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Govt to implement “crippling” alcohol and tobacco taxes

by Lesotho Times
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Silence Charumbira

ALCOHOL drinkers and smokers will be forced to dig deeper into their pockets after Finance Minister Thabo Sophonea proposed to finally implement the sin tax which will see alcohol and tobacco levies increased by 15 and 30 percent respectively.

Presenting his budget speech in parliament yesterday, Mr 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.

At the time, the Lesotho Liquor and Restaurant Owners’ Association (LLROA) said implementing the levy would kill the industry as increasing prices would reduce consumption of alcohol leading to job losses in the retail sector. Maluti Mountain Brewery (MMB) said the levy would result in the alcohol industry declining by 27 percent.

British American Tobacco (BAT), the distributor different brands of cigarettes, said implementing the levies would cost Lesotho “big time”.

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 at the time.

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 it 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.

After hearing the industry players’ submissions, the parliamentary committee advised that it would be better for the government to come up with control measures against alcohol and tobacco abuse instead of imposing a levy.

But after Mr Sophonea’s budget speech yesterday, it appears the government is hellbent on introducing the levies.

LLROA president Motseki Nkeane yesterday expressed dismay at the government’s insistence on introducing the levy.

He said instead of bringing in the expected M286, 6 million revenue annually, the levies will only push operators out of business.

“Introducing the alcohol levy now will only serve to push the remaining businesses over the edge as they are already on the brink as a result of Covid-19 impact.

“I do not know how the government hopes to raise that kind of money in this kind of economic climate. This may have been possible a few years ago when the government first broached the idea of introducing an alcohol levy but now things are different.

“Also, we have previously indicated that the government did not consult with us before developing the bill and we will expect that to happen before implementation,” Mr Nkeane told the Lesotho Times.

Consumer Protection Association (CPA) executive director, Nkareng Letsie, said increasing alcohol prices was likely to leave consumers worse off because they were bound to continue buying liquor despite the high prices. This would therefore, reduce their buying power for other essentials, he said.

Private Sector Foundation of Lesotho chief executive officer, Thabo Qhesi, said he was surprised by the government’s insistence on implementing the levies which had been rejected by stakeholders.

“I was one of those invited by parliament along with other stakeholders to make representations on the proposed levies last year.

“The stakeholders opposed the levies arguing they were likely to fuel the illegal trade of both alcohol and tobacco products. I am therefore surprised that the government still wants to forge ahead,” Mr Qhesi said.

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