A/HRC/41/39/Add.2 Although tax policy can be used to address inequality, the Lao People’s Democratic Republic currently collects most of its revenue from the value added tax (VAT), 18 which imposes a greater burden on poor people. Income taxes, which are levied progressively, account for less than 10 per cent of the Government’s tax revenue,19 and representatives of the Ministry of Finance said that the Ministry paid no attention to inequality in taxation and budgeting.20 25. Tax revenue as a percentage of GDP should be increased and social sector expenditures and investment significantly enhanced. Existing tax and tariff exemptions should be publicly disclosed and evaluated for their fiscal prudence and contribution to the overall economy, given the extensive revenues foregone. Tax policies should address rising inequality, which inhibits growth, and the Government should analyse the distributional impact of tax policies on different groups and ensure that the tax system is progressive. Continued reliance on VAT policies should be offset by measures to increase the real income of the disproportionately affected poor households. Public debt and the Belt and Road Initiative 26. Although increasing indebtedness may be economically justified, the nature of the debt matters. Both the amount of debt and the terms, including interest rates, service costs and default provisions, can diminish the funds available for future generations. The country has taken on significant public debt to finance major projects, increasingly on opaque and non-concessional terms, with unknown implications for the future. 21 The Government should be transparent about the full amount and nature of debt, and associated liabilities, that it has taken on. 27. The role of the Belt and Road Initiative (BRI), the ambitious global infrastructure programme of China, exemplifies the issue. Owing to the Lao People’s Democratic Republic having borrowed heavily from China to finance BRI projects, in 2018 it was named as one of eight countries at particular risk of debt distress. 22 Between 2010 and 2015, China’s share of Lao public debt rose from 20 per cent to 45 per cent, 23 and the value of China-backed infrastructure projects in the Lao People’s Democratic Republic exceeded nominal GDP in 2017.24 28. Given the increasing importance of BRI to the Lao People’s Democratic Republic, the implications of BRI-related debt will play an increasing role in shaping the country’s economic policies and determining its ability to ensure social well-being and poverty reduction. Unfortunately, the terms of many Chinese infrastructure projects are far from transparent, and rumours abound about what valuable collateral the country has pledged in case of default. Due to that opacity, it is difficult to evaluate whether the terms, service costs and consequences in case of default will pose a threat in the long term. The country is certainly not alone in that regard. Although parts of the United Nations system are framing 18 19 20 21 22 23 24 8 Bank of the Lao People’s Democratic Republic, Annual Economic Report 2017, p. 23. Ibid. Meeting with Ministry of Finance, 25 March 2019. International Monetary Fund, “Lao People’s Democratic Republic : 2017 Article IV Consultation”, pp. 5 and 9. John Hurley et al (Center for Global Development), “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective”, March 2018. Available from www.cgdev.org/publication/examining-debt-implications-belt-and-road-initiative-a-policyperspective. According to one research institute, the Lao People’s Democratic Republic received the fourth highest amount of aid, among recipients of Chinese non-concessional official flows in the world from 2000 to 2014. College of William and Mary, “China’s global development footprint”, AIDDATA. Available from www.aiddata.org/china-official-finance. World Bank, “Lao Economic Monitor,” April 2017, p. 11. Available from http://pubdocs.worldbank.org/en/933741497262078111/LEM-PPT-English.pdf. United Nations, Department of Economic and Social Affairs, “Current activities of BRI in Lao PDR”, 6 November 2018. Available from www.brisdgs.org/sites/default/files/inlinefiles/Current%20Activities%20of%20BRI%20in%20Lao%20PDR_2.pdf.