Lao garment association lobbies for tax breaks on imported raw materials

Laos’ garment association has urged the government to reduce taxes on imported raw materials to lower production costs to make the industry more competitive on the world stage, an official of the association told local media.

The industry needs low taxes on imported raw materials if it is to survive, Xaybandith Rasphon, the deputy chairman of the Association of the Lao Garment Industry told reporters in a Mar. 10 television interview.

“The government wants factories to promote jobs in our country and also use products that are produced in Laos instead of importing,” he said. “The government needs more domestic production but to do that we need tax cuts.”

The clothing industry is key to Laos’ economy. It sends out 10% of the country’s exports and employs slightly more than 1% of the country’s labor force, according to a 2016 World Bank report. Farming accounts for more than 80% of the workforce.

The industry in recent years has been affected by labor shortages, with many workers traveling abroad for greener pastures. Additionally, rampant inflation due to a maelstrom of causes, from the devaluation of the kip to higher oil prices due to Russia’s war in Ukraine, has meant higher raw materials costs.

Tax breaks

Companies that want an exemption on imported materials can apply for board of investors, or BOI, status, which will lower their import tax burden, the owner of a garment company in the capital Vientiane told RFA’s Lao Service on condition of anonymity for security reasons.

“My company uses BOI status, so imported raw materials necessary for production cost zero in taxes,” she said. “But the companies that do not qualify have to pay import taxes of around 5-10%, depending on what they imported.”

But she said that regardless of her import tax burden, the company is still struggling due to labor shortages, both of highly skilled and unskilled workers.

“Most Lao labor has gone to Thailand and South Korea because there is higher pay and they are more secure in terms of social security protection, health care and their ability to save money.”

A tax official who requested anonymity to speak freely said that the garment association has not yet made an official request.

“[They are] still in the process of collecting data from the garment council to send to the National Council of Trade and Industry,” he said. “Up until now, nothing has been done yet.”

According to Lao government statistics, there are currently 77 garment companies in Laos, 51 of which are large firms that produce for export. There are also 26 small and medium-sized companies producing clothes for domestic use.

Of the 53 companies that are members of the garment association, seven are owned by Lao citizens, six are joint venture companies and 40 are foreign owned.

Garments exported by Laos earned the country a total revenue of over U.S.$190 million in 2021. Its chief markets include the European Union, United States, Japan and China.

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