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Tax Reform Would Improve Health and Finances in Lao PDR – World Bank

Source: The World Bank

Revising health taxes — levies on harmful products like tobacco and alcohol — would increase government revenue, reduce the cost of health care, and make people enjoy longer, healthier lives, a World Bank report says.

Most countries around the world have significantly raised taxes on tobacco and alcohol to discourage the consumption of these products and reduce the damage they do, according to Health Taxes in the Lao PDR. However, despite recent increases, these health taxes are very low in Laos, and the use of tobacco and alcohol remains higher than in most Southeast Asian countries.

More than 6,700 Lao people die every year due to tobacco-related illnesses, accounting for nearly 15% of all deaths. Tobacco use costs the economy about 2.3% of GDP, through 240 billion kip in healthcare expenditure and 3.3 trillion kip in productivity losses.

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Although the government recently introduced higher taxes on alcohol and cigarettes, these increases were too small to provide noticeable public health benefits or generate significant revenue,” said Alex Kremer, World Bank Country Manager for the Lao PDR. “This report clearly explains how tax reform would improve public health by encouraging people to smoke less and buy fewer alcoholic drinks. Poor people would benefit the most.

Extra revenue from the recent tax increases will amount to less than 0.02% of GDP, the report finds. In contrast, reforms and measures suggested in the report could net almost 1% of GDP, bringing an estimated 2.5 trillion kip ($113 million) to the government within one year. This could go toward health care, education, or infrastructure.

Tax structures could be reformed, and excise rates increased toward international standards, while tax rates could be linked to inflation and income growth, the report advises. The proposals are modest, in line with rates in the region and in those with similar income levels – if the World Bank recommendations were implemented, the prices of tobacco products and alcoholic drinks would not be higher than in neighboring countries. The report also recommends increased use of technology in monitoring, enforcement, and licensing to strengthen tax administration.

A key recommendation is to end all tax privileges that the tobacco industry currently receives under a 2001 investment license agreement. This agreement is due to be renewed in 2026 unless steps are taken to terminate it.

This analysis was conducted with financial support from the World Bank’s Global Tax Program and from the Government of Japan through the Japan Policy and Human Resources Development Fund.