THE parliamentary economic and development cluster committee must shelve its plans to implement the Tobacco and Alcohol Products Levy Bill 2020 lest it stifles growth, players in the respective industries have said.
In March 2020, the Ministry of Finance tabled the Tobacco and Alcohol Products Levy Bill 2020 in parliament to promulgate a law that will allow the government to collect an additional M200 000 in taxes per annum from the two sectors.
The bill proposes a 15 percent levy on the sale of alcohol and 30 percent on tobacco products. It also seeks to reduce health hazards associated with tobacco-related diseases and alcohol abuse.
In their presentation before the parliamentary committee chaired by the Democratic Congress (DC’s) Moyeni #65 constituency legislator Mahooana Khati, the Lesotho Liquor and Restaurant Owners’ Association (LLROA) this week said implementing the levy would kill the industry by effectively reducing the consumption of alcohol. This would in turn lead to job losses in the retail sector.
LLROA chairperson Motseki Nkeane said imposing the levy would also encourage illicit alcohol trade, which already is a huge challenge for the industry.
“LLROA wants the Tobacco and Alcohol Products Levy Bill to be shelved,” Mr Nkeane said.
“In a democratic dispensation, we expect consultations to be carried out with relevant stakeholders before any law affecting them is initiated. The liquor industry was not consulted before the bill was developed and that is unfair on us.
“If the alcohol levy is imposed, it will kill the alcohol and tobacco industries leading to the closure of retailers and subsequent jobs losses.”
He said the levy would also stimulate illicit alcohol trade.
“Studies have indicated that only 20 percent of local liquor traders are operating legally while 80 percent is operating illegally. Imposing the levy will only exacerbate the problem of illegal trading.”
Maluti Mountain Brewery managing director Sesupo Wagamang said the levy combined with the negative economic effects of Covid-19 would result in the alcohol industry declining by 27 percent.
Mr Wagamang said instead of raising the expected M200 million in revenue, the government is likely to lose M800 million from MMB as a result of the levy.
“As volumes decline, the business will have no choice but to revise its operating model to ensure the sustainability of the business in Lesotho. Based on current projections, the business will need to revert to a full import model. This would result in a loss of M800 million to the fiscus in taxes and dividends from MMB over the next two years.”
MMB said it would also have to retrench 180 of its 350 workers as a result of the levy.
“As volumes decline, MMB will have to resize the business to keep it sustainable and deliver shareholder value. Anticipated job losses based on the 15 percent levy are 180. The job losses are also anticipated to impact the entire industry value chain as everyone resizes due to sales decline.
“Beer is elastic, which means higher prices will translate to lower purchases. Increase in taxes does not necessarily translate into increased revenue. Increase in taxes does not reduce harmful consumption but consumers rather modify their drinking habits to even more harmful substances.”
Alcohol taxes have an adverse impact on the alcohol industry value chain and the economy, he said.
The situation might even be more dire in Lesotho where 56 percent of the population lives below the poverty datum line. If the levy is implemented, a local consumer would have to work 296 minutes (5 hours) to afford a clear beer which makes Lesotho beer one of the most expensive in the southern Africa region. In neighbouring South Africa, Lesotho consumers would need to work 14 times more to afford one beer, he said.
For its part, British American Tobacco, the distributor of different cigarette brands, said the proposed levy could see cigarette prices increasing by up to 53 percent to the final consumer.
“It is clear that when the bill becomes law, the legitimate alcohol and tobacco industry will vanish and only bootleggers will remain…
“For illustration purposes, the practical impact of the levy is that the cigarette maker must charge and collect a 30 percent levy on the products as part of the selling price to the wholesaler. The levy becomes a cost to the wholesaler who is also expected to levy another 30 percent as part of his price to the retail, and this continues to consumer. The compounded effect is an increase of at least 53 percent on the final consumer price.”
BAT said it was illogical for the government to introduce the tax in a market flooded by illicit trading. At least 15 percent of all tobacco products are estimated to be illicit costing the government M17 million annually.
“Despite that the proposed bill will significantly impact the manner in which retailers, wholesalers and other traders will conduct business, there has been not been any consultation with the big retailers. The big retailers are expected to collect the levy on behalf of the government but they have not been consulted,” BAT said.