Forecast staff retrenchments and business collapse
MASERU – The business community in the alcohol and tobacco sector has sneered at recommendations to introduce a three and six percent levy increase on alcoholic and tobacco products respectively. This and other recommendations follow the tabling of the Tobacco and Alcoholic Products Levy Bill of 2020 in March by finance minister Thabo Sofonea.
The mulled adjustments are contained in a report by the Portfolio Committee on the Economic and Development Cluster report on the Tobacco and Alcoholic Products Levy Bill of 2020 for which the committee seeks parliamentary adoption. The report has been considered by the august House and adopted and the Bill forwarded to the Senate for consideration.
According to the Ministry of Finance, the Bill is planned to introduce levy on alcohol and alcoholic products in an attempt to control their consumption to acceptable levels. Sofonea has since remarked over the Bill that excessive use of these products contributes to several socio-economic hazards which mostly negatively impact public health. The introduction of the levy is further meant to normalise price differences that exist between Lesotho and South Africa – thereby putting Lesotho’s economy on an even competitive footing.
The final consumer of the products is, however, the one that is expected to bear the burden of the imposed levy. Recommendations by the committee follow a thorough interrogation of the Bill, which has seen the levy reduced from the previous government-proposed 15 to three percent for alcoholic products; while levy for tobacco has been slashed from 30 to six percent.
Traders, however, say the levy is bound to negatively affect their businesses and likely to compel them to retrench staff for sustainability of their businesses. Following the committee’s engagement with relevant stakeholders it emerged that players such as the Maluti Mountain Brewery (MMB), British American Tobacco, Lesotho Liquor and Restaurant Association, the Lesotho Chamber of Commerce and the South African Alcohol Policy Alliance Lesotho (SAAPA) were not consulted in the drafting of Bill.
These overlooked stakeholders presented before the committee that if the levy is increased by 30 percent for tobacco and 15 percent for alcohol, the government stands to lose around M800 million in revenue. They proposed that the levy should not be implemented in order to secure government total product taxes from the MMB, preserve jobs and keep the brewing company sustainable for many years.
They further submitted to the committee that the proposed levy will not achieve its intended results. Instead, the hundreds of millions of Maloti that the government is forecast to lose in revenue in the next three years will be almost double the income projected to be collected from the total levy over the next two years from MMB alone. Instead, they encouraged government to implement the Alcohol and Tobacco Act of 1998 before it can increase the levy. Also tabled before the committee was that licensed liquor and tobacco dealers will be forced to close their businesses due to high prices which will enable the illegal dealers to benefit.
They further articulated that imposing the levy will not stop consumers from using the products since they will simply resort to illicit operators. After communicating with the concerned stakeholders, the committee decided to reduce the levy to three and six percent for alcoholic products and tobacco, respectively. It further recommended that the levy on the stated products be increased gradually over the next five years to reach the 15 and 30 percent levy that was suggested before.
The committee also recommended for empowerment of Lesotho suppliers by prioritising them over their foreign counterparts. It also recommended registration of the 80 percent illegal traders who evade tax. Public Eye this week contacted MMB for a reaction to the newly proposed alcohol levy, and the company matter-of-factly said they stand by their previous position. “I think we have said a lot about the Bill, which your newspaper has even covered. Our feelings haven’t changed in that respect,” MMB corporate affairs manager, ’Mapulumo Mosisili, told this reporter. She said the implications are still the same.
MMB has always help the position that, as argued by former managing director, Sesupo Wagamang, the annual revenue paid by the brewing company to government would drop drastically if the levy is imposed on alcoholic products and that sales volumes would also drop by at least 19 percent. Wagamang said in the recent past years, MMB has paid to the government M1.1 billion in taxes, M250 million in dividends and spent M150 million on local procurement which he noted cannot be guaranteed in future if the levy increment goes through. The Lesotho government owns 61 percent shares in MMB and MMB while ABInBev owns the remaining 39 percent.
He noted that MMB is one of the most consistent cooperatives from start when it comes to paying dividends to the government. He further said they have streams of revenue to help the country raise revenue and the numbers speak for themselves, but these will be affected by the levy. “The biggest challenge now is that if the levy increases we will experience a drop in sales and a drop in revenue paid to the government and we will be forced to raise prices, resize the business and withdraw from projects we are undertaking to empower local businesses,” he said. MMB has given a number of case studies where the increase of levy on alcohol backfired on the country.
In Botswana the levy was increased by 30 percent and their sales volumes declined by 30 percent, while in eSwatini sales also declined with the same percent following hike in levy. South Africa settled at the rate of 4.4 percent levy in 2019 after experiencing a huge drop in sales in 2018 when the levy was at 10 percent. MMB said the country will not benefit from this increment because increasing the levy will result in a drop in sales and the taxes the company is already paying to the government which were over M1 billion over the past three years. Instead, it will be worse off because the little money consumers have will be under pressure as inflation is also going up.
“Lesotho does not have a revenue problem; it has an expenditure problem. If the levy increase is implemented, we anticipate that our volumes will decline by at least 19 percent. “The reality is if we decline by 19 percent, everything goes backwards. The taxes we pay would also drop and of course, unfortunately, when the costs go up, sales will drop and we will have to reconsider the operating business model and currently we cannot guarantee jobs,” the MMB boss told Public Eye at the time.