IMF pressures govt to implement sin tax

NEO SENOKO

MASERU – The International Monetary Fund (IMF), an organisation working to foster global monetary cooperation and facilitate international trade, has put the government of Lesotho under pressure to impose a levy on alcohol and tobacco, the Maluti Mountain Brewery (MMB), the country’s largest brewing company has said.

The government is pushing for a 30 percent levy on tobacco products and 15 percent on alcohol products. The understanding on the side of the government is that tax on these products would reduce consumption to acceptable levels. Authorities cite that the prevailing excessive abuse of the products and argue this contributes to several socio-economic hazards, which largely affect public health in adverse manners.

“It will also normalise the price differentials that exist between Lesotho towns and those in the neighbouring South Africa, thereby putting Lesotho’s economy on an equal competitive footing. “The levy is charged on the consideration for the products exclusive of Value Added Tax (VAT). The person who bears the burden is the final consumer of these products,” the government report on the tobacco and Alcohol Products Levy Bill of 2020 shows.

The levy is projected to generate a total of M200 million in revenue for the government. But MMB is against the introduction of the levy, arguing that in fact, the government is under pressure from the IMF to introduce the tax. “IMF pressure is that countries must diversify their source of revenue. That is the main thing. So they are rushing it because they are under pressure from the IMF to do it. But I don’t think they have really applied their minds into how this thing is going to work.

“As the industry, it’s not like we are difficult. Instead, we want to work with the government and look into the impacts. Forget what the IMF is telling you, you are here on the ground, understand your operating environment. It is not ideal for taxes like these,” MMB Managing Director (MD), Sesupo Wagamang, said in an exclusive interview with Public Eye recently.

He said the MMB wants to be part of the economic recovery with the brewing company currently contributing almost three percent of the country’s gross domestic product (GDP). “So if we are part of the recovery, I’m sure we will get the economy to recover quicker and also boost investor confidence in the sense that if the policies are supportive, we will invest more money,” the MD further showed.

In 2018, the IMF said when it came to why taxes on alcohol and tobacco had not advanced as quickly as they might have, it was partly because there were a lot of economic arguments made about the harmful economic effects of the said taxes. Part of these arguments included job losses as well as the projected increase in illicit trade in the products. The poor are also likely to be hit the hardest if the levy is introduced.

But on the other hand, the IMF believes that when consumers buy less of these products, they spend the money on other goods and services that create jobs in other sectors of the economy. It argues that the government spends the new revenues on more labour intensive activities which, in turn, mean an increase in employment.

On the issue of illicit trade, the IMF believes that it is a largely false argument. The World Health Organisation (WHO), a specialist agency of the United Nations (UN) responsible for international health, has also for a long time consistently been pushing for tax increase on alcohol and tobacco as a policy measure that has dual benefits.

This, WHO argues, would increase state revenues and protect human health as an increase in the price of cigarettes and tobacco is proven to be very effective in lowering the consumption of the products.