Tax expenditures (TEs)—the revenue forgone through exemptions, deductions, credits, rate reliefs, and deferrals—are ideally designed to attract investment, promote key sectors, or support social outcomes. Yet too often, these instruments are deployed without systematic scrutiny. Estimating and reporting TEs is a critical first step toward understanding how much public revenue is forgone and whether such measures are achieving their intended objectives.

Countries such as Brazil and Indonesia have demonstrated how effective TE management—including regular reporting and evaluation—can strengthen tax policy decisions. Benin’s experience is particularly illustrative, making targeted reforms to improve the efficiency of its incentives.

Lao PDR has much to gain from following this path. Generous tax incentives have weakened its revenue base and exacerbated foreign exchange pressures. The World Bank estimates that the country’s corporate income tax (CIT) gap, which is the difference between potential and actual CIT collection, is nearly 90%. Despite this, the country still lacks a comprehensive TE report, making it difficult to assess which fiscal incentives truly deliver value and which are simply draining public resources.

To address this gap, UNDP is working with the Ministry of Finance under the National Planning for Inclusive Development (NPFID) project to produce Lao PDR’s first-ever Tax Expenditure Report. Initial groundwork conducted includes:

1. A benchmarking exercise to define TEs based on Lao PDR’s tax system, Benchmark Tax System,

2. Development of a pilot database initially analyzing 200 concession agreements—now expanded to over 500—to estimate forgone revenues,

3. Establishment of a Tax Expenditure Repository to identify relevant tax provisions, with ongoing efforts to automate and scale the database towards a more institutionalized TE reporting system.

This reform is not happening in a vacuum. The work aligns directly with Lao PDR’s domestic resource mobilization priorities outlined in the Financing Strategy of the Ninth National Socio-Economic Development Plan. It is especially timely given the country’s mounting fiscal pressures. Total public and publicly guaranteed debt (including expenditure arrears and swap) was estimated at  at 99.2% of GDP by the end of 2024, reflecting nominal GDP growth, efforts to contain new debt, and improvements in inflation.

In this context, the introduction of the Global Minimum Tax (GMT) framework offers Lao PDR an opportunity to further reform its TE policies. The OECD/G20 Inclusive Framework requires large multinational enterprises (MNEs) to pay a minimum effective tax rate of 15% globally. Tax incentives that reduce their effective rate below the threshold trigger a top-up tax in other jurisdictions, redirecting revenues away from the host country. For Lao PDR, this means overly generous incentives not only fail to attract sustainable investment but may also result in lost revenue being collected elsewhere.

Countries such as Indonesia, Viet Nam, and South Africa have begun reassessing their TE regimes in light of GMT. Lao PDR now has an opportunity to do the same: to align TE policy with international standards, reduce inefficiencies, and safeguard domestic revenue. As Lao PDR prepares its first comprehensive TE report, it is building the foundation for smarter, evidence-based fiscal policy. This allows the government to evaluate the effectiveness of current incentives, identify inefficient or overly generous incentives, and shift toward transparent, targeted, and performance-based tax policy measures.

For developing countries navigating narrow fiscal space, tax expenditures remain a critical but often underexamined element of fiscal policy. Lao PDR’s efforts to bring transparency, discipline, and strategy to this area signal an important step forward. If sustained, this reform could serve as a model for others in the region—and help secure the public revenue needed to drive inclusive and resilient development.