Tšepang Mncina
Taxation is often described as the price citizens pay for civilization. It is the lifeblood of every functioning state, enabling governments to provide public services, build infrastructure, invest in education and healthcare, maintain security, and protect the most vulnerable members of society. In Lesotho, as in many jurisdictions around the world, employers, be it in the public or private sector play a pivotal role in the tax system by acting as agents of the revenue administration. They collect taxes on behalf of the government, particularly Pay As You Earn (PAYE) and Value Added Tax (VAT), before remitting these funds to the Revenue Services Lesotho (RSL).
Unfortunately, an increasingly troubling practice has emerged in some organizations and companies: taxes are duly deducted from employees’ salaries or collected from consumers through VAT, yet these monies are not remitted to the RSL as required by law. This conduct is not merely a breach of tax legislation; it represents a profound betrayal of public trust, undermines economic development, jeopardizes employees’ financial security, distorts fair competition, and weakens the government’s capacity to deliver essential services.
The implications of this practice extend far beyond unpaid tax liabilities. They affect every Mosotho, directly or indirectly.
The Employer as a Trustee of Public Funds
When an employer deducts PAYE from an employee’s salary, those funds cease to belong to either the employer or the employee. Similarly, when a business charges VAT to consumers, it is not collecting additional business income. In both cases, the employer or business merely serves as a custodian or trustee of government revenue.
The taxes withheld belong to the Government from the moment they are collected. They are held temporarily by the employer solely for the purpose of remittance to the RSL within the prescribed statutory period.
Failure to remit these funds is fundamentally different from merely failing to pay one’s own tax obligations. It involves the retention, and, in many cases, the utilization, of money that belongs to the public. It is, in effect, an unauthorized appropriation of public funds.
Businesses/organisations that use withheld PAYE or collected VAT to finance operations, settle suppliers, pay creditors, or cover cash-flow shortages are effectively financing their businesses with money that was never theirs.
Such conduct cannot be justified by financial hardship. Cash-flow constraints do not alter the legal or ethical obligation to remit taxes collected on behalf of the Government.
The Hidden Victims: Employees
Employees are often the first and most immediate victims of this practice. Every month, employees faithfully see PAYE deducted from their salaries with the reasonable expectation that these deductions are being remitted to the RSL. Most employees assume they have fully complied with their tax obligations because the deductions appear on their payslips.
However, where employers fail to remit the tax, employees may face significant uncertainty and hardship. The consequences may include: difficulties in obtaining tax clearance certificates where required, complications in resolving personal tax matters, stress and uncertainty arising from discrepancies between payroll records and tax administration records and administrative burdens in proving that taxes were indeed deducted, to mention just a few.
Perhaps most damaging is the erosion of trust. Employees who have fulfilled their obligations in good faith should never bear the anxiety caused by an employer’s failure to honour its legal responsibilities. This practice undermines confidence not only in employers but also in the integrity of the tax system itself.
VAT: A Tax Paid by Consumers
The same concerns apply to Value Added Tax. VAT is borne by the consumer. Every time citizens purchase taxable goods and services, they pay VAT with the expectation that this money will support national development through public revenue.
Businesses simply collect VAT on behalf of government. When a company charges VAT but fails to remit it, consumers unknowingly contribute to an unlawful diversion of public resources. The business gains an unfair financial advantage by retaining funds that should have entered the national fiscus.
In practical terms, this means that every customer who dutifully pays VAT may unknowingly be financing a company’s working capital instead of contributing to hospitals, schools, roads, policing, or social protection programmes.
The Unfair Competitive Advantage
Businesses that comply fully with tax obligations often find themselves competing against businesses that unlawfully retain VAT and PAYE collections. This creates an uneven playing field.
Companies that retain tax funds temporarily enjoy greater liquidity. They may; offer lower prices, expand operations more aggressively, finance inventory without borrowing, delay creditors less frequently, and or present healthier cash-flow positions.
Meanwhile, compliant businesses shoulder the true cost of compliance, potentially placing themselves at a competitive disadvantage. Over time, such distortions discourage voluntary compliance and create the dangerous perception that dishonesty is commercially rewarding. A healthy market economy depends upon fair competition, not competition financed by withheld public revenue.
The Cost to the RSL
The RSL bears the difficult responsibility of mobilizing domestic revenue to finance government operations. Its success depends heavily on voluntary compliance aligned to our self-assessment system.
Where employers and businesses systematically fail to remit PAYE and VAT, the consequences include; reduced revenue collection, increased enforcement costs, greater administrative burdens, increased litigation and lower public confidence in tax administration.
Instead of allocating resources toward improving taxpayer services, digital modernization, and compliance education, valuable institutional capacity is diverted toward recovering revenue that should never have been withheld in the first place. The cost of enforcement ultimately becomes another burden on taxpayers.
The Ripple Effect on the National Economy
The broader economic consequences are profound. Taxes finance development. Every Loti withheld unlawfully represents one less Loti available for the Government to invest in national priorities. In developing economies such as Lesotho, where fiscal space is already constrained, every lost tax contribution has amplified consequences. Government may be forced to increase borrowing, postpone infrastructure projects, reduce public services, or defer essential investments.
These choices have long-term implications for economic growth and national competitiveness.
The Greatest Burden Falls on the Poor
Ironically, the greatest victims of tax non-remittance are often those who have the least. The poor rely disproportionately on publicly funded services. When revenue collection declines; clinics experience medicine shortages, schools struggle with inadequate resources, roads deteriorate especially in the rural areas, social grants, such as elderly pension, become more difficult to sustain and infrastructure projects are delayed which then lead to increased unemployment and poverty.
Affluent citizens may have alternatives when public services deteriorate. They may access private healthcare, private education, or privately funded utilities. Poor households have no such options. They depend almost entirely on publicly financed services. Every act of withholding public revenue therefore widens inequality. It is the poorest communities that bear the heaviest consequences of weakened public finances.
Eroding the Social Contract
As I have already indicated, tax compliance is not merely a legal obligation. It is a cornerstone of the social contract between citizens, businesses, and government. Citizens agree to contribute to the public purse with the expectation that government will deliver services for the common good. Employers entrusted with collecting taxes occupy a particularly important position within this social contract.
Failure to remit PAYE and VAT weakens this covenant. When taxpayers observe that some businesses collect taxes yet fail to remit them, confidence in the fairness of the tax system declines. Voluntary compliance depends heavily upon public perception that everyone contributes fairly. Once this confidence erodes, broader tax morale may begin to deteriorate.
Corporate Governance and Ethical Leadership
Strong corporate governance demands more than profitability. Boards of directors, accounting officers, finance executives, auditors, and senior management all carry fiduciary responsibilities.
The decision to retain withheld taxes is rarely accidental. It often reflects broader weaknesses in governance, internal controls, financial discipline, or ethical leadership. Responsible corporate leaders recognize that taxes collected on behalf of government should never be treated as working capital. Ethical leadership is demonstrated not during periods of financial prosperity but during periods of financial pressure.
Strengthening Compliance
Addressing this challenge requires a coordinated national effort. The RSL should continue strengthening compliance monitoring tools, including digital reporting systems, taxpayer education, and employing enforcement mechanisms. Timely audits and visible enforcement against deliberate non-compliance can reinforce the message that taxes collected on behalf of the Government are inviolable. Criticism that often emerges suggesting that these initiatives discourage investment or create an unfriendly business environment need to be examined critically.
A predictable, transparent, and fairly administered tax system is not an obstacle to investment. On the contrary, it is one of the defining characteristics of an attractive investment destination. Serious investors do not seek jurisdictions where tax laws are weakly enforced or selectively applied. They seek countries where institutions are credible, governance is sound, and all market participants compete on equal terms. Investors value certainty above permissiveness.
Employees, on the other hand, should not assume that the deduction of PAYE from their salaries means their tax obligations have been fully met. They have a responsibility to file their income tax returns as required, as this enables them to identify discrepancies in their tax records at an early stage, including instances where their employers may have failed to remit PAYE deducted from their salaries to the RSL. Where such discrepancies arise, employees should seek clarification and demand accountability from their employers, while promoting transparency and compliance within their workplaces.
A National Responsibility
Lesotho’s aspirations for inclusive economic growth, sustainable development, and poverty reduction depend significantly on the country’s ability to mobilize domestic resources. Every school built, every clinic equipped, and every kilometre of road constructed, is made possible, in part, through taxes that are honestly collected and faithfully remitted.
Organizations/businesses that deduct PAYE or collect VAT but fail to remit these funds undermine more than the tax system, they undermine national development itself. They compromise fiscal stability, weaken confidence in public institutions, distort competition, and deprive the Government of resources needed to improve the lives and Basotho’s livelihoods.
Ultimately, tax compliance is not simply about obeying the law. It is about recognising a shared responsibility to contribute to the nation’s progress. Businesses entrusted with collecting taxes occupy a privileged position within that system, and with that privilege comes an unwavering duty to act with integrity.
The question before every employer and every business is therefore not whether they can afford to remit PAYE and VAT, but whether Lesotho can afford the consequences when they do not. The answer is clear: it cannot.
Protecting the integrity of the tax system is therefore not solely the responsibility of the RSL. It is a national responsibility shared by all arms of government, the business community, professional bodies, civil society, and every citizen.
Ms Mncina is the RSL’s Public Relations Manager
