Lao can win from in close or far away, thus making him more versatile of the two. But Baraka always matches up well against Lao. This battle shows yet again why Baraka is mid-tier; he is a great pick against someone as good as Lao.
BARAKA
One of the only characters that can keep Lao honest in the air, you'll want to use Baraka's jump punch a lot. It gets you in close to Lao, and acts as a guard in the air as it beats Lao most of the time. Once in close, apply all methods of jab from double kicks to blade swipes. Use sweeps to try to knock Lao off his feet, and then sneak in. Buffer the shredder in anticipation of Lao's teleport- he can't block it. Blade spark when Lao runs to the opposite end of the screen, and watch for that teleport so you can catch him in blade fury (shredder). Only use Baraka's god-like jump kick when you think Lao will be throwing a hat. Otherwise Lao can uppercut you, or jump punch/dive kick combo.
LAO
Really depends how you're more comfortable playing. Lao can outsweep Baraka in close, but Baraka's jab is mighty scary, so you might opt to stay away. I like to always keep my opponent guessing with Lao. Play from afar, then attack, throw in some teleports, etc. Whenever you jump, you want to jump punch, because you will need it to beat Baraka in the air. If Baraka does a shredder without you near, teleport behind him, take a step in, and whirlwind spin/hat throw combo him. A good play with Lao is throwing a few hats, and then whirlwind spinning. Lao's uppercut is incredible- use it to anti-air when Baraka jump kicks you.
6-4 for Lao. A tank Baraka can really give Lao problems.