LAO BUSINESS FORUM BRIEFImproving the Business Environment Through Constructive Dialogue

VOL. 1  |  SUMMER  2018

IN THIS ISSUE:

Background and ContextInternet Taxation and the LBF - IssueAnalysisInternet Taxation -  International Perspectives  Gender Dimension of  Internet TaxationPost-LBF 11  Update and Next Steps 

This brief  is published by the Secretariat ofthe Lao Business Forum, based at the LaoNational Chamber of Commerce & Industry(LNCCI). The LBF Brief provides a summary andanalysis of a specific business issue that washighlighted as a priority during the annualLBF process and which significantly impactsthe Lao PDR  business environment.  Theviews expressed in the LBF Brief reflect theopinions and perspectives held by relevantstakeholders.

Internet Taxation in Lao PDR

The internet has transformed the global economy infundamental ways and there is considerable evidence thatfacilitating access to affordable, high-quality broadbandservices has been instrumental in enhancing thecompetitiveness of a country’s digital economy.  Towardthat end, Lao PDR will need to take proactive steps tocreate an appropriate legal and regulatory environment todevelop its embryonic digital economy.  However, thecountry faces several immediate challenges which willcontinue to place it a significant competitive disadvantage –both globally and relative to its ASEAN neighbors.  Keyissues include the following:

I. Background and Context

Image Source: Pixabay

Image Source: Pixabay

Internet cost.   Lao PDR’s internet costs areexpensive relative to its ASEAN neighbors,particularly when measured as a percentage ofGDP per capita.  A 2015 report on the ASEAN   

digital economy prepared by the InternetSociety revealed that the cost of a simplebroadband internet package in Lao PDR isapproximately 8% of GDP per capitacompared to Thailand (0.1%) and Vietnam(0.2%).     In addition, a World EconomicForum study ranked Lao PDR among themost expensive countries in the world forthe cost of monthly internet servicepackages, with a ranking of 192nd among196 countries surveyed.  

II. Internet Taxation and theLBF – Issue Analysis

The following chart prepared by the InternationalTelecommunications Union (ITU) clearlyillustrates how Lao PDR (LA) lags well behindboth ASEAN and global averages in terms ofboth fixed and wireless broadband access(measured in the number of subscriptions per100 inhabitants).

During LBF 11, the LBF’s SME Working Groupprepared a position paper proposing theremoval of Lao PDR’s 10% internet excise tax. Article 20 of the country’s 2015 tax law regardsthe internet as a luxury good and on this basis,an excise tax has been imposed. The SMEWorking Group has argued that Lao PDRremains the only ASEAN country that imposes atax on internet usage.  Given the early stage  ofLao PDR’s digital economy and the urgent needto exponentially increase internet accessibility, 

the Government of Lao PDR should takeimmediate steps to reduce internet costs andencourage the development of Lao PDR’sbroadband infrastructure.  This issue waspreviously raised during  LBF 10 in 2017.  ThePrime Minister agreed to rescind this tax andhis office subsequently issued Notification No.1194/PMO, dated 9 August 2017 whichinstructs the relevant line ministries to addressthe issues raised during the Lao BusinessForum.  Section 1.1 of Notification No. 1194specifically states that the Ministryof Finance should take steps to amend therelevant section of the tax law pertaining to 

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Source: International Telecommunicaitons Union (ITU)

Image Source: Pixabay

Internet access.  Among ASEAN countries,Lao PDR ranks near the bottom in terms ofthe number of its citizens with internetaccess.  According to 2017 figures preparedby Internet World Statistics, only 35% ofthe  country’s population has access to theinternet compared to 82.4% for Thailand;66.3% for Vietnam; and 49.3% forCambodia.

internet taxation and  subsequently obtain approvalfrom the National Assembly.  These measures havenot been implemented to date. The Tax Department of the Ministry of Finance has,however, formally responded to LNCCI’s requestsfor status updates.  They note that the “excise taxand income tax laws will be drafted and establishedseparately from the current tax law; the drafts will bereviewed and approved by the National Assembly bythe end of 2018.”  This statement has generatedfurther uncertainty  regarding the status of theinternet excise tax.

III. Internet Taxation –International Perspectives

There has been an ongoing debate globally onwhether the internet should be taxed.  In manycountries, there is a common view that the interneteconomy is now sufficiently developed and should besubject to taxation.  Since the internet economy hasgrown so large and countries have developed fiscaldeficits, the internet economy should be fair game fortax authorities. The OECD and EU do not believe that the internetshould be tax-exempt.  Indeed, it is their view  thatthe same principles should be applied towardtaxation of e-commerce activities as they are towardsgeneral commercial activities:  neutrality, efficiency,certainty and simplicity, effectiveness and fairness,and flexibility.     In addition, the EuropeanCommission does not support the notion of a specialtax regime for digital companies.   Many non-EU countries – Russia, India, Israel andIndonesia – have begun to tax internet companiesthat are not based in their countries     (i.e., onlinepurchases made by their citizens with companiessuch as Amazon that are not locally based).  The USA has been the principal advocate of theinternet as a tax-free zone.  The US Congress passedthe Internet Tax Freedom Act in 1998.  The USSenate subsequently approved legislation to:  1)prevent local authorities from taxing internet access;and, 2) permanently extend the Internet TaxFreedom Act.  

Since  Lao PDR  is at such an early stage inthe development of its digital economy, thegovernment should take proactive measures to lower internet access costs and expandcoverage.  The internet is an essentialrequirement for participation in the digitaleconomy and facilitating – not impeding –access will generate significant economicbenefits to the country including job creationand skills development, among others. It is important to note, however, that theremoval of the internet excise tax is only afirst step; there are significantly morecomplex and systemic legal and regulatoryissues that will need to be addressed by theLao government in order to supportthe development of the country’s digitaleconomy.  Some of these issues arehighlighted in a recent World Bank policynote on Lao PDR’s digital economy:

1.    Development of secondary enablingregulations for the telecoms sectorincluding the licensing framework;wholesale access and infrastructuresharing; interconnection; service quality;and consumer protection 2.    Full implementation of the electronictransactions law that was introduced in2012 3.    Development of an e-commerce law 4.    Development and enactment of a lawon data protection and data privacy 5.    Amendment of the 2010 ConsumerProtection Law to include electroniccommerce

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Image Source: Pixabay

Data compiled by the InternationalTelecommunications Union indicates thatapproximately 37% of women globally use theinternet versus 41% of men. In terms of actualnumbers, 200 million fewer women than men usethe internet .    Women and girls encounter moreconstraints to obtaining internet access alongwith opportunities to obtain relevant ICT skillsthat would enable them to be competitive in theworkplace.  Research conducted by theBroadband Commission in 2012 revealed thatonly 29% of 119 countries surveyed identifiedgender as an issue in their National BroadbandPlans.       Research by the Global Initiative onInclusive Information and CommunicationsTechnology indicated that only 14% of countriessurveyed actually had specific policies for women.      There is indeed a global “digital gender gap” whichneeds to be addressed. ASEAN also has asignificant digital gender gap.  There is, forexample, no reference to gender in the 2015 ASEAN ICT Masterplan document.  Additionalgender-related research on the internet isrequired for Lao PDR; however, given the verylimited development of Lao PDR’s digitaleconomy, it can be inferred that gender-relatedgaps in terms of internet usage are likely to besignificant, particularly in rural northern andsouthern provinces.

IV. Gender Dimension ofInternet Taxation

V. Post - LBF 11 Update and NextStepsDuring the LBF 11 plenary meeting held on July 5,2018, private sector stakeholders presented a set ofrecommendations regarding the internet excise tax,followed by a response from the Ministry ofFinance. A member of the LBF SME WorkingGroup and the Lao ICT Commerce Associationoutlined the private sector’s assessment of theimpact of the internet excise tax and proposed a setof remedial measures:

Short term:   The Tax Department of theMinistry of Finance should comply withNotification No. 1194/PMO regardingthe removal of the internet excise taxand make the requisite amendments tothe current draft of the law Medium term:  The government shouldestablish an independent regulatoryauthority that would lay the groundworkfor a highly competitive internet industryin Lao PDR that would improve overallservice quality and lower costs 

The Tax Department of the Ministry ofFinance has proposed drafts of threenew laws:  1) an excise tax law; 2) a taxmanagement law; 3) an income tax law.These draft laws were circulated forpublic comment in June 2018  According to the new excise tax law,the internet excise tax will remain inplace, but it will be reduced in phases(i.e., from 10% to 5% to 3%).  Thegovernment has indicated that it wouldbe open to removing the tax entirely ifalternate revenue sources could beidentified 

Government Response to Private SectorRecommendations In response to the private sector  internet taxproposal, the Vice Minister of Financeprovided the following update on thegovernment’s actions: 

The government’s timeframe for the phasedreduction of the internet excise tax isunclear; moreover, it is uncertain whetherthere has been any rigorous cost-benefitanalysis of the broader economic impact ofeliminating the internet excise tax.    In thecoming months, the government  shouldpresent a more detailed and specific proposalfor the phased reduction and eventualremoval of the internet excise tax, includingkey milestones and deadlines.  

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The Lao Business  Forum  is a public-private dialogue platform that was launched in March 2005.  The objectives ofthe LBF are to: 1) facilitate public and private sector dialogue, including participation by the broadest range ofprivate sector companies, from domestic SMEs to foreign investors; 2) ensure consistent enforcement andtransparent interpretation of laws and regulations; 3) remove the bureaucratic impediments that businessesencounter in entry and exit processes and provide feedback on business-related policies, laws and regulations thatimpact the private sector; and, 4) provide feedback on draft government laws and regulations that could potentiallyimpact the business community and assist the Lao government in private sector-related policy development. ©2018  Lao Business Forum

LBF Secretary General: Mr. Phouxay Thepphavong

Kaysone Phomvihane Avenue Saysettha District, Vientiane Capital, Lao PDR, P.O. Box 4596 Tel:  (856-21) 453 312 Web:  www.lncci.la/lbf            World Bank Logistics Perception Index (LPI) – 2016

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Notes