Laos (officially Lao P.D. R.) economy is expected to be adversely affected by COVID-19 pandemic in 2020. The growth of real gross domestic product (GDP) of Laos is expected to slow down, unemployment level to increase and current account balance to remain negative due to COVID-19 this year.

In this blog post we will be focusing on economic impact of COVID-19 pandemic on Laos. We will also be looking at the fiscal and monetary policy measures taken by Laos government under following sections –

1. Impact of COVID-19 on Laos Economy in 2020

2. COVID-19 Related Fiscal Policy Measures by Laos

3. COVID-19 Related Monetary Policy Measures by Laos

We have covered various macroeconomic factors and PESTLE (political, economic, social, technological, legal, and environmental), SWOT (Strengths, Weaknesses, Opportunities and Threats) and risk analysis for Lao P.D.R. in separate market research reports.

1. Impact of COVID-19 on Laos Economy in 2020

Laos’s real gross domestic product (GDP) was LAK 1,29,534.175 billion in 2019 and due to COVID-19 outbreak it is estimated to grow by 0.723% to be around LAK 1,30,470.707 billion in 2020.

Laos’s unemployment rate was 0.626% of total labor force in 2019. Due to slowdown in global economic activity due to COVID-19 pandemic the unemployment is expected to increase by 17.63% and reach 0.76% in 2020.

Laos’s current account balance has remained constantly negative since 2014. In 2020, its current account balance is expected to be at -10.89% of GDP compared to -7.234% of GDP in 2019. This means Laos will remain net borrower from rest of the world in 2020.

As of 17^th Jun 2020, the Laos government has taken following policy measures to contain the impact of coronavirus (COVID-19) pandemic.

2. Coronavirus (COVID-19) Related Fiscal Policy Measures of Laos

The Prime Minister has issued a new Decision on Policy and Measure Determination to Minimize the Negative Impacts of COVID-19 Pandemic on Lao Economy No. 31, dated 2 April 2020. Some important details of policy-related are extracted as below:

• Implement the exemption of Personal Income Tax (PIT) for all staffs and government officers (civil servants) which have income below 5,000,000 Kip within a 3-month period (April to June 2020).
• Implement the exemption of Profit Tax (PT) for Micro Enterprises as stipulated in article 29, clause 2 of the Law on Income Tax No. 67/NA, dated 18 June 2019 within a 3-month period (April to June 2020).
• Exempt tariffs and relevant fees of the imported goods that will be used in the operations of containment, prevention and full response to the COVID-19 Pandemic.
• Postpone tax payments of the tourism sector within a 3-month period, from April 2020 onwards.
• Extend the submission date of financial and accounting report for the year 2019 of enterprises from 31 March 2020 to 30 April 2020.
• Prolong the payment of road tax fees from 31 March 2020 to 30 April 2020.
• Seek to reduce prices and lengthen the due date of payments of electricity bill and water supply for the household and business conduct.
• Agree with the Bank of Lao PDR (BOL) to decrease the base interest rate (base rate) of BOL and reduce the rate of capital requirement/preservation of commercial bank in a proper manner periodically.
• Agree with the Bank of Lao PDR (BOL) to encourage commercial bank to implement the credit policy to address the negative effects of COVID-19 pandemic in accordance with the Decision No. 238/BOL, dated 26 March 2020.
• Allow to postpone the submission or payments of mandatory contribution of Social Security (SSO) for businesses which are affected from COVID-19 outbreak within the 3-month period (April, May and June 2020).

Ministry of Finance has issued a new Notice (No. 1027/MoF, dated 10 April 2020) on Tax Implementation in accordance with the Decision on Policy and Measure Determination to Minimize the Negative Impacts of COVID-19 Pandemic.

• Implement the PIT exemptions for employees both public and private sectors who receive a monthly salary below 5,000,000 LAK within the period of 3 months (April-June 2020). For employees who earn a monthly salary above 5,000,000 LAK are to be calculated by exempting first 5,000,000 LAK of the earned salary and deducting the remaining amounts according to the tax rates determined in article 39 of Law on Income Tax.
• PIT of April 2020 shall be submitted no later than 20 May 2020.
• PIT of May 2020 shall be submitted no later than 20 June 2020.
• PIT of June 2020 shall be submitted no later than 20 July 2020.
• Implement profit tax exemptions for Micro-Medium Enterprises as stipulated in article 29, clause 2 of Law on Income Tax.

The Ministry of Finance, Tax Department, has published a further notice on the Calculation of Personal Income (Payroll) Tax – PIT No. 1128/TD, dated 24 April 2020.

Implement the exemptions of PIT for employees both public and private sectors who receive a monthly salary below 5,000,000 LAK within a 3-month period (April to June 2020) in accordance with the Decision of the Prime Minister No. 31/NA, dated 2 April 2020, the method of calculation is displayed as follows:

• In case of employees who receive a monthly salary below 5,000,000 LAK:
• This refer to who earns income in the first 2 levels of tax deductions shown in the table below, will be computed as the following:
• Below 1,300,000 LAK is categorized in level 1 of tax deductions, with the rate of 0% (Exempted according to the law);
• From 1,300,000 LAK to 5,000,000 LAK is categorized in level 2 of tax deductions, with the rate of 5% (Exempted according to the Decision No. 31/NA).
• For employees who earn a monthly salary above 5,000,000 LAK are to be calculated by exempting the first 5,000,000 LAK of the earned salary and deducting the remaining amounts with the rate of 10% and above, respectively.

The Lao Securities Commission has published a Notice in relation to Policy and Measures of Implementation for the Capital Markets to Reduce the Negative Impacts of COVID-19 Outbreak No. 05/LSC, dated 21 April 2020.

For Lao Securities Exchange (LSX)

• Stimulate the publications of Lao Securities Exchange (LSX) through mass media.
• Pay close attention to the trading trends and status towards investor behavior.
• Incorporate with the securities companies to create a contingency plan.

2. Coronavirus (COVID-19) Related Monetary Policy Measures of Laos

Laos government is attentively assisting and creating a favorable condition during this coronavirus crisis to a wide range of business units, in a form of companies and organizations, by implementing tax breaks or exemptions for a certain type of taxes and business size and delaying tax payments. The world bank supports Lao PDR the stimulus package of USD 18 million. Apart from that, the Lao government also incorporated with the Bank of Lao PDR and together with commercial banks to perform debt reclassifications and provide incentives on interest rates.

Business Income Tax

Business Income Tax for Microenterprises is exempted within a 3 months period, from April to June 2020, as per Decision No.31/PM.

Personal Income Tax

Exemption on Personal Income Tax (PIT) for all staffs and government officers (civil servants) which have income below 5,000,000 Kip within a 3 months period (April to June 2020), as per Decision No.31/PM.

Extension Deadline of Filing/Payment Taxes

• Postpone tax payments of the tourism sector within a 3 months period, from April 2020 onwards, as per Decision No.31/PM.
• Declare and submit taxes of each month according to the time frame determined by law or shall be accomplished no later than the periods given below, as per Notice No.1061/MoF:
• PIT of April and May 2020 shall be submitted no later than the end of June 2020;
• PIT of June 2020 shall be submitted no later than the end of July 2020;
• PIT of July 2020 shall be submitted on the usual deadline in accordance with the law and regulations.
• Extend the payment due date of road tax fees from 31 March 2020 to 30 April 2020, as per Decision No.31/PM.

Other Incentives

• Grant penalty exemptions on late submission (filing) of taxes for business units which have not declared and submitted their tax obligations to Tax authority, from April to June 2020.
• In case, an individual, legal entity and organization which have not completed tax declaration and submission since January 2020, will be granted penalty exemptions on late submission (filing) of taxes under the condition that such individual, legal entity and organization must carry out tax declaration and submission no later than the end of May 2020.
• The Ministry of Finance agreed to further extend/postpone the submission date of financial statements (financial and accounting reports) for the year 2019 to 29 May 2020.

Source – With inputs from Organisation for Economic Co-operation and Development (OECD), International Monetary Fund, World Bank, International Labour Organization (ILO) and Government of Laos.