Lesotho's tax administration redesigns the icing on alcohol and tobacco

In order to make up for its budget deficit, the government of Moeketsi Majoro has decided to drastically increase taxes on alcohol and tobacco. A measure that does not only make people happy.

During the presentation of the 2020 finance law, the Parliament of Lesotho introduced a tax on alcohol and tobacco. The two products should now be taxed at 15% and 30% respectively. An extreme decision in the kingdom which acts as a brewery for South Africa.

Yes, but here it is, the revenues from alcohol and tobacco were not enough to cover the deficit in state revenues. For the third year in a row, Lesotho's tax administration failed to meet its tax revenue targets. Parliament therefore decided to tax the brewing sector for an immediate benefit that would allow it to pay the salaries of state employees on time. An amount that would amount to $ 300 million.

This move displeases the few oligarchs who hold a monopoly on the tobacco and alcohol industries in the small kingdom largely dependent on South Africa. The representative of the Belgian-Brazilian brewery, Anheuser-Busch AB InBev (ABI), the Botswanan lobbyist Sesupo Wagamang, has multiplied the interviews in the local press to denounce what he considers to be an unfair decision.

Towards a drop in revenue?

“Other African countries that have taken this route have proven that higher levies lead to lower revenues,” said Wagamang, citing the case of his own country, Botswana.

Presenting his budget speech to parliament last month, Lesotho's Finance Minister Sophonea said the government hopes to generate additional revenue from taxes. Besides alcohol and tobacco, the government has also decided to increase the VAT for the telecommunications sector, by three points.

Last year, the Parliamentary Committee on Economy and Development expressed reservations about the adoption of the bill in question after being pressured by various parties who opposed it.

"With the imposition of a tax on alcohol and tobacco, massive sales losses (...) and an 8% increase in the excise tax for 2021 are seriously affecting the profitability of the industry", had said Sesupo Wagamang.

Consequences for the SACU zone

InBev regrets this tax which represents a brake in its struggle for the monopoly in southern Africa, which the brewery shares with the Dutch Heineken. The two giants regularly find themselves in court: in 2019, they filed lawsuits in 16 African countries, for legal costs exceeding $ 700 million.

Little Lesotho was, before this decision, the country with the lowest taxation in southern Africa on alcohol, with only 2,7% cumulative taxes on beer for import and export. An amount that represented an increase of $ 0,02 per hectolitre and a colossal gain for the multinational beer companies established in the country.

The new tax raises fears of the worst: Botswana introduced a 25% alcohol tax increase in 2015, which led to a big drop in demand. Five factories had to close.

An increase in taxes in Lesotho will have consequences beyond the borders of the small country: the price of beer will increase in the five countries of the Southern African Customs Union (SACU). Beyond SACU, this is also expected to impact the price of alcohol in the Common Market for Eastern and Southern Africa (COMESA) countries.