By Nthakoana Ngatane
MASERU – The shocking admission by the chairperson of Parliament’s economic and development portfolio committee, Mahooana Khati, that the IMF is behind the proposed introduction of a steep levy on alcohol and tobacco explains a lot about the process.
Khati said it was “unfortunate that we are controlled by other countries”.
It is now clear why there has been no consultation with many of the businesses that will be most affected by the levy, and no socioeconomic impact study to determine if the levy will achieve its intended outcomes of reducing smoking and drinking, or raise the M200 million in taxes that the government says it will.
Lesotho already has an excise tax on these products, which has the same aim and is the highest in the region, so it’s not clear what the additional levy is supposed to achieve that the excise tax can’t.
Consumers would not only be hit with a double tax on alcohol and tobacco, but because the levy will be a sales tax charged on each transaction along the value chain, it will greatly increase the price of these products at the end point, with VAT charged on top.
The problem with imposing interventions that are dictated from abroad is that no consideration is given to local conditions that will affect how things work in practice here.
Lesotho has a large and growing problem with the illicit trade in tobacco and alcohol products, among others, and the levy will make this problem worse by increasing the price difference between legal products that pay taxes and cheaper illicit products that don’t.
Consumers will simply switch to illicit products, driving legal traders out of business. This has been the experience in both South Africa and Botswana, where illicit trade has grown to 50% and 30% of the market respectively.
The ministry of finance and the Lesotho revenue authority try to argue that the high illegal sales of alcohol and tobacco during the covid19 lockdowns is proof that sales won’t be affected, but MEC deputy leader T’sepang T’sita-Mosena dismissed that argument saying “that is more proof that increased prices won’t curb high usage”.
Instead of increasing government tax revenue, the additional levy may actually decrease it. This has also been the experience in South Africa, where successive above-inflation increases in excise tax on tobacco have been accompanied by missed tax collection targets every year. Botswana is a similar story since the introduction of a levy in 2012, and now has an illicit market at circa 30%.
This is because drastically increasing tobacco and alcohol taxes causes a mass migration of consumers to illicit products and a huge drop in sales for legal business that pay their taxes.
Some business that rely almost completely on tobacco and alcohol sales will be destroyed by this levy as their customers head for the informal market where they will be able to get the same products for less money, yet the government hasn’t consulted them on this bill.
In fact many of them were not even aware of the proposal at all, while the government says it will consult them when it is implemented. This will be too late for their inputs to make any difference.
It is shocking that the Lesotho government has chosen to surrender the country’s sovereignty to a foreign body, at the expense of local businesses and jobs, who have a constitutional right to be heard.
The government should first do a proper impact study, looking at all the possible unintended consequences, the size of the illicit market in Lesotho and the incidence of smoking and drinking, followed by a proper consultation process.
Anything less would be a betrayal of our democracy.
