Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
4.4 Government Policy and Regulatory Framework

4.4 Government Policy and Regulatory Framework

The Government recognizes the importance of an appropriate legal and regulatory framework in order to facilitate business development and economic growth. Recent laws have included: Property Law, Tax Law, Business Law, Foreign Direct Investment Law, Labour Law, Secured Transaction Law and Bankruptcy Law.

However the country's legal system remains incomplete in many key respects. For several years following the introduction of the market-oriented approach, the state wanted to maintain controls over private business investment and growth. This did not permit the development of a transparent and consistent framework to give private sector businesses their necessary freedom of operation. In the light of globalization, business competition, and the development approaches of international agencies such as JICA, ADB and UNIDO, the State decided to review its policies. As a result a more enabling regulatory framework has been introduced. (JICA's workshop on "Macro Economic Sector support", March 2002; Asian Development Bank's workshop on "Private Sector Development:; March 2002; and UNIDO's workshop on "International Experiences on Support SMEs Development", May 2002.) In May 2002, for example: the government announced new business registration regulations which reduced the time needed to get a business license from several days to one. (Vientiane Times "Firms enjoy fast permission to register", May 28-30, 2002, Vol. 9, No. 42, p.1-2.)

Despite this progress, small businesses in Laos still find themselves operating in an economic and business environment that is generally unfavourable. This is seen in a number of ways:

• Because policies tend to be biased towards larger businesses, export-oriented sectors such as garments, timber and energy and a few large enterprises have been granted preferential rights for doing business in certain sectors. Most strategic sectors are dominated by a small number of large players, making the small entrepreneur's access to finance, equipment, raw materials and other inputs costly and difficult, and the state still maintains significant control over key sectors through a quota system or through its own enterprises.
   
• Micro and small business owners have limited knowledge of business law and taxation. Most small businesses have to pay their taxes in a lump sum. This is usually unrelated to their revenues or profits and is determined as a result of negotiations between taxpayer and tax collector. Micro and small businesses do not enjoy the tax incentives of some large businesses.
   
• Start-up and transaction costs for doing business are high due to complex administrative procedures and often to the corrupt practices of some government officials. The uncertainty and lengthy procedures for obtaining import licenses and permits have contributed to price increases for raw materials and so higher costs for the finished product.
   
• Micro/small enterprises have difficulty in distributing their products nationally. Goods and raw materials moving from one province to another often undergo several customs checks and tax processes, all of which add to the final cost of the products.

4.4 Government Policy and Regulatory Framework
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

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