Lesotho forced to repay SA M185 million in water taxes


Pascalinah Kabi

THE much-vaunted Lesotho Highlands Water Project (LHWP) might not have been the lucrative money-spinning venture for Lesotho that it has been touted to be. This follows revelations that Lesotho spent more than a decade paying back to South Africa in excess of M186 million collected in taxes for transferring water to that country in terms of the 1986 bilateral treaty that gave rise to the LHWP.

When the then outgoing Prime Minister Thomas Thabane pleaded with the then incoming premier, Pakalitha Mosisili, to look into issues surrounding the LHWP at the ceremony to hand over power at the Setsoto Stadium in March 2015, no one knew that Dr Thabane was privy to a closely guarded secret concerning taxes on the LHWP.

It now turns out that Dr Thabane’s request to his then successor was based on the knowledge that Lesotho had been “arm-twisted” into paying back South Africa M185, 600, 446 that it had collected over the years as taxes for transferring the water to South Africa under the 1986 LHWP Treaty.

On top of the M185, 600, 446, Lesotho was further made to pay an additional 15 percent interest on the taxes it had charged South Africa for the water transfers. In total, the Lesotho Times can reveal that Lesotho paid South Africa a whopping M341, 221, 252 in the space of 10 years from 1999 to 2009.

The repayments were effected after the two countries signed Protocol V to the Treaty on Lesotho Highlands Water Project, a Supplementary Arrangements with Regards to Project Related Income Tax and Dues and Charges Levied in the Kingdom of Lesotho.

The protocol was signed by the current Deputy Prime Minister Monyane Moleleki and then South Africa’s Minister of Water Affairs Professor Kader Asmal. Mr Moleleki was Minister of Natural Resources at the time.

According to well-placed sources privy to the negotiations, the protocol was signed after the South African government raised concerns that it had been unfairly taxed and should not have been taxed in the first place.

The protocol was signed after both parties agreed that it was necessary to establish and record the amount of income tax that had actually been paid to and received by Lesotho between 1 April 1990 to 31 March 1999 “with regard to water transfer-related contracts in respect of the implementation of Phase 1 of the Lesotho Highlands Water Project for which the government of the Kingdom of Lesotho accepts responsibility and to provide for recompensatory arrangements with regard to such amount”.

Part of the Protocol V states that it was also “necessary to provide for sharing and recompensatory arrangements with regard to income tax and withholding tax amounts received by Lesotho after 31 March 1999”.

“An amount, inclusive of capitalised interest calculated at a rate of seven and a half percent per annum from 1 April 1990 to 31 March 1997 and at fifteen percent per annum for the period, 1 April 1997 to 31 March 1999, is preliminarily estimated at one hundred and eighty five million six hundred thousand four hundred and forty six Maloti (M185 600 446). It represents that portion for which Lesotho accepts responsibility of the amount of Lesotho tax actually paid and received with regard to contracts and any sub-contracts for the period 1 April 1990 to 31 March 1999, shall become due and payable by Lesotho to the Lesotho Highlands Development Authority (LHDA) on terms and conditions set out in sub-article 3 of this Article,” part of the protocol states.

It further spelled out that Lesotho shall repay the amount in ten equal annual instalments on 30 April each year commencing in 2000.

The second term states that an interest rate of 15 percent shall be calculated annually in arrears on the outstanding balance on 30 April each year and shall become due and payable each year beginning in 2000.

While Mr Moleleki and Prof Asmal signed the Protocol on 4 June 1999, Lesotho’s first payment of M48, 900, 549 to South Africa under this arrangement was made on 30 April 2000. The second payment of M43, 616, 105, was made on 30 April 2001 and the last payment of M21, 344, 051 was made on 30 April 2009.

Water Minister Samonyane Ntsekele this week referred all questions to the LHDA, saying “taxes are very technical issues that can only be responded to by the LHDA as one of the departments under my jurisdiction”.

LHDA Public Relations Manager Masilo Phakoe said “The LHDA management acknowledges receipt of your enquiry emailed to the LHDA on Friday the 31st instant and noted the questions therein”.

“The issues that are raised in your email relate to policy on taxes and these are beyond the remit of the LHDA. In line with policy, the LHDA cannot comment on issues beyond its remit. The LHDA only implements approved policies. The email enquiry has therefore been forwarded to the appropriate authorities for consideration.”

Although it is not clear why Lesotho agreed to repay the taxes with an additional M155, 620, 806 as the 15 percent interest (almost double the amount it had collected in taxes by consent of both parties under the 1986 treaty), authoritative sources this week told the Lesotho Times that Dr Thabane felt that Lesotho had been bullied into repaying the money.

So miffed was Dr Thabane that during his first tenure as premier (from 2012 to 2015) he took control of the LHWP from then Water Affairs Minister, Timothy Thahane, in September 2013 because he was unhappy with the tax refunds to South Africa and the joint implementation of the second phase of the LHWP by Lesotho and South Africa.

“Ntate Thabane knows this project like the back of his hand. He was there as a Secretary to the then governing Military Council of Lesotho when the treaty was negotiated and signed. He questioned the basis on which Lesotho agreed to this questionable Protocol V which necessitated Lesotho to repay the taxes plus interest,” the source said, adding “he was particularly annoyed with the government’s decision to sign Protocol V knowing fully well that Lesotho would be made to repay the money it had collected as taxes.”

Another source alleged that Dr Thabane was unhappy with LHWP II Agreement signed on 11 August 2011 by the Mosisili regime.

“As if it is not enough that we have signed a Protocol that necessitated the repayments of taxes that we had collected and used as part of our budget, we further signed an LHWP II Agreement whose Article 14 states that ‘South Africa shall not be liable for any dues, taxes or charges levied by Lesotho in respect of services, goods, materials, plants and maintenance of that part of the project relating to the delivery of water to South Africa, except as provided for in this article’,” the source said.

On the compensatory arrangements, the LHWP II Agreement states that Lesotho shall reimburse South Africa 70 percent of the income tax amounts levied and received by Lesotho in accordance with Article 14 together with any interest and penalties which include additional tax.

“Lesotho shall also reimburse South Africa all dues and charges levied and received by Lesotho as provided for in Article 14 and all Value Added Tax (VAT) levied and received by Lesotho as provided for in Article 14.”

While both governments have moved to implement LHWP II under the same agreement that Dr Thabane is allegedly not happy with, the Youth Leagues Forum of Lesotho have branded the move as a “criminal” act that must be immediately corrected.

The forum has also questioned Lesotho’s decision to sign Protocol V in 1999. It argues that “South Africa was given a huge tax concession which is tantamount to Lesotho selling its water tax-free”.

The forum also wants the government to immediately begin processes that would lead to the cancellation of the construction of Polihali Dam in terms of the second phase of the LHWP.

Outspoken Thaba-Bosiu Principal Chief, Khoabane Theko, has also added his voice to the issue. Last week, he called for the revision of the 1986 treaty to ensure that it fully benefits Lesotho.

“The youths are here (in the senate) and they have given us a picture of what is really happening; they want to save this country.

“Is Polihali for the benefit of certain individuals and South Africa only or for both nations? Can we revisit the 1986 treaty? Is this (LHWP treaty) for the benefit of the nation in ensuring that Lesotho is being developed or it is just to address South Africa’s water problems and leave us still impoverished?

Chief Theko said the LHWP should improve the lives of Basotho in the long run.  He said it was not enough for Basotho to be employed as unskilled labourers.

“What else are we getting as a nation? The issue of the hydroelectricity component is still a big challenge since we are not even sure if it is going to happen because (LHWC representative) Ntate Mzamo Lephoma says the Kobong project is a dead end and can never generate electricity for this country,” Chief Theko said.


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