From the outset of the founding of the LPDR in 1975, development expenditures depended primarily on foreign aid, continuing a pattern begun in the 1950s. In July 1990, more than half of the state's total revenue came from foreign aid and loans. Until 1988 the bulk of current government revenue-- excluding capital receipts--came from nontax sources, mainly from surpluses of state-owned enterprises. Revenue increased nearly four times between 1984 and 1986, and again by over than one-half between 1986 and 1988, due almost entirely to nontax sources. Tax collection is difficult because of the widely dispersed population and poor organization and management of the collection process.

An annual rice tax was assessed on all paddy land. The tax collected was in principle divided between provincial and national budgets, but in practice much was retained in the district of collection for in-kind salary support of local officials and military personnel. Where villages had schools, a portion of the tax collected was delivered to the local teachers(s). The paddy tax rate varied between sixty and 120 kilograms per hectare, depending on the quality of the land and was reduced to forty to 100 kilograms per hectare in the early 1990s. The paddy tax rate amounted to roughly 5 percent of the seasonal yield but could be forgiven in the event of a crop failure. A separate, lower tax, was assessed on swidden rice fields. Collection from more remote villages without road access was always problematic. Between 1983 and 1986, an improved system of business taxation was implemented despite this, by 1987 the share of nontax sources had reached over 90 percent of current revenue, from about 70 percent in the early 1980s.

Substantial qualitative changes in fiscal management beginning in 1988 were introduced at most levels of government, and the implementation of limited tax reforms changed the fiscal situation dramatically with 75 percent of state revenue coming from taxes. Nontax revenues declined by 62 percent, however, as the traditional revenue source--profits from the state-owned enterprises--continued to decrease thus, current revenue only increased by 42 percent. To increase revenue, Decree 47--on the national tax and customs system--was promulgated in June 1989 the decree broadened the tax base by expanding coverage of personal income and corporate taxes and improving collection and revenue administration methods. Import, profit, and turnover taxes were also increased. Fiscal revenue responded positively to the new tax reforms, increasing substantially from 1989, to about 11 percent of GDP in 1990 revenue from taxes alone increased by 62 percent. Transfers from public enterprises rose by 63 percent in 1990 over 1989 figures, and other nontax revenue increased as well, including lease payments to the government and overflight charges. The composition of revenue remained about 75 percent tax-based through the early 1990s.

Government revenue actually dropped from 11 percent of GNP in 1986 to 9.6 percent in 1990. However, its annual growth rate increased dramatically, from 9 percent in 1987260 87 to 63 percent in 1990--partially a rebound from the drop in revenue in 1989. GNP also is subject to dramatic fluctuations, falling from almost US$2.4 billion in 1985 to about US$600 million in 1988. By 1991 GNP had increased to approximately US$1 billion, from approximately US$863 million the previous year.

Data as of July 1994