THE government has increased Value Added Tax (VAT) from 14 to 15 percent as part of measures to increase its revenue base in the face of declining shares from the South African Customs Union (SACU) receipts and shortfalls in the Lesotho Revenue Authority (LRA)’s revenue collection targets.
Finance Minister, Moeketsi Majoro, announced the VAT increase during his budget speech in parliament yesterday.
He said the increases were necessitated by the tough economic situation that the country found itself due to various factors.
The unfavourable fiscal situation has been compounded by indications that the LRA will not meet its target for the second year running and it is expected that the deficit will be M684 million.
As part of measures to make up for the shortfall, VAT has been increased to 15 percent from 14 percent “to align with that of South Africa and to avoid smuggling”.
Dr Majoro also proposed to gradually increase VAT on telecommunications and electricity, which presently stand at 5 percent to align to the unitary rate of 15 percent. This coming financial year the VAT will be increased by 4 percent for telecommunications and 3 percent for electricity.
“The fiscal outlook presented here is clearly unsustainable.
“This budget is being prepared amid the tough fiscal position confronting the country. SACU revenue is significantly down in both nominal and real terms.
“Net International Reserves are below the target we set to maintain parity with the (South African) rand currency, government deposits have finally run out and any fiscal deficit will now have to be financed through new borrowing,” he said, adding other measures to improve the country’s revenues included that the introduction of the Voluntary Disclosure Programme (VDP) which is expected to bring in M225 million in additional revenue.
The VDP will allow tax offenders would be allowed to regularise their tax affairs without incurring any penalties.
Dr Majoro also said the LRA would also enhance tax administration measures, to ensure improved compliance with tax laws by major tax contributors in a move that is expected to yield an additional M350 million.
He said the government was also considering the introduction of levies on alcohol and tobacco in the near future to further boost revenue collection.
Small businesses will not be spared taxation as government will also introduce a simplified tax regime for them.
“As a measure to curtail leakages in revenue collection, payment of all government services and collection of revenue will take place only at commercial banks and services will only be granted on the production of proofs of payment. The measure will enter into force in April 2018,” Dr Majoro said.
Speaking with this paper yesterday, local businessman Makhetha Thaele said the increment could burden the already economically struggling consumers who are struggling to keep up with the 14 percent VAT.
“Government in turn will not be negatively impacted by this one percent increment and it has increased the VAT to protect itself against tax evasion which can be caused by buying more goods in South Africa as Lesotho entirely depend on it for supply of goods,” Mr Thaele said.