Improving
Domestic Revenue Mobilization in Lao PDR

Sivay VILAIHAN
Visiting Scholar
Policy Research Institute, Ministry of Finance, Japan
November 22, 20191

Presentation Outline
1. Introduction
2. Literature Reviews and Case Studies
3. Lao Economy and Public Finance
4. Assessment of Domestic Revenue Mobilization in Lao PDR

5. Conclusion and Recommendation
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1. Introduction• Objectives of this study− To assess what has been done and what needs to be enhanced related to domestic
revenue mobilization in Lao PDR to fund the National Socio-Economic Development
Plan and graduate from the Least Developed Country status• Motivation− Enhancing tax reform is essential to ensure the needs for improvement in the future oftax administration and to ensure that tax revenue collection increases to GDP− Domestic revenue collection was in downward trend compared to GDP in recentyears in Lao PDR− Uncertain prospects for Official Development Assistance (ODA)− Currently rising trend of public debt in Lao PDR
32. Literature Reviews and Case Studies• Concept of domestic revenue mobilization− European Commission
What is domestic revenue/resource mobilization (DRM)?
 DRM refers to the generation of government revenue from domestic sources, fromtax or non-tax sources (royalties, licenses, levies or other income) Domestic revenue creates additional space for sustainable budget expenditures,fostering ownership and reducing dependency on external assistance− United Nations, 2015.
• Addis-Ababa Action Plan
− Akitoby, Bernardin, Anja Baum, Clay Hackney, Olamide Harrison, Kerya, Primus,
and Veronique Salins, 2018.
− Junquera-Varela, Raul Felix, Marijn Verhoeven, Gangadhar P. Shukla, Bernard
Haven, Rajul Awasthi, and Blanca Moreno-Dodson 2017,− World Bank, 2017.

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2. Literature Reviews and Case Studies (cont.)• Case Studies− Akitoby, Bernardin, Jiro Honda, Hiroaki Miyamoto, Keyra Primus, andMouhamadou Sy, 2019.
 7 low-income countries: Burkina Faso, The Gambia, Maldives, Mauritania,Rwanda, Senegal, and Uganda.
− United States Agency International Development (USAID), 2018.
 5 developing countries: Afghanistan, Bosnia and Herzegovina, Nepal, thePhilippines, and Rwanda.

52. Literature Reviews and Case Studies (cont.)• Analytical Tools and Techniques− Le, Tuan Minh, Leif Jensen, G.P. Shukla, and Nataliya Biletska, 2016.

 Five types of tools and techniques for assessing DRM in developing countries

Profile analysis
Trend analysis
Composition analysis
Tax revenue deviation analysis
Efficiency and incidence analysis• Also, taxes/revenues analysis if levying at central government level andtheir share in total revenue is significant

 Revenue performance and forecasting of revenues serve three related budgetary
purposes:Short-term cash management within a financial year
Medium-term budgeting
Tax expenditure forecasting6

3. Lao Economy and Public Finance3.1 Lao economy• Real growth rate and GDP per capital− Lao economy started theeconomic reform process in1986 under the New Economic
Mechanism.
− GDP growth has continuouslyincreased, due to external
capital inflow and mining
product exports− From 2008 growth has slightly
decreased, due to global
economic crisis, external andinternal factors− The real GDP growth per capita
has continuously increased year
by year.

Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR, and IMF (WEO, April 2019)7

3.1 Lao Economy (cont.)• Population Growth− The population growth has
continuously increased over past thirty
years− Population and Housing Census (PHC)
Source: Report Census and Survey, Lao Statistics Bureau, 20158

3.1 Lao Economy (cont.)• Married Status percent of the Population

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Source: Report Census and Survey, Lao Statistics Bureau, 2015

3.1 Lao Economy (cont.)• Age composition and pyramid of the Population

 The sex ratio between males andfemales is almost equal The nation’s population is defined
as being relatively young Out of the total population aged 10and above (68% employed, 1.4unemployed)

Source: Report Census and Survey, Lao Statistics Bureau, 201510

3. 2 Public Finance• General budgetary operation
 Total revenue increased over thepast ten years with strong
economic growth, then after 2012slightlydeclined,mainlydecreasing in grants.
 Total expenditure also increased
over the past fifteen years. The
rapid increase in 2012-2013
caused fiscal trouble in thefollowing years resulting in thefiscal deficit-to-GDP widening.
 Huge general gross debt, resulting infiscal risk11Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR, andIMF (WEO, April 2019)3. 2 Public Finance (cont.)• Budget revenue
 Budgetrevenue(domesticrevenue and grants) has steadily
improved in the past 15 years.
 From 2016, total budget revenue
decreased (8.4%) due to thedecrease of the grants ( 62%).
 However, domestic revenue
continuously increased (2%),
equivalent to around 17.8 % ofGDP in 2016 and continues torise.
12Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

3. 2 Public Finance (cont.)• Budget revenue− Tax revenue performed well in past
15 years and then slightly declined
from 2015, caused by stagnant
economy in global and regional
economies.
− Non-tax revenue slightly increased
year by year.
− Grants steadily increased in the past
10 years, then fluctuated and sharply
declined from 2014. The main
reasons for the grant decrease was alarge decrease in non-project grants
and donors’ policy changes.
Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

133. 2 Public Finance (cont.)• Tax revenue by main items

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Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

3. 2 Public Finance (cont.)
Regionalcountries:
1. China
2. Indonesia
3. Malaysia
4. Philippines
5. Vietnam
6. Thailand theefficiency andeffectiveness inservice delivery

Source: IMF, Technical Assistant Report for Lao PDR, 201715

3. 2 Public Finance (cont.)

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Source: IMF, Technical Assistant Report for Lao PDR, 2017

3. 2 Public Finance (cont.)

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Source: IMF, Technical Assistant Report for Lao PDR, 2017

3. 2 Public Finance (cont.)
UC781

UC782

Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

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スライド 18
UC781

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UC782"Nontax" and "NonTax" should be "Non-tax"
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3. 2 Public Finance (cont.)

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Source: Ministry of Finance of Lao PDR

3. 2 Public Finance (cont.) In 2019

 Tax Department (headquarters) at central level− Number of officials: 130− Number of taxpayers: 408 (around 60% of total tax revenue) Provinces (17), one Vientiane Capital Districts (139)− Number of officials: 2,362 (Provinces, Vientiane Capital, and Districts)− Number of tax officials at the district level is almost double in comparison with those at theprovincial level.
− Number of taxpayers (Provinces, Vientiane Capital, and Districts): 103,366 (around 39% of
total tax revenue) There are 103,774 taxpayers across the country− 8,303 taxpayers are using bookkeeping properly (8% of total taxpayers)− Large number of taxpayers pay as lump-sum tax (62,275), almost 60 % of total number oftaxpayers− Only around 6.5 percent of the total tax bases is registered to VAT system (6,674)

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3. 2 Public Finance (cont.) Current situation of tax policy and administration
 Vision to 2030 and Public Finance Management Development Strategy to2025 (approved 2017)
 Revenue Strategic Development Plan 2018-2020 (approved 2017)

 Revised and new tax laws (approved 2018, 2019)21

4. ASSESSMENT OF DOMESTIC REVENUE MOBILIZATION
4.1 Assessment of tax revenue development from the reform measures
4.2 Public Finance Development Strategy
4.3 Tax policies
4.4 Tax administration
4.5 Donor support22

4.1 Assessment of tax revenue development from the previous reform measures23

4.1 Assessment of tax revenue development from the previous reform measures (cont.)
UC784• 2001, 2002 Revised Tax Law• Revised tax and customs laws(2005)• Centralization of Tax andCustoms (2007)• Introduction of VAT (2010)− VAT increased around
0.5% of GDP• Revised Tax Law (2011),Customs (2012)• Revised VAT (2014)− VAT increased around
0.7% of GDP• Revised Tax Law (2015)• Revised VAT (2017)• Revised Tax Law, new Incomeand Excise Tax Laws (2019)

Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

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スライド 24
UC784

Delete "Axis Title"
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4.1 Assessment of tax revenue development from the previous reform measures (cont.)(Billion LAK)

Source: Fiscal Policy and Law Department, Ministry of Finance of Lao PDR

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4.2 Public Finance Development Strategy

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Sources: Ministry of Finance of Lao PDR

Implementing Phases

Phase I(2018-2020)
Phase II
(2021-2025)• The main objective is to develop a complete setof public finance management infrastructuresuch as policies, legislation, organizational
structure, personnel and management tools• The objective is to develop fiscal
stability and step up to international
standards
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Strategies 1-3
StrategyGoal

1. Macroeconomicstability• Dynamic, stable, balanced economic growth• Strong PFM foundation to control budget deficit and reduce publicdebt• Development of stable government reserve funds

2. Revenue
policy andcollection

••
•
•
•

Maximize revenue collection
Setting fair tax and customs policies
Efficient revenue collection
Effective ODA management
Use of proceeds from natural resources for sustainable development

3.

• Enhanced efficiency of budget expenditure management andExpendituretransparency
policy and• modern and systematic expenditure management
rational• Delegation of responsibilities to the local level
spending

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Strategies 4-7
StrategyGoal

4. Public debt • Centralized management of external and domestic borrowings
management • Effective debt management and minimization of costs• Effective delegation of responsibilities to the local level
5. Personnel• Capacity building of the civil sector
strengthening• Development of training and educational institutions
6. Strongaccounting,audit andfinancialcontrol• Alignment of public/private accounting systems, audit and reporting tointernational standards• Enhance financial control and anti-corruption measures• Impose measures for violators of fiscal disciplines

7.
• Alignment to regional and global practices
Modernization• Development and application of technology for revenue collection andof public
expenditure management
finance entities

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Strategies 8-10
StrategyGoal

8. Legal Framework• Improvement of the fiscal regime according to the Partyand Government guidance• Revision of public financial framework• Improve Investment Promotion Laws

9. International
Integration andCooperation• Implementation of international agreements• Increase regional and global economic financial
cooperation

10. Management andDevelopment of StateOwned Enterprises• Manage government investments for sustainableeconomic revenues• Strengthening of SOEs Joint Ventures• Development of financial services

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4.3 Tax policies
Key findings:
1. Legal Framework Development (Review tax policies
to contribute to amending existing and draft newlegislatives)
2. Broaden tax bases
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4.3.1 Legal Framework Development
1.

2.

Review and revise tax policies-Revised VAT was approved in 2018-

Revised Tax Administration Law, new Income Tax Law, and new Excise Tax Law wereapproved in last June, 2019 and will be implemented in January 2020.

Further tax policy development-Land and Property Tax Law, and Environment Tax Law (Plan for 2020)-Secondary legislations32

4.3.2 Broaden tax bases
1.

Tax exemption
 Over 80% of the profit tax base estimated to be exempted (IMF Country Report,2019).
 VAT implementation has highlighted that the VAT system is not operating at an

optimal level and compliance with VAT obligations represents a significant risk.
 VAT registration for those whose annual turnovers are LAK 400 million or more

and the account keeping and the use of tax invoices are not properly organized.
 In 2018, introduction of a pilot project has begun in order to explore opportunities

to identify the taxpayers who should be registered for VAT.
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4.4 Tax Administration
Key findings:
1. Revenue collection improvement
2. Modernization of tax administration system
3. Staff and institutional capacity development
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4.4.1 Revenue collection improvement
1. Improve taxpayer compliance− Role of the tax administration in a self-assessment environment is to help taxpayers to understandtheir obligations and to take action against non-compliers in particular those exhibiting thehighest revenue risks were not properly managed.
− Recently, there were not relatively high levels of filing compliance and limited audit coverage ofthe largest taxpayers under the central level control.

2. Consolidate management of large taxpayers− Revenue Collection Division (RCD), Tax Department responds the compliance monitoring oflarge taxpayers (currently oversees more than 500 companies). In 2017, analysis indicates that:− Top 10 taxpayers were responsible for 66% of total large business tax collection− Top 50 taxpayers represent almost 90% of total large taxpayer collection.
− This percentage increases to almost 95% for the top 100 businesses in the RCD, and to 97% for the top 200businesses.

− So the collection performance of the RCD would not be negatively affected by reducing thenumber of businesses administered by the RCD by half.
− Setting criteria for determining the large taxpayer segment is essential35

4.4.1 Revenue collection improvement (cont.)
3. Improving taxpayer services / public awareness / self-assessment and filing− Taxpayer service to ensure that taxpayers are aware of their responsibilities
and obligations as well as their rights and entitlements under law was not wellmanaged.
− Not well-developed procedures and guidelines focusing on registration,
payment and filing obligations and need to develop materials to assist
taxpayers which will be available through the Tax Department’s website, in themedia and through effective aids to remind taxpayers of their obligations36

4.4.2 Modernization of tax administration system
1. Improve information and communication technology− TaxRIS has launched in early 2019 to deploy into the Tax Department and 5
provincial tax departments (Vientiane Capital, Viengchan, Luang Prabang,Savannakhet, and Champassak).
− Extending TaxRIS progressively across provinces− Reviewing the pilot of the Computer Reservation System (CRS-POS technology)− Determine further explanation of this technology to support reporting compliance,and monitoring the implementation of the Road Fee Payment and Collection
System (developed by the commercial bank-BCEL) and identify opportunities forenhancements.
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4.4.2 Modernization of tax administration system(cont.)
2. Strengthen Tax Department (headquarters)− Daily operations of collection revenue was overwhelmed (Tax Department)− Changes are needed to the organization and government arrangements torealize a fully functioning headquarters.
− Improving headquarter roles for a small number of staff and functions and thenincrease the numbers and focus over the life of the strategic plan.

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4.4.2 Modernization of tax administration system(cont.)
3. International cooperation
 Enhance the efficiency and effectiveness of tax administration
 Dialogue at international forums to identify and discuss global trends,
understand regional developments in tax laws and administration
 Sharing of best practices in taxpayer service and enforcement, capacity
building initiatives and attendance at training programs.

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4.4.2 Modernization of tax administration system(cont.)
4. Strengthen internal control and integrity Need to develop internal inspection guidelines which ensure compliance withTax Department policies and procedures to ensure integrity of taxadministration
 Reviewing adequacy of existing internal control to mitigate risks related to
fraudulent actions and ensure that TaxRIS complies with internal control
framework40

3.4.3 Staff and institutional capacity development
1. Grow the capacity, skills of tax staff and staff rotation− Capability building requires a systematic management approach to learningand development in short, medium, and long-term− Training and staff rotation needed to provide the right people with right skills− Building staff and institutional capacity needed to align with the organization
and activities of the Tax Department’s status, roles, duties, and working
principle of the Tax Department.
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4.5 Donor Support− Donor support is vital for implementation of strategies and plans inthe past years− Further support in the future still needed to achieve the goals.

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5. Conclusion and Recommendation• The paper identifies and makes an overall assessment of reform measures
highlighted by describing the main public finance development strategy, tax
policy and tax administration measures undertaken, beyond inferringcausality and may provide a general answer with the sound scope of tax
reforms to increase government revenue to GDP, and to ensuring
sustainable financing for development plans in the medium and long terms.
• However, deeper analysis by gathering clearer data and using appropriate
tools and techniques may be needed to find definitive solutions.
• For DRM in Lao PDR, despite the challenges that some reform strategies
have in enhancing tax performance, gradual increases in tax revenue areachievable and, in some reform measures, within reach over relatively shortperiods of time, and some of those measures need more time to be achieved.
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5. Conclusion and Recommendation (cont.)• In the experience of improving domestic resource mobilization, some common
observations emerge from the reform strategy from the good practice to sustain
and gain large revenues which are often accompanied by comprehensive strategy
that interlinks tax policy reforms and tax administration reforms.
• Overall findings of domestic revenue mobilization in Lao PDR in the past fifteen
years resulted both from GDP growth and economic development and tax reformmeasures.
• High management commitment and involving key stakeholders, enhancement of
the ongoing reform strategy and development of the Medium Term Revenue
Strategy are of vital importance for further achievement of larger revenue gains inLao PDR.
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5. Conclusion and Recommendation (cont.)
1. High-level management commitment and social dialogue withstakeholders should be continuously deepened further• High level management commitment should continuously facilitate andencourage implementation of strategy and taxation reforms to further improvetax and revenue performance• Involving from all relevant key stakeholders is key to implement reform in atimely manner• Effective communication with stakeholders that focuses the intended benefitsof reforms can help mitigate resistance to reforms
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5. Conclusion and Recommendation (cont.)
2. Tax policy reforms• Reviewing tax exemption by starting to gather information and data to assess
tax expenditure will help to improve tax policy, revenue performance, andtransparency of the tax system and better inform decision making• Simplify the tax system by developing simple procedures and guidelines• Development of Property and Land Tax, and Environment Tax

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5. Conclusion and Recommendation (cont.)
3. Tax administration reforms• Successful revenue mobilization in Lao PDR, tax administration should alignand translate tax policy in a simple and understandable manner• Measures to improve tax administration in Laos need to be continued toenhance an ongoing rollout of activities are highlighted in the Tax Strategic
Development Plan:− Revenue collection improvement− Modernization of tax administration system− Staff and institutional capacity development
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5. Conclusion and Recommendation (cont.)
4. Development of medium term revenue strategy• Development of medium-term revenue strategy 2021-2025 (MTRS) isof vital importance− Help to identify the areas of reform needs, harmonize reforms among threesystem components (tax policy, administration, and legal frameworks),
properly sequence reform measures, and facilitate implementation48

5. Conclusion and Recommendation (cont.)
5. Donor support• Donors play an essential role in providing financial and technicalassistance and economic policy advice to support the implementationof the National Socio-Economic Development Plan
• Further implementation of PFM reforms and the tax revenue reform
agenda to achieve goals

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Thank you for your attention
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