Lesotho stands to lose M800million or more in excise duty from Maluti Mountain Brewery (MMB) if the company changes the model of being a producing company to a distributing company. These changes, MMB says, will be brought by the levy that government wants to put on alcohol and tobacco.
On March 2 last year, the minister of finance tabled the Tobacco and Alcoholic Products Levy Bill, 2020 in the National Assembly. The ministry of finance said the objective of the Bill was to introduce a levy on tobacco and alcoholic products with the aim of reducing the consumption of these products to acceptable levels.
According to MMB Country Managing Director, Sesupo Wagamang, the International Monetary Fund (IMF) and World Bank are putting pressure on Lesotho to enact the law on Tobacco and Alcohol Products Levy as a tool to for the government to collect extra income to decrease its dependency on development partners. He said the government of Lesotho is on the other hand not looking at the challenges that come with the levy which may impact on Lesotho’s economy.
“The truth of the matter is that the levy, if imposed on these two products, will affect the business negatively. The government says it will collect M200million of the levy each year. However, once prices increase, it means sales will drop. This is what happened with Botswana when it introduced the levy; prices went up and people lost jobs.
“Our view is that neither of the two objectives that government is looking at are going to be addressed by the levy issue because the revenue will not increase and sales will reduce. For the last seven years MMB has given Lesotho M2.8billion in taxes. Currently the government hopes it will get 2.8 billion in taxes and M200million from the levy and that is not how it works. You put in the levy, prices drop every time you increase the levy.
“The three percent that the Bill proposes means that a quart of beer in Lesotho will be M1 expensive than in SA. We know that Lesotho has porous borders which the government fails to control due to inadequate resources. People will start buying these products in SA and smuggle them to Lesotho.,” he warned.
He said according to the study that MMB did in 2018, Lesotho loses M30million to smuggled alcohol every year and that happens when prices are at par with SA.
He further said another issue that the Bill says will address is health. Even though there are people who abuse alcohol there is also the issue of underage drinking that needs to be addressed. These children access alcohol from unlicensed liquor outlets and that is what has to be addressed before thinking about the levy.
He gave an example of Botswana where that country never had a drug problem but when the levy was introduced people resorted to other ways of getting high and Botswana suddenly had a drug problem. When people find alcohol expensive they will resort to illicit alcohol which has more health risks.
He said MMB has projected that with the levy, it will lose 22 percent in sales and that will mean having to retrench half of the staff (120 people). He said Lesotho still has a high unemployment rate and if they retrench it means adding to the already high unemployment.
On the one hand, before Parliamentary Portfolio Committee on the economic and development cluster on Wednesday this week, the ministry of finance’s Principal Secretary, Nthoateng Lebona said the main objective of the Bill is to get more money to finance the development programmes.
She said, based on international experience, the ministry sees the levy as a good way to increase public funds. She said with Lesotho being the second in Africa in alcohol consumption, the ministry is looking at reducing the level of consumption.
“Based also on the international experience if we increase the levy each year, we will not achieve the expected results. As the ministry of finance it is not always about money it’s about other aspects such as health which is facing challenges of alcohol consumption, the Bill will address.
“We are also looking at organisations that rehabilitate the people who are on high alcohol consumption that also should be financed so as to continue operating. IMF on the other hand says for us to be able to implement development programmes the levy collected will assist the country,
“We have also noted the issue of smuggling and we are still waiting for stakeholders to help Lesotho Revenue Authority (LRA) to curb smuggling,” she said.
Commissioner of Client Services at LRA, Mathabo Mokoko said that policy is very clear with two main objectives which are to reduce consumption and the impact while also raising money for the country, there is no certainty on the Bill.
“With all the amount of expertise that is sitting at the brewery, I don’t understand how they could miss such simplicity. The policy is very clear, it’s one thing for the policy to be unclear and to be ambiguous and another for one not to like it,
“The discussion here, at least for the first time the industry has made it clear that they do not want the Bill. Another important issue of study was recorded using Botswana where MMB indicated that collections after the levy was introduced in Botswana declined and as the collector I want to submit that there are various factors that affects the collection of revenue; the systems, the education, the clientele, the ability to collect and the fundamental issue which is the law itself.
“The way the law is structured is so simple because it is structured in a way that the value added tax which is something the business people know. I want to say even if Botswana had problems with collection it does not mean the Bill will have the same impact as Botswana,” she argued.
Motseki Nkeane, chairman of the Lesotho Liquor and Restaurant Owners Association (LLROA), earlier this month said that the association’s members were seriously disappointed at how the committee had given its recommendations on the Bill.
He said the association has been waiting to be summoned to contribute to the drafting of the Bill and were informed the committee was yet to consult other stakeholders that included Lesotho Revenue Authority (LRA) and the ministry of finance.
“We are disappointed with the committee because we explained to them how the Bill was going to affect our businesses. Even though they have advised parliament to adopt it with amendments, we clearly do not want the Bill. We are still not happy with the three percent and six percent that the committee has recommended to be increased on the levy of alcohol and tobacco respectively.
“We want those who are responsible to address the issue of smuggling before the Bill because it will attract many alcohol and tobacco smugglers to enter into the market to illegally sell those products.
“Covid-19 has hit many businesses and the business of alcohol has been acutely affected. With the introduction of this Bill, several businesses are facing a bleak future if it can be passed as law,” he strongly argued.
