Tobacco levy to bleed M93m from Treasury
MASERU – Lesotho could lose at least M93 million per annum in revenues by the 2021 if government resolves to impose a 30 percent levy on tobacco products. Minister of Finance, Dr Moeketsi Majoro, announced in his budget presentation for the 2020/21 fiscal year that the Bill on the introduction of 15 percent and 30 percent levies on alcohol and tobacco products is in its final stages of preparation for tabling before parliament.
If it goes through, the 30 percent levy on tobacco products will come on top of the already existing high excise tax that is paid with respect to the consumption of these products. Lesotho is part of the Southern African Customs Union (SACU) markets which have the highest excise regime in the region on tobacco products. The high taxation has in the past years resultantly opened up the SACU market to cheap illicit flows from regional countries with reasonable excise rates.
Currently, it is estimated illicit tobacco products to be more than 15 percent of the total tobacco products market in Lesotho. Government losses around M17 million in illicit cigarette sales, this is according to the British American Tobacco group, a leading tobacco and nicotine products group that has been in Lesotho for the past 20 years. According to them, the sale and distribution of these products sustains at least 1 500 jobs in Lesotho.
These cheap illicit products are smuggled mainly from South Africa through the borders. They revealed in a statement that a levy of 30 percent on cigarettes will mean that the price payable on a pack of 20 cigarettes that are legally sold in Lesotho increases to M53.50 per pack. Comparatively, a 20s pack of the same cigarette brand sold in South Africa will be M13 cheaper than that legally sold in Lesotho by mere reason of having crossed the border.
To put the matter into perspective, the proposed tobacco levy will be passed on to consumers by the legal industry thereby resulting in a further gap between the cigarette prices charged by the legal players compared to the prices of illicit cigarettes on the market.
Accordingly, there will be a remarkable upsurge in illicit tobacco products on the market, leading to further erosion of government revenues from the industry. As a result, the levy will increase the illicit cigarettes market in Lesotho to about 40 percent of the total market by 2021.
“Cigarettes will be smuggled from all over the low taxed jurisdictions within the region, including South Africa and sold in the informal markets in Lesotho. Government is projected to lose at least M93 million per annum in taxes, (excise and VAT).” “Ironically, this lost revenue should have been destined to the SACU revenue pool, and Lesotho would have had a legal claim to it by virtue of the SACU revenue sharing agreement.
“Illicit cigarettes in South Africa retail below R10 per pack yet the tax expected per pack of cigarettes is R17.85,” the British American Tobacco further said in a statement. The British American Tobacco has been present in Lesotho through strategic partnership arrangements for the past 20 years. They distribute tobacco products such as Peter Stuyvesant, Dunhill, Craven A and Pall Mall.