Notably, lotteries and prizes in cash or in kind in the amount of one million Kip or less are explicitly designated non-taxable under the Amended Tax Law. Furthermore, while under the law it may seem that only amounts below one million are not taxable, the one million figure essentially acts as a tax-free threshold – whereby only the excess of lotteries and prizes exceeding one million are taxed at 10%, creating a one million Kip tax-free amount for any windfall received.
It is also notable that prizes received for achievements in relation to scientific research and inventions, and rewards or prizes paid by an official authority to those who assist with "promoting compliance of the laws and regulations (of Laos)" are specifically non-taxable – regardless of value.
While the Amended Tax Law is not entirely clear on how the tax is administered, and further supplementary implementing regulations are still pending approval, it is understood that the tax is to be collected via withholding by the provider of such lotteries or prizes (Article 52).
However, this poses a difficult question: how can the income tax be withheld where the taxable item is a non-cash prize? This is a common occurrence in Laos, as the telecommunications companies and banks frequently run marketing promotions with non-cash prize giveaways – with prizes sometimes being as valuable as a motor vehicle.
It is expected that the pending implementing regulations will clarify the manner in which the tax is both calculated and collected. Having seen a draft of these regulations, which we acknowledge may change before approval, it is expected that the regulations will stipulate that where a non-cash prize is received, the recipient must obtain a tax payment certificate from the tax authorities to claim the prize.
It is also expected that the regulations will reiterate that in the event of a cash payment, the income tax will be collected via withholding by the payer and then reported to the tax authorities.
The implementing regulations are also expected to clarify what happens in the situation where the provider of a cash prize fails to withhold tax or distributes non-cash prizes in the absence of a tax payment certificate, and we expect that the provider of such prizes will be responsible for the income tax and any applicable fines – not the recipient.
With the income tax on lotteries and prizes provisions having been in force since October 1 2012, and in the absence of further implementing regulations, it is not clear how entities which provide such windfalls to customers have dealt with the tax so far.
Given the above, it is uncertain whether we may see this income tax being flagged in the tax audits of the 2012 and 2013 years, or if the tax authorities/Ministry of Finance will waive certain aspects of the tax given the delay in providing further guidance on complying with it.
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