THE Lesotho Revenue Authority (LRA) needs a supplemental financing for its tax modernisation project to enable the full implementation as originally envisaged.
Aug. 31, 2021
3 min read
LRA needs M63 million funding
African Development Bank President, Dr Akinwumi-Adesina
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An African Development Fund (ADF) loan amounting to USD 7.1 million (M107.1 million) was approved on November 22, 2017 to finance the Lesotho Tax Modernisation Project (LTMP) before it became effective on April 19, 2018.
The project is expected to deliver quantifiable results including an increase in tax to GDP ratio from 23.8 percent to 26 percent. It is also intended to increase revenue collection from small tax payers from M12.6 million in 2015 to M0.5 billion in 2022 as well as reduce cost of compliance and time to register for tax from 164.6 hours to just 12 hours, and time to pay tax from 16 hours to six hours.
These will be achieved through installation of a new e-taxation and Value Added Tax (VAT) compliance technology, adoption of e-taxation and VAT compliance regulations as well as enabling legislation for small tax payers and adoption of streamlined tax procedures and strengthening of human resource capacity.
While the project has made considerable progress, current estimates indicate that the LRA now needs a total of around USD 11.3 million (M170 million) as the cost to completion. This is against the initial financing of M107.1 million.
In an appraisal report on the supplemental financing of the (LTMP), the ADF has revealed that in order to complete the project, supplementary funding requested is estimated at UA 3.0 million (M63 million).
The government of Lesotho has therefore requested additional financing to support the successful implementation of the tax modernisation programme, which includes the procurement of hardware and software and professional services to consolidate the gains made under the ongoing project as well as support the LRA to effectively respond to the Lesotho post COVID-19 recovery plan.
The ADF states that the UA 3.0 (M63 million) will be drawn from the ADF Fund 15-country allocation of UA 15 million.
“The supplementary financing would therefore allow LRA to procure the software and critical consulting and non-consulting services required for the implementation of VAT compliance solutions, (E-invoicing) for collecting VAT related information from both wholesalers and retailers, e-payment integration between LRA systems and commercial banks and mobile money providers,” the ADF reports shows.
The total cost of the project is envisaged to increase from M107 million to M170 million, hence the need for the additional estimate of M63 million.
Due to the COVID-19 impact which has led to reduced domestic revenue collection, the government has been unable to identify alternative sources of financing for the unfunded activities.
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The impact of the supplementary funding will be that the project will be able to complete and deliver its e-taxation and VAT compliance solution reforms.
These will enhance the LRA’s capacity by expanding the tax base, and modernising collection and compliance procedures.
Notwithstanding the challenges, the ADF applauded the LRA for a remarkable progress towards achieving its development objectives.
“Despite initial delay in the procurement of hardware and software, the project has made remarkable progress, including the adoption of change management and communication strategy, client education strategy and gender equity strategy and action plan. The finalisation of draft legislation including Tax Administration Bill, which covers Small Business Tax, Income Tax Amendment Bill, Value Added Tax Amendment Bill and Point of Sales Regulations.
“The progress made further includes capacity building training in the areas of gender equity, tax audit on special sectors such as banking, insurance and telecom, as well as the supply and installation of hardware and the development of e-taxation including e-filling, e-registration, e-payment and the business requirements for e-invoicing to enhance VAT compliance,” the ADF report also says.
Nevertheless, the ADF warns that more effort is required to improve efficiency and effectiveness to deliver better services and enforce compliance.