Govt urged to revise profits tax to boost foreign investment
Govt urged to revise profits tax to boost foreign investment
Finance Minister Mr Phouphet Khamphounvong has given local and foreign business people in Laos an extra fillip as he vowed to lower taxes as part his efforts to encourage the payment of them.
“The fact is that people will be happy to pay tax if the rate is not too high” he said in his report to the National Assembly conference last month.
The finance minister did not provide details of which taxes he would like to cut, nor when he would put his idea into practice.
But according to a source at the Ministry of Finance, the minister is considering lowering a number of taxes, including profits tax which he sees as being very high in comparison to other countries.
Laos plans to enforce the newly revised law on tax in October. The new law will establish a single rate of profits tax at 24 percent, abolishing the previous 20 percent for foreign companies and 35 percent for domestic firms.
Once the law is imposed, the Lao profits tax rate will be high compared to Singapore, which charges only 17 percent, and Thailand, which levies 23 percent. Vietnam charges 25 percent profits tax. The Thai government plans to lower profits taxes over the next few years, aiming to boost domestic and foreign investment in the country.
The Lao National Economic Research Institution Director General, Dr Liber Leebouapao, said that he agreed with the finance minister to lower business taxes so as to create competitiveness for Lao business people once the country joins the WTO and implements its obligations to the Asean F ree Trade Area in 2015.
“For foreigners, increasing profits tax from 20 to 24 percent will not cause a big impact but it is a kind of discouragement,” he said.
He said that he personally believed that the profits tax should be 20 percent or less than this to create investment incentives as the country is attracting foreign investment funds to boost economic growth. He said that increasing investment and business expansion will create strong revenue sources for the government.
Another economist, Dr Mana Southichak, who is also owner of a business consultation firm in Laos, said that that the government was already facing difficulties boosting investment in non resource sectors, which would be exacerbated if profits tax for foreign companies increases from 20 to 24 percent.
In the past, the government lowered profits tax rates for foreign firms because it wanted to attract more foreign investment. However, the policy created an unequal business environment for domestic firms, as they paid higher rates.
After facing complaints from domestic firms, the government decided to set a single profits tax rate of 24 percent, creating equal opportunities for foreign and domestic firms to operate their businesses.
Dr Mana said that the investors look at profits tax as one of the main considerations when it comes to making investment decisions and increasing the tax rate would discourage foreign investors from investing in Laos.
He said that Laos should lower profits tax below 20 percent, adding that the move would entice more foreign investors, particularly in non resource sectors, while currently most foreign investors are engaged in either mining or hydropower plants.
Laos plans to attract foreign investment in the non resource sector as one of measures to ensure sustainable growth in the future. At present, the country is attempting to create a better business environment for all.
vientiane times
