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High Taxes Affect Business In Laos

Companies operating in Laos have identified high taxes as one of the main obstacles to doing business in the country.

Speaking in response to the World Bank’s latest survey on the Lao business climate, both Laos-based and foreign firms say business tax rates are very high, making it difficult for them to stay competitive. Companies in other East Asian and Pacific countries have also identified high taxes as a major business obstacle, but to a lesser extent than in Laos, the survey found.

The World Bank released the survey this week. It details business leaders’ opinions on what steps the government should take to enable them to operate more effectively and become drivers of economic growth in the Asia-Pacific region.

The National Assembly approved an amended tax law in the middle of this year. The law cut the profit tax imposed on local firms from 35 percent to 26 percent, while raising the tax for foreign firms from 20 percent to 26 percent, in a move to create an environment of equal competitiveness.
The law will not be enforced until early next year as the Ministry of Finance has not yet written the decrees needed to promulgate and implement the law.
According to the World Bank survey, the Lao government must ensure effective enforcement of the new legislation to ensure a favourable business environment, to encourage more investment in the non-resource sector and ensure sustainable economic growth.

The bank’s survey also highlights that businesses in Laos consider access to finance to be the second largest problem despite the rapid growth of banks and microfinance institutions in Laos. Laos has more than 20 commercial banks and at least 33 registered micro-finance institutions. Financing is also available through development funds and poverty reduction funds set up by mass organisations and civil society bodies.
Credit growth saw about a 90 percent increase last year but a large portion of this went into infrastructure development.
The government has provided a seeding fund of about US$2 million, aiming to offer attractive low interest loans to small and medium sized enterprises. The loans will be issued early next year, according to officials at the Small and Medium Sized Enterprise Office.

One of the top three obstacles that businesses say they want the government to address is education of the workforce. They believe it is impossible to hire unskilled workers to operate modern manufacturing equipment.
One garment factory manager said labour in Laos was cheap compared to other countries but the ability of the workforce was very low, which drove up production costs.

The government has acknowledged the challenges and decided to allocate a larger portion of the budget to education, with 17 percent now going to the sector instead of 11 percent. ADB has also promised to help improve vocational schools to ensure a sufficient supply of skilled workers to meet the demands of national development.

Source: Smart Grid