THE Lesotho Revenue Authority (LRA) is expecting to miss its revenue targets for the second year running by about M500 million. But LRA Commissioner-General, Thabo Khasipe, says the authority is pursuing robust strategies to reduce the deficit.
The decline could seriously undermine the government’s capacity to fund its operations, bankroll development initiatives, balance the national budget as well as access to multilateral financing which is tied to its ability to service loans.
Mr Khasipe this week told the Lesotho Times that while the LRA was pursuing vigorous strategies to enhance revenue collection, he was however, “not optimistic that we are going to meet the current target” because of an interplay of various factors, including the decline in revenues collected from the Southern African Customs Union (SACU).
He said the revenue target for the April 2017 to March 2018 financial year had been set at M 6.5 billion but could be missed by as much as M500 million. This will be the second year in a row that the revenue collecting body had failed to meet its target. In the previous financial year (April 2016 to March 2017) the authority missed its M6.4 billion target by M430.8 million.
It was against this backdrop that Mr Khasipe said that new strategies were needed to enable the LRA to fulfil its mandate of revenue collection.
“I am not optimistic that we are going to meet the current target but we are working hard to reduce the projected shortfall,” Mr Khasipe said, adding, “It is against this background that we are going all-out to set ourselves on a new path that will enable improved revenue collection”.
Mr Khasipe, who was first appointed to the top job in December 2016, bemoaned the negative effect of political instability on the country’s investment climate, saying it had ultimately impacted on revenue collection.
Lesotho has been plagued by chronic instability which has been characterised by among other things, the assassinations of two army commanders, Lieutenant General Maaparankoe Mahao (June 2015) and Lt-Gen Khoantle Motšomotšo (September 2017).
The country has also witnessed the collapse of governments with three elections being held in the space of five years (2012, 2015 and 2017).
Mr Khasipe said while the political instability had affected the business climate, the situation was aggravated by external factors that included the slowdown of the South African economy and the consequent decline in Lesotho’s share of revenue from the Southern African Customs Union (SACU).
SACU is one of the world’s oldest customs union and it consists of Botswana, Lesotho, Namibia, South Africa, and Swaziland.
Speaking on SACU, Mr Khasipe said, “Our economy has not been so robust in recent years due to factors including a slow South African economy and a drop in revenue from SACU”.
“Last year, we saw an interesting feature where our domestic tax-collection exceeded SACU revenue.”
This, he added, reflected how SACU revenue was becoming “of less significance to Lesotho,” thereby placing a heavy responsibility on domestic tax collection.
“We only have one option, which is to increase local revenue, otherwise the government is going to encounter serious challenges, including significant underfunding of some sectors and challenges in accessing multilateral financing due to a drop in our capacity to service loans,” he said.
He said as the country moved to achieving efficiency in domestic tax collection, the LRA’s biggest task would be that of engendering a new culture of tax compliance among stakeholders to ensure that Lesotho increased its revenue, particularly corporate tax.
At 15 percent of the tax revenues, the corporate tax collected in the country is below the 20 percent average registered in other SACU member countries.
Mr Khasipe said compliance was also a challenge in the retail and wholesale sectors where VAT collections were struggling.
Meanwhile, a strategic shift that will see the LRA turning to a “services and client approach” is expected to improve relations and cooperation between the authority and taxpayers, thereby boosting revenue-collection.
“It is my view that despite the economic challenges, as an authority, we did not focus on nurturing relations with our clients and educating them on the importance of paying tax. People need to know who should pay tax, how much and why,” Mr Khasipe said.
He said there was need to change the LRA’s approach to tax collection which had in the past been modelled on the enforcement approach.
“I call it a cops-and-robbers approach. We have viewed taxpayers suspiciously – as people with a propensity to break tax laws while the LRA acted like cops. That approach did not only sour relations with our clients, it also did not help us meet our targets. It has actually reduced the levels of trust and compliance, whether in the form of new clients joining the tax net or those already in the tax net. Due to lack of trust and other factors, some of our old clients are not keen on revealing their new streams of income,” Mr Khasipe noted.
He further said the authority was now focusing on improving services through regular engagements with the clients to understand their needs and make it easy and less costly for them to comply with tax regulations.
This week, the LRA launched the Voluntary Disclosure Programme (VDP) that opened a window of opportunity for all errant businesses and individuals to visit the authority’s offices and amicably address their tax obligations. Those who comply voluntarily will be spared the 200 percent penalty charges.
“The VDP is one of our initiatives that reflects our strategic shift. It gives our clients an opportunity to work through all their tax issues with us. Whether they had overstated their expenses and understated their incomes strategically or by mistake, they can come to us to begin on a new path.”
He added that the initiatives aimed at fostering mutual relations with all clients also created a moral authority on the LRA to apply punitive measures such as penalties and prosecution of those who chose to remain outside the tax net.
The LRA will also introduce other initiatives aimed at improving clients’ compliance such as the E-Taxation system, which is funded to the tune of M85 million by the African Development Bank (AfDB), to ensure quicker, convenient and faster processes. It will also implement the Small Business Taxation regime, which will come with a number of flexible payment models, among other benefits.