VAT to come on line in January

The International Finance Corporation (IFC), the private arm of the World Bank, has vowed to support the Lao government to strengthen its capacity to put value added tax (VAT) into practice next year.

The major international loan provider held a consultation meeting with staff of the Ministry of Finance's Taxation Department in Vientiane this week, urging tax policy makers and officials to enforce the law effectively.

This will provide tax payers with a more efficient state service, one of the main conditions necessary to create a better business environment in Laos.

The government introduced VAT to replace turnover tax in some selected business in January but suspended it in following months after facing technical problems and opposition from a number of business operators who felt the tax would negatively affect the business climate during a time of financial hardship.

VAT requires consumers to pay an additional 10 percent of the basic purchase price of certain products bought in Laos. At present, business operators pay a turnover tax that is five percent of their revenue.

According to meeting organisers, the IFC wants to help the tax department to simplify tax payment procedures and provide business people with a more streamlined state service.

Minister of Finance Somdy Duangdy said the government would not suspend value added tax again, adding that the government would apply the new tax to selected firms that met business operation standards.

These businesses, which operat e in full accordance with the law, must hold a bank account so tax officials can easily estimate and collect VAT, he said.

He confirmed the ministry would continue to enforce the existing turnover tax for a while until it was ready to fully enforce VAT.

Officials have said there will be many challenges in introducing the new tax on a wide scale because it involves different reporting methods than those used in the collection of turnover tax.

VAT requires accurate reports from businesses on the quantity of goods sold so officials can calculate the amount of tax to charge. Without accurate data, the government cannot collect the full amount of taxes it is owed.

Consumers must request a receipt every time they buy an item so the purchase is recorded and business operators pay the requisite tax to the government.

Without a receipt there is no proof of sale and business owners can avoid paying the 10 percent tax.

IFC is one of several international organisations that have hosted business forums, opening up opportunities for the private and government sector to identify ways to improve the bu siness climate.

By Ekaphone Phouthonesy