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Alcohol levy could be disastrous for Lesotho – Wagamang

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Staff Reporter

THE implementation of the proposed 15 percent alcohol levy in the

hopes of collecting M289m to supplement its budget deficit, Lesotho is doing itself a disservice as other African countries that have been down this road have proven that higher levies result in less revenue.

This is according to AB InBev Lesotho representative Sesupo Wagamang.

Mr Wagamang said the Lesotho government will inadvertently leave

itself and its people even more cash strapped when the state coffers

desperately need it.

His sentiments were contained in a statement this week. They come

after sustained overtures by the government to implement a 15

percent alcohol levy and a 30 percent levy on tobacco products.

Presenting his budget speech in parliament last month, Minister of

Finance Thabo Sophonea said “during 2021/22 fiscal year, the

government intends to introduce…an alcohol and tobacco levy at 15

and 30 percent, respectively”.

He said the government hoped to realise an additional M286, 6 million in revenue annually from the levies.

The levies have been on the cards since 2019 when former Finance

Minister and current Prime Minister Moeketsi Majoro announced that

the government intended to increase the levies during the 2019/2020

financial year.

The levies were not implemented due to the absence of enabling

legislation. In March 2020, Dr Majoro tabled the Tobacco and Alcohol

Products Levy Bill 2020 in parliament to give the government the legal

basis to implement the levies.

However, the increases may finally be effected during the 2021/2022

financial year provided the Tobacco and Alcohol Products Levy Bill is

approved by parliament this year.

Last year, parliament’s economic and development cluster portfolio

committee expressed reservations on passing the bill after hearing

presentations from stakeholders who opposed it.

And Mr Wagamang thinks the idea would be disastrous for Lesotho.

“Lesotho is surrounded by South Africa, for which AB InBev or South

African Breweries, is a primary source for alcohol imports,” Mr

Wagamang said.

“But, with the imposition of an alcohol levy, massive losses in sales due to three alcohol bans, and an eight percent excise tax increase for 2021 severely affect – the profitability of the industry is left in tatters.”

Mr Wagamang believes that all these factors only serve to curtail

alcohol sales in Lesotho and will cause its citizens to either turn to more affordable illicit alcohol and resort to smuggling due to porous borders – all of which will see Lesotho lose tax revenue instead of filling the gaps of its budget deficit.

 

Let Botswana be a lesson to us all

To illustrate his point, Mr Wagamang provided a case study where the

negative impact of alcohol levies was felt not only felt by the industry

but by the very government that set it in motion.

“It was in 2008 when Botswana first introduced a 30 percent levy on

alcohol products. By 2015, the levy had risen to 55 percent. This was

devastating for the local alcohol industry, with heavy drops in volumes and revenue that the Botswana government expected to gain,” Mr Wagamang said.

He said this levy, on top of the excise taxes levied on other Southern

African Customs Union (SACU) countries, increased the price of beer as it was fully passed on to the consumer as the brewery could not absorb it into its cost structure.

“In the end, the loss of jobs and livelihoods in the brewery value chain

were catastrophic and much opportunity was lost.”

According to Mr Wagamang, Botswana’s own Kgalagadi Breweries

could have doubled in size and provided much needed employment in

the time that the alcohol levy was enforced. He said the Botswana

government could have earned 23 percent more in revenue had they

not introduced the levy.

“This is the unintended economic impact of a levy in Southern Africa

but obviously Botswana was not looking to increase revenue but rather reduce harmful consumption of alcohol.

“Not only were people drinking less but many drinkers were forced to

resort to illicit and more dangerous alternatives compared to their preferred brand of legal brews, as well as shifting from low alcohol by

volume (abv) products to high abv products which created more harm

and put the health system under pressure,” he said.

In 2018, the Botswana government reduced the alcohol levy to 35%,

ostensibly to attract foreign investment and create employment but

Wagamang said this will likely take years to come to fruition.

 

Can Lesotho learn from this?

Even though there is a long line of Lesotho Ministers of Finance who

have touted private sector growth through investor-friendly policies,

the current Finance minister Thabo Sophonea has gone so far as to

refer to extending a “red carpet treatment for real investors”.

Mr Wagamang argued that Maluti Mountain Breweries falls into the

“real investor” category having contributed almost M2 billion in taxes

and dividends to the fiscus over the last six years. This is over and

above the direct employment of 350 Basotho and the support of 1220

traders who also employ workers, he said.

He estimated that the entire alcohol value chain has at least 25 510

direct and indirect employees.

“If Lesotho goes the same way as Botswana, then the industry and its

contributions to the government will no doubt follow suit. Given the

high unemployment being faced by the country right now, this is hardly the outcome that the Lesotho government is banking on.”

Mr Wagamang argued that private sector growth goes hand in-hand

with investor-friendly policies. “Consultations with industry should be

encouraged to ensure win-win solutions are mutually agreed. We

cannot survive on restrictive policies that may see us drown in

unintended consequences. Lesotho needs to make the smart choice

and let industry in,” Mr Wagamang said.

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