Alcohol, tobacco giants say LRA wants double tax from SACU and business – LRA says users not traders will pay

By Nthakoana Ngatane

JOHANNESBURG – On Monday the Lesotho National Assembly is expected to hear recommendations for new levies on the sale of alcohol (3%) and tobacco (6%), but industry says the ministry of finance and Lesotho Revenue Authority ignored their objections, and didn’t include them in the final submissions to parliament.

According to the order paper, the economic and development portfolio committee is scheduled to table the Tobacco and Alcohol Products Levy Bill 2021.

Committee chair Mahooana Khati says LRA wanted levies of 30% on tobacco and 15% on alcohol.

He says it was not an easy exercise in which government told parliament that it needs to collect more revenues, and this is the only way, because all other industries have been affected by covid19, while the sale of tobacco and alcohol went on illegally at even higher prices during lockdowns.

“After consultations that have been going on for more than a year, the committee failed to reach consensus between the LRA on behalf of government, and the Lesotho Chamber of Commerce and Industry, LCCI, on behalf of business.  So, we decided to make the recommendations for parliament to decide.  Even though we don’t want to see an increase in unemployment, we were holding government hostage by delaying the decision.” says Khati.

He says LCCI’s Fako Hakane and the Maluti Mountain Brewery, MMB, appeared before the committee to oppose the levy on behalf of business, but Hakane denies that business was given enough opportunity to present its case.

“I wrote to the speaker on Thursday (September 23, 2020) to request an urgent meeting because after our first representations many months ago we haven’t heard anything.  We were shocked to hear that the committee will be tabling its report.  We are scared about what’s going to be said on Monday.” Said Hakane

Business says the LRA is already collecting revenue from the Southern African Customs Union – SACU, therefore parliament should not be asking for more.

Tobacco manufacturer, British American Tobacco, says it wants parliament to know that it is not happy with the introduction of the levy.

Nelson Jeque, Head of Legal and External Affairs Southern Africa Markets says “the committee requested a response from the government on the concerns raised by industry, but only after the feedback additional consultation was supposed to take place.”

He says BAT pays SACU excise duties of 18-rand per packet of cigarettes, that is sold for up to 55-rand to consumers, and Lesotho is already earning a share of those revenues from tobacco and alcohol, so the kingdom will effectively be taxing the industry twice.  

“This levy itself violates SACU and other customs agreements on double taxation.  It will also discourage above-board tobacco and alcohol trade, and push people to illicit trade that will in turn impact the economy.  Legitimate, tax-paying businesses and the country’s economy will suffer” says Jeque

BAT says the ministry of finance ignored all the inputs made, and finance submitted a report to the committee suggesting that the industry had no compelling reasons against the levy.

“We submitted a paper to the committee indicating the facts. I’m sure they thought the concerns were considered when they reduced the rates, which is still wrong.” Says Jeque.

Lesotho Express News asked Khati if his committee was aware that stakeholders are unhappy, and he says while LRA told parliament that it consulted the stakeholders, he is aware that there are grievances.

He referred the publication to LRA for details on those consultations but expressed concern that parliament has previously been embarrassed by government departments that take short cuts and make the national assembly look like it undermines consultation.

LRA says the levy is intended to discourage the abuse of alcohol and tobacco, that consultations with stakeholders about it have been going on since 2012, and the bill was first tabled two years ago, so all stakeholders have had ample opportunity to make their contributions to it.

Legal Officer for Legislative Research – Refuoehape Posholi- says industry has maintained that the levy wouldn’t achieve the objective of controlling abuse, but it hasn’t offered any other solution.

He weighed in on the view that the levy will be double taxation: “SACU allows domestic levies like the one that Botswana introduced in 2008 for the same reason as us, to curb the abuse of alcohol and tobacco.”

In 2008, then Botswana president Ian Khama wanted to impose a 70% levy on alcohol but settled for 30%, and the levy has been in place since then.

Posholi adds that industry cannot complain because the levy doesn’t add to its selling price.

“This is a consumption levy – to consumers or end-users – they just have to collect it like VAT, but their products will still be sold at their price.” Says Posholi

He says industry should not link the levy to increased illicit trade, because both government and the private sector should tackle it together so that all traders should be tax compliant.

BAT warns Lesotho that following the example of Botswana will have dire consequences.

“As we speak today, the example of Botswana can be used to show that there is revenue reduction and huge increase on illicit trade of cigarettes.  It is clear that the introduction of the Levy only has revenue increase purpose.”

Jeque has also responded to Khati’s view that increased alcohol and tobacco sales during lockdowns is an indication that the industry can be charged levies saying: “they need to show proof that the increase in sales is reflected in their tax revenues. I’m sure it is not, as most of those sales were illicit. It actually proves the reasoning that people will always find a way to consume the products even through illegal means.”

Industry also says the covid19 pandemic has hit hard not only because of lockdowns that prevented sales, but mostly because of illicit trade from players that don’t even pay tax.  

The industry says until Lesotho has put in place mechanisms to protect tax paying traders, finance shouldn’t be asking for a levy, and any talk of a levy should be deferred until the economy has recovered.

CONTRIBUTION TO PUBLIC HEALTH – What industry hasn’t been able to answer however, is how much it is contributing to the prevention of harmful alcohol and tobacco use, that the World Health Organisation says is one of the leading risk factors for the global burden of disease. In Lesotho it also leads to road injuries and fatalities.

In 2019 Blue Cross, the country’s only rehabilitation centre for alcohol and drug addicts, shut down following a fallout with the ministry of health that stopped funding it.

The ministry of health says the centre was not complying with its standards for accountability to qualify for continued subventions.

Lesotho Express News has asked MMB managing director Sesupo Wagamang about the company’s current contributions towards the health impact of alcohol, and he has yet to respond. Maluti Mountain Brewery has monopoly in Lesotho, and 39% of its shares are owned by AB InBev, a global giant that has elaborate policies on reducing the harmful use of alcohol and promoting road safety.

However BAT says Lesotho has not conducted any studies to show the impact of tobacco and alcohol consumption in the country.

“There are other measures that can help the response in relation to accidents.  Government has not shown the number of patients with tobacco related disease or the cost associated. This shows why there is a need to do a proper study.” Says BAT Head of Legal and External Affairs Southern Africa Markets – Nelson Jeque

Back in parliament, committee chair Khati says adopting the report is not the final step, and stakeholders and the public will still have the opportunity to engage parliament when it considers the outcome of its own consultations before the voting process is undertaken.

However, he says if at the last stage of tabling the final bill there are no objections within 10 days, the bill will pass.

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