A sigh of relief will be order of day for both consumers and traders in alcohol and tobacco products following promulgation of the amended Tobacco and Alcoholic Products Levy Bill, 2020 by Parliament at the back of its predecessor which was proposing hikes as high as 30%.
The bill was presented to the National Assembly last year on the brink of the end of the 2019/2020 financial year with an intended increase of 15% alcoholic levy and up to 30% for tobacco.
However, following consultations with the National Assembly’s Portfolio Committee on the Economic and Development Cluster and stakeholders, it was reviewed and this week tabled with amendments to effect that the proposed 15% alcoholic levy was reduced to 3% and 30% of Tobacco trimmed to 6%.
The idea to increase the prices of the products was made by the Minister of Finance and the Lesotho Revenue Authority (LRA) which tabled the Tobacco and Alcoholic Products Levy Bill, 2020 in the House last year on a Monday of March 2, 2020. The Bill was referred to the Portfolio Committee on the Economic and Development Cluster for consideration in terms of Standing Order No. 51 (5); subsequently the Committee invited the Ministry of Finance to a briefing session in accordance with Standing Order No. 54 (2). Therefore, the Committee presented the Report to the House for consideration.
According to the ministry, the objective of the Bill was to introduce a levy on tobacco and alcoholic products with the aim of reducing the consumption of the products to an acceptable level while also aiding to boost the government’s purse to the tune of M200 million in a year.
Besides the point of reducing the consumption rate of the products in the country, the bill was also projected to empower vendors who ply their trade in the sale of the products to charge the levy at the rate of 30% for tobacco products and 15% for alcoholic products, to collect and remit the levy to the Lesotho Revenue Authority (LRA).
“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 report said, citing the reasons to uphold the levy bill.
“The prevailing excessive use or abuse of these products contributes to several socio-economic hazards which mostly affect public health in an adverse manner. It will also normalise the price differentials that exist between Lesotho’s towns and border towns in neighbouring South Africa, thereby putting Lesotho’s economy on an equal competitive footing,” the Portfolio Committee’s report said.
The move had been scoffed at by different stakeholders including the Maluti Mountain Brewery (MMB), British American Tobacco (BAT), Lesotho Liquor and Restaurants Owners Association (LLROA), Private Sector Foundation Lesotho (PSFL), Lesotho Chamber of Commerce and Industry (LCCI), and the South African Alcohol Policy Alliance Lesotho (SAAPA) who got invitation to make representations before the Committee.
The stakeholders argued that the bill is going to drive the government to bankruptcy as it would lose a whooping M800 million every year from its revenues. Adding that the endeavour would also promote the influx of illicit products as people would opt for cheaper products in a quest to satisfy their urge for tobacco and alcoholic products.
The protracted debate finally paid off as smiles would be beaming on the faces of regulars who find pleasure and relieve stress in a bottle and puffing the cigarettes.
“The proposed levy would not achieve its intended results; instead the Government will lose M800 million in revenue in the next three years which is almost double the income projected to be collected from the total levy over the next two years from MMB alone.
“The 2020 budget statement indicated that government’s projected revenue from the total levy on alcohol and tobacco will be 200 million annually. The loss of revenue from MMB alone will be double the anticipated incremental revenue from the levy and will therefore result in a net negative impact for the country from revenue perspective,” it said further.
The report continued that the concerned stakeholders indicated that the Government must implement the Alcohol and Tobacco Act of 1998 before they can increase the levy. That the licensed liquor and tobacco dealers will be forced to close their businesses due to high prices which will enable the illegal dealers to benefit.
“Introducing levy of 15% on tobacco products will just make illegitimate stakeholders and illicit companies more active in the market because raising a levy will not necessarily stop people from smoking nor reduce consumption. Consumers will not buy legal products but buy from the illicit operators.
“Raising a levy will be tax upon a tax; Studies have shown that 20% of local liquor traders are operating legally while 80% are working illegally; therefore, introducing a levy will only worsen the problem of illegal trading, and the levy will not only affect the sales of the registered companies but also result in the loss of many jobs,” the report read.
“The Ministry must enforce registration of the 80% illegal traders who evade tax; Tobacco and Alcohol levy should be increased gradually in 5 years to reach 15% and 30% for alcohol and tobacco respectively, subject to economic performance; and Lesotho suppliers have to be empowered and favoured by the industry over their foreign counterparts.
“After thorough scrutiny of the Bill, the Committee recommends that the House adopt the Bill as amended,” the report concludes.