THE Lesotho Revenue Authority (LRA), under the leadership of Commissioner General Thabo Khasipe, recently announced with that it met its revenue targets for the first time in three years. Under Mr Khasipe’s stewardship, the tax authority collected and remitted to the government M6, 984 billion which was M114 million more than the set target of M6, 869 billion for the 2018/19 financial year. The Lesotho Times (LT) editor Herbert Moyo recently interviewed Mr Khasipe (TK) who attributes the success to a cocktail of client-centric measures that the LRA introduced as well as the “Team LRA” spirit among the board, the management and the staff. Below are excerpts of the interview.
LT: The Lesotho Revenue Authority (LRA), under your leadership has met its revenue collection targets for the first time in three years and congratulations are in order. How would you explain this success by the LRA?
TK: It’s really down to Team LRA rediscovering it’s winning spirit and collectively giving our all. The staff have been amazing in the last year in working collaboratively to first indulging in a hard-nosed and dispassionate discussions and analysis of our recent worrying performance. This culminated in a new five-year strategy comprising a diagnosis, a guiding policy and a set of coherent actions. Equally, the board has been very supportive in providing a good balance between provision of oversight to the management and allowing ample operational latitude for execution of the approved strategy. By appointing this clearly high performing board and giving it a very clear mandate of bringing back the glory days of LRA, the Hon Minister of Finance, Dr Moeketsi Majoro, also created an enabling environment for trying different approaches without fear of failure.
LT: What was done differently from the previous years which enabled the revenue collection targets to be met?
TK: As part of crafting of strategy, we adopted an approach that, contrary to the norm, does not start with a vision and mission. Rather we started by diagnosing our problem. If you think about it, it makes little sense to start envisioning and setting strategic objectives when you have not yet identified with clarity the nature of the problem you are facing.
Our diagnosis, culminating from organisation-wide frank discussions by the staff and external stakeholders, came up as poor leadership characterised by autocracy and a culture of heavy enforcement in dealing with both staff and the tax paying community at large. Internally, staff told us that as the leadership we paid little regard to their welfare and had a tendency to, for example, break promises. External stakeholders told us that we were not unresponsive, uncaring and very trigger happy with regard to enforcement and prosecution.
It is this diagnosis that then set the stage for a total turn around in approach by the authority as we crafted and started implementing our new five-year strategy. This strategy is premised on a broad guiding policy of “Building a service culture through collaborative leadership”. As such, our leadership approach has and continues to be as collaborative as possible whether among ourselves as Team LRA or with our clients. This collaboration has meant that we now view ourselves as service providers with a mandate of ensuring that we make it easy, convenient and least costly for our clients to fulfill their responsibility of paying taxes.
Some of the initiatives that resulted from this approach are, for example, the Voluntary Disclosure Programme (VDP), the Simplified Business Taxation (SBT) and, for some court cases where we were not convinced that there was deliberate intent to evade taxes, entering into out of court settlements which saw us collecting what was owed plus penalties as opposed to pursuing expensive long-drawn court cases.
Be that as it may, I’m convinced that what really gave us the edge this year relative to other years is the alignment of spiritual capital within the organisation. The staff clearly gave us, as management and the board, the benefit of doubt that we will walk the talk and not break our promises. They therefore put their hands on deck and showed us what they, if they do so desire, are capable of. As such, the ball is now in our court as the management and the board to keep our part of the bargain and be true to our word of prioritising the people’s issues.
LT: Are the strategies that you used to meet the targets sustainable in the long term or is it just a once off situation which will see the country sliding back to the era of unmet targets?
TK: As I just indicated, there is a big ‘if’ for this strategy to continue working. That is, if and only if, as the management and the board, we continue to be true to our promise to never take our people for granted. Motivated and skilled staff should continue to be one of our priorities just as our strategy maintains. The day that I, as the Commissioner General, begin to consider this good performance as a personal credit and not due to the commitment of staff, is the day that it will disappear like a mirage.
As long as we do not mess up with the spirit of Team LRA, I strongly believe the strategy, to the extent that it seeks to “build” a culture of collaboration and a culture of voluntary compliance, is sustainable. I honestly believe that from a behavioral point of view, the best way of bringing lasting change of behavior is to appeal to a human being’s intrinsic motivation to do the right thing, just because it is the right thing. A growing body of research in psychology and behavioral economics indicates that we all have an inherent bias towards doing well, especially if doing well is the norm. As such, our self-esteem is fed by the ‘other esteem’ – the positive feeling we get from being regarded as good citizens like everyone else.
Therefore, our strategy’s emphasis on being a facilitator of, and not just compliance but the voluntary kind, seeks to tap into this inherent human inclination and by so doing, it swims along the tide rather than against it. Indeed, it can be said that we have already tried the heavy enforcement approach over the past years with disastrous results. Suffice to say that, this strategy should not be interpreted as a one-size fits all which would render it quixotic. What we are saying is that we still retain the heavy enforcement stick of prosecution and/or distress action. However, we are more nuanced in how we deploy it as part of arsenal. We target it deliberately at those whom we determine as deserving it due to their deliberate conduct to evade.
LT: What are the challenges you have faced in meeting your targets in the previous financial years?
TK: The current state of the economy and the fact that even as we sought to meet the target, the organisation is undergoing a massive restructuring that has created, for staff including management, uncertainty and anxiety about job security.
With regard to the economy, it’s well acknowledged that our economy along with the whole region, is not in good shape. As such, meeting and exceeding revenue collection targets was a huge challenge. We believe that the focus of our approach towards extending the tax net through the VDP and the SBT, paid dividends and mitigated the limitations of the lethargic economy. It does also say that going forward, this has to be a key element of our collection efforts.
With respect to restructuring, it is really humbling that inspite if anxieties about job security, our people are convinced of the imperative to transform our organisation for improved performance. It is for this reason that they have put up such a great performance even as we restructure. It really behoves us, as the management, to ensure that we manage this process with care to maintain the invaluable trust that it depends on.
LT: What did those challenges and the failure to meet your targets tell you about the situation with regards to revenue collection and what strategies has the LRA rolled out to remedy the situation?
TK: The challenge of the economy told us that we could only grow revenue collection by expanding the tax net rather than trying to extract more and more from those already in the net. This is why we managed to grow revenue by 16 percent relative to last year while the economy itself barely registered a 3 percent growth. As I have indicated, expansion of the tax net through simplification of compliance processes and laws is going to be our focus to build a culture of voluntary compliance.
As regards staff motivation, it’s also become abundantly clear that our over emphasis on financial and physical capital (money and cars/buildings/assets) as sole sources of good performance is flawed. This is because we ignore the invaluable impact that the intangible sources of capital such as human capital (the people’s motivation and skills), spiritual capital (people’s sense of worthiness of purpose and commitment to the vision) and social capital (trust amongst ourselves and with our clients).
These are, for me, the instructive lessons from this outcome.
LT: What does this achievement mean to the fiscus given the background of gloomy reports of declining SACU revenues and slower than expected economic growth?
TK: It sure means a lot. You will have noted that in his budget speech in late February with a month to go before the end of the financial year, the Hon Minister of Finance projected a deficit of M400 million. As it turns out, our good performance implies that we have not only plugged that expected deficit but also topped it up with an extra M100 million. That is, a half a billion above and beyond the budget forecast. That can only be good to the fiscus although, given that it was already a deficit budget, it should not be interpreted as surplus revenue. More still needs to be done on both the revenue and expenditure sides of our budget in order to achieve a balanced and, hopefully, a surplus fiscal budget.
Importantly, domestic revenue as a percentage of the total collection continues to grow as SACU revenues decline. This indicates an increasing reliance of our government on the authority’s performance. We are not oblivious of this.
LT: Are we likely to see a widening of the domestic tax base targeting consumers and businesses as we have seen increases in various taxes including on fuel, communications, transport, alcohol and even tobacco?
TK: Matters of tax policy such as tax rates, are the purview of the Ministry of Finance. We do however, have a mandate of advising the Ministry of Finance on tax matters. As tax administrators worldwide, we loathe tax policy measures that create exemptions and a multiplicity of tax rates meant to achieve some policy objective. The reason for this is that it makes for a very complicated and expensive tax administration while also creating loopholes for individuals/businesses to seek better tax treatment through excessive tax planning and therefore harmful evasion of tax. As such, we prefer for the government to rather intervene directly through better targeted subsidies as opposed to exemptions. For example, rather than zero rating a certain product from VAT which benefits everyone including the poor, it may be better to devise a subsidy targeted at only the poor who buy that product.
Therefore, the idea of reducing the many preferential rates for telecommunications and water as the Honourable Minister has done should be seen in this light of making the tax system easier and less costly to administer. This should not necessarily mean that the government cannot design well targeted measures to reduce the tax burden to deserving sections of the population.
LT: Some would say that the consumers are being squeezed to a point where they may not be able to cope. What is your take on this?
TK: Not necessarily. As I have indicated, I see these new measures as part of tax system transformation that will inevitably be accompanied by other measures to ameliorate the negative impacts of a high tax burden.
There has been so much talk and complaints about the mining sector’s contribution to the fiscus with many saying the country does not adequately benefit from its diamonds. Companies continue to pay less than 10 percent royalties. What is the LRA’s take on this and what needs to be done to remedy the situation?
TK: Our take is that the mining sector presents an incredible window of opportunity for Lesotho to lift itself out of poverty and catch up with the rest of the region in terms of development outcomes. What is notable with this window is that it will not always be open because these diamonds are, by nature, none renewable. Estimates are that by the mid-2030’s we may be left with big holes in the ground as the life of many of the mines operating today come to an end. Against this background, it really becomes imperative that without delay we hold very honest dialogue with the mining companies to ensure fair mutual sharing of benefits from these natural assets. As investors who have risked their scarce capital, investors deserve a rate of return commensurate with the risk they have taken. At the same time, as the owners of the natural assets, the government as a custodian of both the current and future generations of Basotho have a responsibility of ensuring that benefits accrue to Basotho.
As advisers of the government in matters of tax, we stand ready and committed to participating in a dialogue that seeks to reform taxation of the mining sector towards ensuring fair sharing of benefits in-line with international taxation norms.
Some of the criticism including by the Finance Minister Dr Majoro is that the government lacks knowledge and expertise on the depth and value of its own mineral resources and takes the mining companies’ word for it. What has the LRA done or what is it doing to fully appreciate the mining sector so that it can be taxed adequately?
TK: We have engaged a mining consultant to advise us. He is working full-time. He will soon be helping us with establishing a mining taxation unit within the LRA.
What are your plans going forward to maintain the impressive tax collection and even better what has been achieved recently?
TK: Our strategy is a five-year commitment. It emphasises enhancing quality of service with a firm belief that it will build a culture of voluntary compliance, enhance revenue collection while also reducing the cost of collection. That way, providing good service is going to be our silver bullet of sorts.
LT: There have also been concerns about smuggling of minerals, tobacco and other goods which have deprived the LRA or taxes. What is the LRA doing about this and some of the non-commercial borders where some of the smuggling is said to occur?
We shall be mounting anti-smuggling initiatives targeting both alcohol and tobacco especially following the recent introduction of a levy on both. Regarding other border posts, we plan to lobby South Africa, through our own government for them to increase the number of border posts classified as commercial. We are looking at Sani Pass, Teele Bridge and Peka. We believe this will curtail the risk of smuggling while also enhancing the quality of service.