The Board of Directors of the African Development Bank Group have approved a loan facility of US$4.25 million to the Lesotho Revenue Authority to modernize the tax system in order to broaden the country’s tax base and boost government revenue.
The financing will ensure the provision of digital tax services, including e-taxation and e-payment for the purposes highlighted.
The approved funds, to be sourced from the African Development Fund, the Group’s concessional lending window, will go to support the ‘Supplemental Financing of the Lesotho Tax Modernization Project’.
Moreover, the project follows the Lesotho Tax Modernization Project (LTMP) approved in November 2017, and for which the African Development Bank Group provided US$7.09 million, in financing.
Specifically, financing will be used to procure and install e-taxation, e-payment, and e-invoicing software and hardware and to integrate financial institutions and mobile money providers into e-payment systems.
Commenting on the fund’s approval, African Development Bank’s Director of Governance and Financial Management Coordination, Abdoulaye Coulibaly indicated:
“The project will allow broadening of the tax base through simplifying and streamlining the tax regime and procedures for the small business and informal sector. A strong revenue base is imperative for Lesotho to finance the spending needs on public services, social support, and infrastructure as set out in the National Strategic Development Plan II.”
The Objectives of the Project
The overarching development objective of the Project is to promote economic growth and poverty reduction. This will be done by improving effectiveness of tax administration to create fiscal space by increasing tax revenues to finance the country’s development plan.
Specifically, the Project will strengthen tax administration capacity by expanding the tax base, modernizing collection and compliance procedures, amending, and consolidating the legal framework, as well as strengthening the institutional framework.
As a consequence, while the Project benefits the government in enhanced revenue collection, it also indirectly benefits the private sector through a simplified tax regime and streamlined tax procedures for small business taxpayers. To the extent that the increased tax revenues are channeled to social and economic expenditure that will directly benefits the poor segments of the society.
It is worthy to note that, Lesotho’s economy has been negatively affected during the past two years, by sluggish global growth including in South Africa, a major trading partner, as well as political instability and the Covid-19 pandemic.
Furthermore, revenues from the Southern Africa Customs Union, accounting for 50 per cent of total revenue, have fallen below their historic average, threatening fiscal stability and development planning and investment.
The project, which will also update and consolidate legal and institutional tax collection frameworks, will benefit taxpayers as well as the Lesotho Revenue Authority. The Authority, which has launched a successful reform and modernization program to reduce the burden and cost of tax compliance, has introduced VAT and improved border management processes.
African Development Bank’s portfolio in Lesotho, which is equivalent to US$79m, comprises 8 projects across the water and sanitation, energy, and ICT sectors, with nearly one-third of projects being multi-sectoral.
