The Lesotho Revenue Authority is set to receive a loan of $4.25 million from the African Development Bank Group to provide digital tax services, including e-taxation and e-payment that will broaden the country’s tax base and boost government revenue.
In a statement, AfDB says the funds will be sourced from the African Development Fund, the Group’s concessional lending window and will go to support the Supplemental Financing of the Lesotho Tax Modernization Project.
The project follows the Lesotho Tax Modernization Project (LTMP) approved in November 2017, and for which the African Development Bank Group provided $7.09 million, in financing.
The financing will especially 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.
According to the Bank’s Director of Governance and Financial Management Coordination, Abdoulaye Coulibaly, 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 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 is already implementing a reform and modernization program to reduce the burden and cost of tax compliance and introduced VAT and improved border management processes.
Available data indicates that the country’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.
Revenues from the Southern Africa Customs Union, accounting for 50 percent of total revenue, have fallen below their historic average, threatening fiscal stability and development planning and investment.
AfDB’s portfolio in Lesotho, equivalent to $79m, comprises 8 projects across the water and sanitation, energy, and ICT sectors, with nearly one-third of projects being multisectoral.
This comes at a time when the experts have said that the continent needs adequate, predictable, sustainable and integrated financing mechanism to support its development.
According to the Tax Transparency in Africa report 2020, Africa needs innovative mechanisms for financing, including tax revenue which is currently around 17.2 percent over its GDP in most countries, and lower than that of Latin American countries at 22.8 percent, and OECD countries at 34.2 percent.
The report states that this is too low to finance the basic social services that are required to reduce poverty on the continent.
It also reveals that African countries must endeavour to fight against corruption and illicit financial flows. According to the report, illicit financial flows continue to drain large amounts of financial resources from the continent, with a severe and negative impact on the fulfilment of the African development agenda.
“The resultant effect is the non-recovery and non-repatriation of African assets consigned to foreign jurisdictions.”
The funding to Lesotho is on the back of the bank’s commitment to invest up to $3 billion over the next 30 years to advance the manufacture of pharmaceuticals and the development of healthcare infrastructure across Africa.
Solomon Quaynor, African Development Bank Group Vice President for Private Sector, Infrastructure and Industrialization said the Bank has also been providing expertise to its members on preparing public-private partnerships and to deepen debt capital markets including through investment in pension funds and providing sovereign credit and partial risk guarantees.
“The pandemic has widened Africa’s financing gap to $345 billion and innovative solutions are needed,” Quaynor said.
“Africa needs financing to promote the private sector, create jobs, provide social protection for vulnerable groups, and drive inclusive growth.”