The overall progress of tobacco tax policy implementation:
- Relationship between tobacco taxes, price and public health
The government does not have regular adjustment on tobacco tax level because they are cautious about violating the Investment License Agreement (ILA) (that has been effective from 2001-2026) with the tobacco industry. There has not been the tax increase since 2011. However, the Tax Department has attempted to impose tobacco tax on tobacco products through specific tax and amended Tobacco Tax Law to increase tobacco tax rate from 30% of product cost in 1995 to 50% of whole-sale price in 2021 as well as the amended tax law in 2019. The tax increase rates do not reflect the real income and inflation rate in the country. The study is, however, a good initiative to identify solution in increasing tax rate without violating the ILA.
- Level of tax rates to apply
In Lao PDR, tobacco tax policy is developed and monitored by the National Tobacco Control Committee which is chaired by the Health Minister. In 2016, the government enforced the long-term tax roadmap by increasing tobacco excise rates of 35% (2016-2017), 45% (2018-2019) and 60% of retail price from 2020 and after. However, there is no effective enforcement since tobacco industry is still benefiting from the lower tax rates specified in the ILA. Ministry of Health plays the lead role in monitoring the tax structures to be responding to public health goals. There is no formal mechanism in Ministry of Finance in place to monitor the tax structure. The government only focuses on increasing the revenue. However, Ministry of Finance starts to pay attention to public health goals, though it also depends on the political will. Table 1 makes a comparison between tobacco tax rates enforced by law and applied tax rates by the ILA.
Table 1: Tobacco excise tax rates stipulated by the tax law versus the ILA, 1995-present
|Tax type||Tax law period||Tax rates by law||Reported rate (Stipulated under the ILA)||Remarks|
|Ad valorem||1995 – 2004||30% of production cost|
15% of cost
30% of cost
|2005 – 2010||55% of production cost|
|2011 – 2015||60% of wholesale price|
|2016 – 2017||30% of wholesale price|
|2018||45% of wholesale price|
|2019||50% of wholesale price|
|2020 – present||50% of wholesale price|
|Specific tax||2010||LAK 100||LAK 100|
|2011 – 2018||LAK 500||LAK 500|
|2019||LAK 600||LAK 600||0 since 10/2020|
- Comprehensiveness/similar tax burden for different tobacco products
The government does not tax all tobacco products in a comparable way. The roll-your-own cigarettes are taxed very low and different tax rate applied on different production cost. There is a risk for consumers to shift to cheaper brands since the government tax tobacco products differently based on production cost, the industry has tried to reduce the production costs to pay less tax thus the retail price is low in the market. In addition, there is no system established to review the tax burden on all products within the government.
Lao PDR has a license system for manufacture of tobacco products and manufacturing equipment under Industry and Commerce Law, import or export of tobacco products and manufacturing equipment under Import and Export Law (Ministry of Industry and Commerce) and Import Law (Customs Department), transporting commercial quantities of tobacco products or manufacturing equipment under Transporting and Distribution Law (Ministry of Industry and Commerce), and wholesaling, brokering, warehousing or distribution of tobacco and tobacco products or manufacturing equipment under Industry and Commerce Law. The government does not have the control system for retailing of tobacco products and growing of tobacco.
- Warehouse system/movement of excisable goods and tax payments
Lao PDR does not adopt and implement measures and systems of storage and production warehouses to facilitate excise controls on tobacco products. The excise tax is imposed at the point of manufacture for tobacco products produce domestically and at the point of imports for imported tobacco products. The government requires the self-report from the industry on a fixed date each month. Only the government or Ministry of Finance can access to the information.
- Anti-forestalling measures
There is no law and regulation in Lao PDR on anti-forestalling measures.
- Fiscal markings
The government requires the application of tax stamps for domestic tobacco products and customs stamps for imported tobacco products. Currently, tax stamp is the only tool for inspecting illicit cigarettes but it is unable to track and trace the supply chain of tobacco products. In addition, the government does not have the law to regulate the standard pack size.
Tax Department, Ministry of Finance has a legal unit to ensure the enforcement of tax law. Penalties are mentioned in Tax Law, Law of Commerce and others.
- Use of revenues – financing of tobacco control
Tobacco Control Fund (TCF) is approved in 2013 (Decree on Tobacco Control Fund), the source of fund is from 2% of the company’s profit tax and LAK 200 specific health tax per pack to the Tobacco Control Fund. Nevertheless, the TCF is not active since the tobacco industry refuses to pay taxes to the TCF.
- Tax-free/Duty-free sales
The country does not prohibit the sale to and/or importation by international travelers, of tax-free or duty-free tobacco products, and there are no excise taxes on tobacco products sold in tax- or duty-free stores. The allowance for travelers is 10 packs of cigarettes or 1 carton per person.
- Protection of tax policies from vested interests
There is no written document or guidelines for officials relating to the WHO FCTC Article 5.3. The government consults with tobacco industry due to the fact that the government owns 47% of the joint venture of the Lao Tobacco Company Ltd. Therefore, the representatives from the government are the board members of the company which has an influence on tax policy. The government also signed the 25 years investment contract with the Lao tobacco Company Ltd. and providing them the tax benefits.