Laos Reduces VAT Rate to Support the Post-COVID-19 Economy

Laos has reduced its value-added tax (VAT) rate as part of the government’s support of the post-COVID-19 economy.

Presidential Decree No. 231/P, which was dated on December 21, 2021, and makes amendments to the country’s VAT Law, reduces the standard VAT rate from 10 percent to 7 percent. Further, the amended law adds more activities that are exempted from VAT and there is a new VAT calculation for minerals and electricity-related activities.

The economy of Laos was hit especially hard by the pandemic and the country saw its slowest GDP growth rate in 30 years, declining to -0.6 percent in 2020. The World Bank predicts a 4.5 percent growth rate for 2022 which is still below the six to eight for the past decade.

Laos’ manufacturing sector saw a decline from 6.7 percent in 2019 to 5.8 percent in 2020 and some tourist destinations lost over 70 percent of revenue in 2020.

The amended VAT Law has come into effect on January 1, 2022.

What are the amendments to Laos’ VAT Law?

VAT reduction

The standard VAT rate for the supply of goods and services, and importing goods is reduced from 10 percent to 7 percent.

More activities exempted from VAT

Activities that are exempted from VAT will now include:

1. The import of electricity to supply Laos;
2. Minerals exported overseas or to special economic zones (SEZs);
3. The export of electricity to SEZs or overseas; and
4. The supply of electricity to any electricity enterprises within Laos.

The electricity and mineral-related activities that are subject to VAT have a separate and specific basis for VAT calculation:

1. For the supply, sale, purchase, trade, self-use, exchange, export, or gifting of minerals, the VAT basis for VAT calculation is the actual purchase price, the price specified by the government, or the international market price;
2. For the import of minerals, the basis for VAT calculation is the actual purchase price specified by the government or the price at the border. This is before any additional applicable import duties;
3. For electricity generated by a business or consumer, the VAT basis is the tariff rates prescribed from the government or the rates based on the power purchase agreement; and
4. For electricity producers, the VAT basis is the contractual price agreed in the power purchase agreement.

New activity now subject to VAT

The supply of goods outside of SEZs by a business registered to operate in the SEZ is now subject to VAT. Previously, only services supplied outside of SEZs by SEZ-registered companies were subject to VAT.

Additional conditions for deductible input VAT

Input VAT deductions can only be made if the payment for the relevant purchase and sale of goods and services was made through a bank in Laos.

Further, any input VAT to which the 10 percent rate is applicable, but which has not been claimed before the end of 2021 can not be deductible as input VAT.

Further Reading

• The Completed China-Laos Railway: Bringing Opportunities for ASEAN and the Asia Pacific
• How to Claim Investment Promotion Incentives in Laos: New Guidelines in Effect
• Tax Identification Numbers in Laos: Compliance by June 2021

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