…‘sin tax’ on alcohol and tobacco set to spark price increases
BEER drinkers are among those who will have to dig deeper into their pockets after the government resolved to increase taxes on alcohol by a whopping 15 percent. The public should also brace for increases in the taxes on fuel, tobacco and telecommunications.
Finance Minister Moeketsi Majoro proposed the increases in his budget speech which was presented to parliament this week.
The only concession on taxes to the public is the abolition of the tax on sanitary towels for women and girls “as a way to increase access and improve school attendance”.
While the move to increase the taxes is expected to boost government revenues, it is likely to result in a wave of price increases which will affect the public, including the civil servants who were not awarded salary increments in the budget that was announced by Dr Majoro.
The planned tax increases come against the background of the Lesotho Revenue Authority’s failure to meet its tax revenue targets for the third year in a row. The tax authority missed its target by M400 million.
And on Tuesday, the Finance minister unveiled an M18, 1 billion budget which is premised on the need to address the challenges of extreme poverty, fiscal deficit and high unemployment by curbing government spending and investing in projects that will create jobs.
In his speech, Dr Majoro said government revenues for the 2019/20 financial year were expected to rise by 3, 4 percentage points of the Gross Domestic Product (GDP) to M18, 1 billion or 46 percent of GDP.
He said this recovery would be premised on the introduction of additional revenue-generation measures including the a 30 percent levy on the sale of tobacco, a 15 percent levy on the sale of alcohol and three percent value added tax (VAT) on telecommunications.
“For the 2019/20 financial year, revenues are expected to rise by 3, 4 percentage points of GDP to M18, 1 billion or 46 percent of the GDP,” Dr Majoro said.
“The (expected) significant recovery reflects additional revenue measures including the introduction of a 30 percent levy on the sale of tobacco, a 15 percent levy on the sale of alcohol, a 30 cents per litre increase in the fuel levy, and a half percent increase in domestic tax collection, and an additional three percent VAT on telecommunications.
The proposed tax on alcohol has already attracted strong protests from the management of the Maluti Mountain Brewery (MMB) who say the move will lead to steep increases in the price of alcohol and even encourage smuggling from neighbouring South Africa.
“As one of the country’s largest employers, MMB remains a significant contributor to the country’s economy through taxes and the employment opportunities it offers. It is however, concerned by the impending negative impact a levy of this nature will have on its business and the liquor industry as a whole.
“There are a number of implications associated with the introduction of this levy, many of which will put our business in an unfavourable position. The most important of which is the likelihood of consumers switching to informal alcohol and the increased opportunities for smuggling, which is contrary to the government’s goal with this levy,” said Sesupo Wagamang, the Country Managing Director of MMB.
Last year, the government increased VAT from 14 to 15 percent as part of measures to increase its revenue base in the face of declining shares from the South African Customs Union (SACU) receipts and shortfalls in the LRA’s revenue collection targets.
In his 2018/19 budget, Dr Majoro also proposed to gradually increase VAT on telecommunications and electricity, which then stood at five percent to align to the unitary rate of 15 percent. VAT was increased by 4 percent for telecommunications and 3 percent for electricity during the 2018/19 financial year.
And the government is not stopping at just increasing taxes on alcohol, fuel, tobacco and telecommunications in the upcoming 2019/20 financial year as Dr Majoro has promised “additional measures to increase fees and charges that have remained stagnant over many years”.
In addition, Dr Majoro said the government will push for the “enactment of Tax Administration Bill, Income Tax Bill, the Customs Bill and the VAT Bill which will provide for implementation of the reverse charge mechanism on VAT on imported services”.
“Furthermore, the government will implement the Tax Modernisation Programme which will include the implementation of a VAT non-compliance detection solution. The Customs Modernisation Programme entails upgrading border information technology infrastructure and introducing a Coordinated Border Management through the Trade Related Facility and the National Single Window, as well as the rehabilitation of Sani Top and Van Rooyen commercial border posts.
“The current zero rating on exports of natural resources will be replaced by VAT exemption in an effort to reduce revenue leakages emanating from high VAT refunds claimed by the mining industry,” Dr Majoro said.