayers can do

proper self-assessment and tax payment themselves. These consultations provide

information on taxation and answer general questions on taxation.

General tax consultations are handled at centralized phone consultation centers. Phone

consultation centers at the Regional Taxation Bureaus provide centralized handing of

general tax questions and consultations from taxpayers. Also, the NTA website provides

answers to many common tax-related questions. This is very important and necessary for

20

the taxpayers to help solve problems that may occur, and the website is also an effective

and efficient way to collect tax revenue.

Tax Education

Japan considers tax education to be a very important matter, and the NTA provides

various training programs, including training sessions for new hires, in order to enhance

capabilities of the NTA staff. As the central organization for staff training, the NTA is

furnished with a National Tax College (NTC), which has a Central Institute and 12

additional branches around the country.

Taxpayer education programs are provided by the Japan Federation of Certified Public

Tax Accountants' Associations (JFCPTAA) and the National Tax Agency (NTA) to help

teachers and to foster student citizenship in elementary schools, junior high schools, high

schools and universities. Teachers can integrate the program into normal classes.

Tax education also enhances a variety of services for taxpayers to help them correctly

file and pay taxes by themselves. These include (1) public relations activities and tax

education relating to the significance and function of taxes and knowledge about the tax

law, (2) clarification of legal interpretation and of practices and procedures, (3)

centralization of taxpayer contact points, and (4) efforts to improve taxpayer convenience

in tax consultation and filing returns.

Table 2: A comparison between VAT implementation in Japan and Laos

Japan Lao PDR VAT issues: Date introduced 1 April 1989 1 October 2010 Thresholds Registration ≥ 10 million yen or nearly

$100.000 of taxable transactions.

≥ 400 million kip or = $ 50.000 of taxable transactions.

Standard rate (%) 8%; a rate increase to 10% is expected to take effect from 1 October 2019.

10%; a special 0% rate applies to raw materials, chemicals, and some other exempt goods and services.

VAT collection compared to tax revenue

Approximately 20% of Tax revenue.

25-27% of tax revenue

Education for taxpayers and tax officers

Always implementation, especially in local tax offices.

Only tax officers, but not always.

Electronic invoicing allowed?

Yes

Not yet

21

Related issues: Tax Education

Provided by JFCPTAA (*) & NTA.

Not yet implemented for taxpayers.

Tax consultation

2016 there are 311 Cases for VAT consultation.

Not yet in usual.

Computerization system (E-tax)

Almost fully computerized. Not yet computerized in rural areas.

Enterprise's Bookkeeping

Almost all enterprises use bookkeeping.

Lack of bookkeeping for SMEs.

(*) JFCPTAA= Japan Federation of Certified Public Tax Accountants' Associations.

In Japan, to alleviate the burden for low income earners, when the consumption tax rate

is raised to 10% on 1 October 2019, the current rate of 8% (6.24% national tax and 1.76%

local tax) will be retained for certain goods. The lower rate will be applied to purchases of

food and drinks (fresh and processed), excluding alcoholic beverages and dining out, as

well as to newspaper subscriptions.

In general, the multiple rate structure is inherently complex, yet many argue for it on

both efficiency and equity grounds. On the other hand, supporters of a multiple rate

structure on the equity ground would argue that tax rate differentiation is needed to mitigate

the regressivity of a tax: lower rates must be applied to the goods and services consumed

primarily by the poor. In practice, however, a multiple rate structure poses a great challenge

to tax compliance and administration.

A VAT with a multiple rate structure requires firms to keep separate records for

different purchases. This is, in turn, costly for auditing (more records to be checked; more

incentives and opportunities for firms to misclassify goods) and is cumbersome for

application of the self-assessment (complex for taxpayers to comply; hard for the tax

administration to detect fraud). In general, a more complex VAT would require the tax

administration to collect more information to determine tax liabilities and refunds.

3.9. Lesson learned by Lao PDR.

Computerization and ICT systems

Technological innovation has been an important matter in tax and revenue collection.

Today, Lao PDR still lacks a computerization system at the province and district level to

collect tax data and link it to the central level; therefore, Laos should develop an ICT system

to boost the tax collection and using e-tax system. E-tax can reduce administrative work

and reduce document management costs for tax authorities, thereby promoting the

22

efficiency of tax administration. Although there are high costs for developing the

computerization system, but it is worth the government investment in long term.

Tax education

Tax education provides several advantages to the government; more specifically, it

create better informed citizens, the potential for increased compliance by taxpayers, the

potential for reducing the rate of noncompliance and associated cost of effecting

compliance, increased support, if not better understanding and appreciation of government

initiatives, better chances of tax collection, and increased tax revenue.

The strengthening of tax education is very important in shaping tax knowledge and

increasing tax compliance. In this case, tax socialization efforts can be done through the

dissemination of information about the types of taxes, tax rates, tax payment mechanisms

and tax benefits.

Tax consultation

Tax consultation is very important and necessary for the taxpayers to solve problems

that may occur, and it also will result in more effective and efficient tax collection.

Bookkeeping matter

Bookkeeping is also important for tax inspection and auditing to collect the full

amount of tax payment owed and protect against tax evasion.

4. Analysis and Discussion of the Value Added Tax in Lao PDR

4.1. Laos should broaden its VAT base

The number of units doing business but not registering for VAT is still quite high,

especially for small and medium households. Tax registration for new businesses in many

cases involves the local government, so tax authorities need to pass through the local

management to get more units registered. Therefore, all business units must fully comply

with the tax registration regime. To mobilize more tax revenue, Laos should examine the

enterprises who get a yearly turnover of more than 400 million kip and strictly require them

to register in the VAT system. Data from the Laos tax department showed that the total tax

revenue base in 2016 was 93,987 enterprises, of which only 11,239 enterprises registered

in the VAT system (12% of the total). Therefore, to guard against revenue losses from

under-reporting, tax authorities should classify more enterprises by auditing companies

near the 400 million kip threshold so that they have to register for the VAT system. The

23

Ministry of Finance has a plan under consideration for continuing to monitor and expand

value-added tax payments to hotels, restaurants, and large shops.

To encourage businesses to register in the VAT system, there is the VAT Incentive

Scheme. The main objective of the VAT Incentive Scheme is to encourage businesses that

are not registered for VAT to come forward and register by offering them a one-off

incentive. The most significant characteristic of the VAT system is the mechanism of VAT

deductions and refunds, which helps businesses minimize operators’ difficulties, avoid

double taxation, and support exportation. This is an important incentive for businesses to

register in the VAT system because businesses that are not registered in the system cannot

deduct or refund VAT when they import goods or materials for commercial use. However, when looking at the incentives that tax authorities provide for VAT system

registration, it is apparent that there is often a time delay in providing the actual VAT

deduction or refund. An IMF technical report in 2017 stated that “there are serious problems

of delay in dealing with requests for refunds from businesses with excess credits, such as

exporters and businesses who have been exempted from output VAT as part of a concession

agreement.” So, tax authorities should consider improving the VAT refund process to avoid

the cost falling to businesses and creating a drag on economic growth.

4.2. Small businesses lack adequate bookkeeping

Most businesses in Laos are small scale enterprises. As a result, tax collection is not

reaching its target. Up to now, there have been a number of enterprises that have been

inactive in business and service activities, and some of them have stopped temporarily,

particularly in fields such as timber, construction, and importation-exportation. Currently,

about 60-70% of enterprises in the VAT system do not use account bookkeeping. Under

such conditions, it is difficult to comply with VAT, and there is often lower business

efficiency. The issue of account bookkeeping and billing invoices is one of the first

conditions that arose when introducing the VAT. Value added tax is also called the invoice

method: if it is not well implemented, VAT becomes easy to evade.

As mentioned, the significant issues in small businesses are a lack of resources and a

lack of familiarity with VAT, and a lack of relatively basic accounting skills. Some small

businesses do not keep any formal business records, and thus the transition to transactional

accounting required by VAT may be challenging for some of those entities. Likewise, small

businesses unfamiliar with bookkeeping may incur increased accounting costs for

24

collecting the tax, which are not reimbursed by the taxing authority. For example,

wholesale companies now have to hire staff and accountants to handle the VAT paperwork,

which would not be required if they were collecting sales tax instead. It is essential that the

people carrying out the VAT functions are fully aware about their role in achieving this

objective. Regular VAT training and conducting acceptance tests before going for

registering VAT will enhance users’ understanding of the VAT system and encourage

better compliance. On the other hand, VAT law and instruction on VAT implementation

have already issued, but in term of dissemination is still not yet widely available. Thus, the

Ministry of Finance should disseminate relevant legislation documents faster and further to

small and medium enterprises.

4.3. Develop a more extensive ICT system

SMEs at the province and district level still commonly pay tax in cash, which can be

attributed to many factors, including low living standards and habit. With such widespread

and frequent use of cash, it is difficult for the government to check and monitor all the

activities of a business. Likewise, it is difficult for tax authorities to accurately carry out

the examination, declaration, calculation and collection of VAT from small, local

enterprises.

Tax administration in Lao PDR still lacks an electronic system, especially in localities

at the provinces and districts level; this underdevelopment of a computerized system

impacts the effectiveness of tax administration as well as the application of VAT. Therefore,

Laos should develop a better ICT system in order to boost tax collection. As the data in

Table 3 shows, Laos uses almost 30 tax officers per 1,000 registered taxpayers to collect

tax revenue, whereas other countries like Vietnam use 3 tax officers per 1,000 registered

taxpayers. This mean that the IT infrastructure situation is still low compared to other

countries in the region. Laos has the most-costly administration in terms of staff per

taxpayer in relation to the tax ratio. So, reorganization would seem beneficial.

One way to improve the computerized system would be to increase the mobilization

of bills by electronic and POS systems. At the present, the installation record sales (POS)

set up 346 units of public events that collect revenue from the sale of businesses and the

balance figure income information to calculate tax. The Ministry of Finance has plans to

expand such events to large provinces such as Champasak, Savannakhet and Luang

Prabang provinces with assistance from Japan.

25

Table 3 Population, tax authorities and taxpayers

Data source: IMF 2012

4.4. Tax education and tax consultation

Tax education is every important matter. With that in mind, the NTA of Japan provides

various training programs in elementary schools, junior high schools, high schools and

universities to enhance the knowledge of taxation to the citizens and build the capacity of

the tax authorities.

Tax consultation enhances a variety of services for taxpayers to help them correctly file

and pay taxes by themselves. Laos should develop more resources for tax consultation,

such as establishing phone consultation centers in each province to answer taxpayer

questions and provide consultation on taxes and developing a tax website with answers to

many questions from taxpayers.

The government has to expand publicity for people's awareness and understanding of

tax obligations to become more clear. In addition, the government has to monitor and check

the legal documents issued to adjust the content that is not appropriate and add necessary

information.

4.5. Reduce exemptions as much as possible

Exemptions tends to erode the revenue base, reducing revenue collection, breaking up

the VAT chain and thereby inducing a cascading problem. Even worse, exemptions are

26

likely to ratchet up: for example, exemption of unprocessed food ultimately creates pressure

to exempt their inputs (e.g. agricultural inputs).

The VAT law of Lao PDR has numerous exemptions, especially in areas such as

agriculture, forestry and related activities. This small scale seems to imply that most Lao

farmers are well below the threshold for compulsory VAT registration and would therefore

not be affected by ending the exemption. However, there are larger agribusinesses and

forestry operations in Laos that generate substantial revenues; in the future, some farms can

be expected to develop into profitable businesses. This implies that removing the

exemptions in this sector would be useful for raising more tax revenue. Moreover, if the

government needs to promote these activities, it is more appropriate to provide direct

financial subsidies rather than complicate the VAT system.

Exemptions may also generate another technical problem in compliance and

administration, particularly when a firm produces both exempt and taxable items. In this

situation, the advantage of the invoice-based credit VAT in dealing with multiple rate

structure disappears because the firm is required to classify its inputs into those used in

producing exempt goods and those used in producing taxable goods. In short, exemption

creates numerous efficiency and effectiveness problems; it tends to erode the integrity and

sustainability of the VAT system. It is therefore advisable that VAT regimes minimize the

number of exemptions to the greatest extent possible.

5. Conclusion

A well-performing tax system requires both good tax policy and a modern and effective

tax administration system.

Major problems of VAT in Lao PDR are the following: revenue collection is not as

efficient as it should be, most SMEs lack sufficient of bookkeeping and invoices of their

business transactions, the government lacks an adequate ICT system, the VAT still new in

Laos, and there are too many exemptions to the VAT.

In order to solve such problems, the government must develop an advanced

technological infrastructure. The improvement of information technology may be a

decisive aspect for increasing tax and revenue collection. It is essential to have a constant

process of technological innovation with reference to the fiscal activities in order to offer

better service and enhance society’s welfare. Other improvements that should be made

include broadening the VAT base and revising the VAT law to reduce exemptions as much

as possible.

27

Basic tax education for taxpayers and prospective taxpayers is also an important and a

necessary task. I believe that bringing tax education into schools and universities is

necessary in order to successfully levy a variety of taxes as a major source of the

government’s revenue.

To improve the awareness, attitude, and feelings of tax payers, the government should

regularly conduct VAT consultation with the taxpayers to make them aware of taxation;

the government should also arrange seminars, workshops, and conferences to make them

aware of various elements of taxation, including why they pay tax, laws, rules and

regulations of tax, the advantages of the VAT. Furthermore, the government should host

training seminars and short term courses for employers and following up with them on their

efforts to abide by the law and collect VAT from customers.

To avoid common problems that exist during VAT collection, the government should

regularize the format of bills or invoices used by businesses, order businesses to use a cash

register machine, follow-up and support preparation of VAT payments, and initiate

potentially unregistered business for VAT.

28

References

- Bird, R.M. “The VAT in Developing and Transitional Countries” (New York:

Cambridge University Press, 2007).

- 1971. National Economic Development Office, U.K.

- Shoup (1990) and United States General Accounting Office (1989).

- 2014. “Consumption Tax Trends 2014”, OECD.

- 2016. “Consumption Tax Trends 2016”, OECD.

- 2003, 2013 and 2016. National Tax Agency Report, Japan.

- 2017. Technical assistance report ‘‘Simplifying the tax system to enhance revenue

and efficiency in Lao PDR”, IMF.

- 2014. Law on Value-Added Tax Lao PDR.

- 2017. Instructions of the Minister of Finance Laos on the Implementation of the

Law on Value Added of 11 January 2017. No. 007/MOF.

- http://www.mof.go.jp/english/

- http://www.jetro.go.jp

- http://www.pwc.com

- https://www.bizaccountingltd.com