Tariff cuts have no significant impact on revenue collection

The government is still expecting the customs sector to play a key role in generating income even though Laos has eliminated import tariffs on most goods from Asean member countries.
According to information from the Ministry of Finance, the government is expecting the customs sector to yield 7,520 billion kip (US$877 million) in the 2019 fiscal year, a 4.44 percent increase compared to the target figure in 2018.
Data indicates that although the import tariff has been slashed to zero on a large proportion of the goods imported from Asean countries, the customs sector will be able to generate a significant amount of revenue for the government.
Customs officials are stationed at border crossings and traditionally are in charge of collecting import duty. Many people have expressed concern that the elimination of import tariffs will result in a major drop in total revenue.
Based on information obtained by Vientiane Times from the finance ministry, customs duty will be the second largest contributor of income to the Lao budget in fiscal year 2019.
Taxes are expected to contribute 12,320 billion kip (about US$1.4 billion) to the budget – an increase of 6.1 percent compared to the previous year’s plan. State enterprises and the insurance industry are expected to add 2,350 billion kip while state assets are expected to generate 2,050 billion kip.
Total revenue collected by the government from domestic sources in 2019 is expected to be 24,240 billion kip (US$2.8 billion).   
A source at the finance ministry told Vientiane Times the elimination of import tariffs would have no significant impact on revenue collection because the government has imposed excise taxes and value added tax (VAT) which will largely replace the money lost by tariff cuts.
He also said the government has maintained some of the items on which businesses are still required to pay an import tariff.
Another regulation concerning the collection of excise tax allows customs officials to collect excise tax and VAT at border crossings, a system which officials say is essential.
At present, Laos can collect excise tax on beer when products are declared at border crossings or wholesale transaction points, according to the regulation, which the finance ministry announced at the end of last year. 
Traditionally, excise tax is considered to be a form of consumption tax paid by the purchasers of goods.  However, the government does not have a proper mechanism in place for the payment of this tax so instead excise tax is collected at border crossings.
Many businesspeople say consumption tax should be paid upon the actual sale of goods to ease the financial burden on their business operations.

By Ekaphone Phouthonesy
(Latest Update February 8, 2019)