Sin tax sinks brewery


‘Government dividends will fall by two-thirds’


MASERU – The brewery has seen it’s sales drop by nearly a quarter, as profitability has plummeted by 60 percent since the government introduced sin tax in March.

Since implementation of Tobacco and Alcohol Products Levy Act of 2023, Maluti Mountain Brewery (MMB) has recorded an average of 24 percent sales decline every month compared to last year, a 60 percent decline in profitability and had for the first time ever closed the brewery for 15 days due to lack of demand.

The brewery is set to increase its products’ prices from Tuesday, August 1, 2023 to stay afloat.

Legal Officer at Maluti Mountain Brewery (MMB), Mapulumo Mosisili, shared this information with Public Eye in an exclusive interview this week, attributing the brewery’s poor performance to smuggling and struggles by general traders to pay their accounts.

She said around April their warehouse was full with no demand for alcoholic products.

Mosisili said due to decline in business, revenue and dividends to government will definitely fall.

“You will also recall that MMB is a government owned company, paying dividends to LNDC, Ministry of Finance and Lesotho Unit Trust. We anticipate that revenue will be affected and dividends will decline by 2/3 when compared to last year,” she said.

The Tobacco and Alcohol Products Levy Act 2023 was implemented on March 1, 2023 imposing a levy of 30 percent and 15 percent on tobacco and alcohol, respectively.

The Act makes provision for imposition and payment of a levy on tobacco and alcohol products. As per the Act, the levy can be charged by, among others, value tax (VAT) registered businesses upon the sale of tobacco and alcohol products, RSL or customs officials at all ports of entry into Lesotho, as well as by businesses and individuals (private shoppers).

Meanwhile, MMB effective from August 1 will be increasing alcohol products again which they say is necessitated by the increase in inflation and commodity prices, and to accommodate the increase in excise tax by 4.9%, which was announced by the South African Minister of Finance earlier in the year.

A case of Carling Black Label 750ml will be increased from M183.60 to M253.01 (4.20 percent increase), Castle Lite 600mlRb will be increased from M182.74 to M251.82 (4.20 percent increase), castle milk stout 750ml Rb will be sold at M262.21 from M190.28 (4.20 percent increase) and Maluti Premium Lager 600ml Rb will be M230.98 from M166.97 (4.60 percent increase).

Speaking on the motive behind the price increases, Mosisili noted: “The first price increase followed the implementation of the Tobacco and Alcohol Products Levy Bill. The business had anticipated a reduction in volumes due to smuggling and decreased demand and took a decision to revise prices to protect revenues.

“Your readers will recall that excise duties and levies are imposed mostly on high-volume daily consumable products (e.g. petroleum and alcohol and tobacco products) as well as certain non-essential or luxury items (e.g., electronic equipment and cosmetics).

“The primary function of these duties and levies is to ensure a constant stream of revenue for the State, with a secondary function of discouraging consumption of certain harmful products; harmful to human health or to the environment.  Thus, including the 15% that MMB is paying to government, it also has an obligation to pay excise duty to the Revenue Services’’.

Mosisili said in order to stay in business, MMB started exporting some brands to RSA not only to relieve their ware-house but also to keep their brew house at optimal operation, to generate revenue.

“We have also looked at our brand mix to ensure that we sell brands that ensure the highest revenue for the business. For example, this current price increase is focused on our bulk returnable packs, 660 ml and 750 ml. These are commonly known as “likh’oto”, and they need people to return the bottles, in order to buy another.

“We have noticed that smuggling has increased, and some of these products manufactured in SA are now found in Lesotho. The packs are bulky and not easy to smuggle because of the mentioned characteristics, so the price increase on these products, will ensure that revenue is generated when these packs are sold”.

She further noted that due to decline in business, they have made submissions to government requesting a reduction in the levy or a phased implementation and are still awaiting feedback.

Lesotho Liquor and Restaurants Owners Association (LLROA) President Motseki Nkeane also told Public Eye that since implementation of the Tobacco and Alcohol Levy Act 2023, business has been so bad that most businesses had to retrench staff while others closed doors altogether.

He said people did not buy alcohol as they used to due to high prices, as result the sector is struggling to keep afloat.

“Business had started deteriorating after the Covid-19 lockdowns and the levy just worsened the situation. Now, with another increment in prices coming, we might as well close and go home,” he said.

Nkeane said before the implementation of the Tobacco and Alcohol Products Act, 2023, he bought a case of black label for M183 at Maluti Mountain Brewery (MMB) and sold one quart for M18 but since implementation of the Act, the price of a case has increased from M188 to M222 forcing him to sell a quart at M22 each.

“Now that prices are going to increase it means we will also be forced to increase our prices, which will drive away the few customers we have left,” he stated.

Critics of the “sin tax” have always argued that increasing the prices of regular alcohol would drive desperate drinkers either to smuggling or to consuming illicit liquor which is often unhealthy. Once public health is compromised, it is the government through the ministry of health which will ultimately foot the bill.

Public Eye yesterday visited Sea Point to speak to people who consume home-made beer to find out what drove them into the product consumption.

Mohale Mohale aged 47 from Ha Ramabanta said he has always preferred traditional beer. He said growing up, he had witnessed his elders drinking the brew and for him commercial brands were only consumed during big celebrations.

On the other hand, Tseko Ts’ukulu from Sea Point said he used to drink beer, especially castle lager and black label but stopped consuming it when alcohol products prices increased and he could no longer afford the regular beer.

“With M100 I used to buy alcohol enough to satisfy my thirst but since last year, I was only able to buy about four quarts leaving me wanting more. As a result, I decided to start drinking traditional beer as one litre costs only M15. It is affordable and I can have as much as I want,’’ he said.

However, Ts’ukulu said since this home-made brew is cheap, he can afford to be intoxicated all the time which he says has take its toll on his health.

“The problem with cheap beer is that I am always drunk. Even when I do not have money, people are very generous and share their own.

“My priorities shifted since I started drinking this beer so much that health, food and hygiene are no longer a priority,” he said.

Stakeholders vehemently warned the government earlier this year not to rush to implement sin tax, arguing there was need to iron out some of the negative implications.

Nkeane told Public Eye in March that it was unfortunate the government had decided to quickly implement the levy despite consultations with the previous government on their concerns regarding the levy which the 10th parliament understood and took into consideration.

He said among the things that they presented before the 10th parliament and the Senate with regard to the levy imposition was that it will negatively affect alcohol and tobacco businesses that are only beginning to recover after being closed as part of the measures the former government implemented to curb the spread of COVID 19.

“The 10th parliament consulted us about the levy. They understood that it was not the right time to implement the levy. We are just surprised that the new government just decided to implement it without consulting us or even taking into account our submissions with regards to the levy in question,” Nkeane said.

Between 2016 and 2022, the brewery contributed more than R2.5 billion to Treasury in the form of taxes.

MMB plays a pivotal role to Lesotho’s economy not just as a significant contributor to the government’s revenue. The massive brewery has an indelible footprint on the economy with at least four depots and seven appointed distributors across the country. It directly employs nearly 300 staff, not to mention dozens others indirectly dependent on MMB throughout the country’s 10 districts.

Apart from that, there are at least half a dozen contractors on site, including water treatment, canteen services, waste management, cleaning and maintenance, security, and private transporters.

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