The Ministry of Finance has ordered tax officials nationwide to collect taxes from small and medium sized enterprises based on their actual earnings.
The ministry has also ordered the tax authorities to stop using set revenue collection targets for the fiscal year as a basis for estimating how much tax each SME should pay. This system is especially applied to small businesses that do not have regular accounting systems.
But it is unlikely that the order will put a stop to public complaints about unfair tax charges.
The Ministry of Finance decided to make the change after business owners complained that they are having to pay higher taxes even though the government has not increased the tax rate.
Many businesspeople said they had to pay as much as 30 percent of their earnings in tax, which they said was simply unacceptable. They also said that the proliferation of minimarts and supermarkets in Laos is eating into their profits and in light of this they felt they should pay less tax.
A senior tax official said that while the government had not raised the tax rate, officials demanded higher tax payments because they did not believe that businesses were making less amid the strengthening economy and higher public purchasing power.
He admitted it was difficult for officials to make a correct estimate of the tax that a business should pay because so many people did not keep records of their accounts. If they did, officials would be able to see their earnings for each month and make an accurate assessment of the tax payable.
While the finance ministry has taken a step in the right direction and taken public opinion into account, it is unclear how it will put the new policy into practice. For example, there are no concrete measures that tax officials have recourse to in accessing information that would reveal a business’s true earnings, on which the tax payable could be assessed.
To further improve the payment of taxes, all the sectors concerned, including the Ministry of Industry and Commerce’s Domestic Trade Department, and the Ministry of Finance’s Accounting Department and Tax Department, will have to work as a team.
The Domestic Trade Department must also make it easier for businesses to register. Many people complain that they have to spend a lot of time and money to get a business license, even though it is their right as a citizen to do business.
The department also needs to share the information on registered businesses with the Tax Department, so that it has access to basic information on which to base its tax assessment. In the long term, the Accounting Department should set up simple accounting systems for SMEs and train their staff to keep records.
Accounting lies at the heart of any business. Managers won’t know if their business is good or bad if they don’t follow sound accounting procedures.
If SMEs follow an accepted accounting system, it will be easier for officials to collect taxes based on actual earnings. It would also make tax collection transparent and help to curb corruption among tax officials.
At present, many businesses have pay bribes so that they don’t have to pay a large amount in tax, simply because they don’t keep accounts that would reveal their true monthly income.
