- as stakeholders warn of increase in illicit trade
MINING minister Tšolo Temeki this week tabled the Tobacco and Alcohol Products Levy Bill 2020 in parliament on behalf of the absent Finance minister Moeketsi Majoro.
The bill seeks to increase the tobacco levy by 30 percent and the alcohol levy by 15 percent.
This after Finance minister Moeketsi Majoro last year said the government intended to increase the levies during the 2019/2020 financial year. However, the increases may finally be effected during the 2020/2021 financial year when the supporting legislature sails through parliament this month.
However, stakeholders in the alcohol and tobacco products trade have immediately warned that the increases would fuel the black market and compromise revenue collection.
British American Tobacco (BAT), the distributor different brands of cigarettes, says this move could cost Lesotho.
The BAT also said the levy would be in contravention of the Southern African Customs Union (SACU) agreement since it was tantamount to a unilateral sin tax imposition by a member state.
“It is also our respectful view that the imposition of a levy would contravene the SACU Agreement, more particularly in that the levy in reality constitutes a unilateral ‘sin tax’ by a member state, which operates outside the revenue sharing and collection arrangement,” Nelson Jeque, BAT’s Legal and external affairs manager said in a statement this week.
He said the sale and distribution of tobacco products sustains at least 1 500 jobs in Lesotho while also generating over M12 billion revenue for the SACU revenue pool.
“This amount is shared among the SACU member states, including Lesotho. Historically, this high rate of taxation has opened up the SACU markets, including Lesotho to smuggled tobacco products from other non-SACU markets, thereby significantly impacting the excise revenues for SACU.”
Mr Jeque said was clear that the levies would “undoubtedly rapidly fuel the growth of the illicit market in Lesotho, translating to further revenue losses for government and the demise of the legal market together with the value chain it supports”.
He said the levy would be passed on to consumers by the legal industry thereby resulting in a further gap between the cigarette prices charged by the legal players compared to the prices of illicit cigarettes on the market.
“Accordingly, there will be a remarkable upsurge in illicit tobacco products on the market, leading to further erosion of government revenues from the industry.”
He said the implementation of the levy would leave a pack of 20 cigarettes costing M13 more in Lesotho than in South Africa and M18 and M23 more expensive than in Mozambique and Zambia respectively.
He said the levy would enable massive lucrative opportunities for smugglers while punishing taxpaying enterprises.
“Illicit trade in cigarettes also devalues investments in local operations and distribution networks of the legal industry. Illicit trade in cigarettes harms established brands and undermines the regulatory frameworks governing legitimate tobacco industry players. It is our considered view that by maintaining a stable tax regime for cigarettes, the legal industry will be able to put in place commercial strategies that will allow the recovery of revenue lost to the illicit tobacco markets thereby increasing government revenues.”
The Lesotho Liqour and Restaurants Owners Association (LLROA) president, Motseki Nkeane, said the proposed increase in alcohol levy would achieve the opposite of what it is intended for.
“I see the proposed levy increase affecting the profitability of the brewery and therefore reducing the tax revenue to be collected by the government,” Mr Nkeane said.
He added that this would also make it difficult for legal liquor dealers to sell their products while promoting illegal trading and smuggling of alcoholic beverages.
“Through the proposed levy increase, legal liquor dealers are in danger of being pushed out of business with too high prices while illegal dealing is likely to benefit due its ability to sell alcohol at lower prices.”
He also said raising alcohol prices would also force drinkers to opt for cheaper homemade brews which can be harmful to their health.
Instead, he said before implementing the increases, the government must address illegal trade of alcohol.
Last year, Dr Majoro had argued that the review of the two levies would improve government’s revenue collection by M200 million annually.
In his 2020/21 budget speech, Dr Majoro blamed the delay in finalising the relevant laws to effect the review of levies on parliament’s slow pace.
Therefore, this affected other tax policy decisions like the Income Tax Act; VAT Act; and the Tax Administration Bill. All three are expected to be implemented in the 2020/21 financial year.
Dr Majoro has also implored parliament to prioritise sessions dedicated exclusively to debate revenue policy and pass revenue laws, immediately.
“This budget does not propose any new tax reform initiatives but rather introduces proposals to expedite implementation of the previously announced tax policy reforms,” Dr Majoro said.
“To this end, my focus in this budget is to propose reforms to the legislative process in order to enable synchronisation of the tax policy pronouncements in the budget and the tax law. In particular, I recommend to the Parliament, its relevant committees and cabinet to institutionalise sessions dedicated exclusively to debate revenue policy and pass revenue laws, immediately after passing the budget.”
He said the country’s current tax system was unable to respond to the demands, opportunities and risks posed by the dynamic, interconnected world financial systems and curb transfer pricing, profit shifting and taxation of electronically provided services.