Ease tax burden on SMMEs

ELSEWHERE in this issue we carry insightful comments on tax reform by former Basotho Enterprises Development Corporation (BEDCO) CEO Robert Likhang.

At the centre of Likhang’s presentation is that Lesotho’s punitive tax regime is causing the premature death of many SMMEs.
Many business people who spoke at the recent tax expo hosted by the Lesotho Revenue Authority (LRA) last week agree on the need to tweak Lesotho’s tax laws to ensure the survival of SMMEs.

Likhang’s argument resonates with the feelings of many entrepreneurs in Lesotho whose businesses are creaking under the weight of a heavy tax burden.

He suggests that the LRA eases the tax burden on small enterprises, borrowing from the Rwandan tax model.
Likhang suggests that SMMEs be allowed to make use of Value Added Tax for a certain period to grow their businesses, only remitting the VAT after a certain period.

That sounds pretty creative.
Such an arrangement could throw a massive lifeline to SMMEs that are grappling with severe cash-flow issues.

It would also allow the SMMEs to grow to allow long-term relationships with the revenue authority when they have matured.

The former BEDCO boss also suggested that SMMEs be allowed to pay their taxes only after they have been paid for services rendered to the government.
It is often a pity to see these small businesses collapsing, not because of ineptitude, but merely because the government would have failed to pay them on time so that they could clear their own debts and restock.

That is the reality that is facing many small businesses in Lesotho.
Yet the taxman would still expect his pound of flesh. He still expects you to remit your taxes on certain days with the threat of heavy penalties for those who fall foul of the law.

That environment is constricting business and leading to the collapse of many small enterprises.  The closure of such businesses often has terrible ripple effects as hundreds are thrown onto the jobless heap.

The other negative is that when businesses are subjected to tremendous pressure they often seek dubious means to evade paying their taxes.
But most Basotho, we would like to believe, understand that it is their obligation to pay their fair share of tax. They are fully cognizant that such tax is critical for the development of their country.

They understand that taxation can be an effective tool for national development. It provides a stable flow of revenue that can be used for key development programmes such as infrastructure.

Yet the reality is that when tax rates are perceived to be high, there is often massive tax evasion and avoidance.  The greatest challenge for the LRA, in our opinion, is to strike a healthy balance between a tax regime that is business friendly and one which can mobilise resources for economic development.

That is not any easy task. Push too hard, the LRA would be accused of aggressive tax collection. Slacken a bit, Lesotho’s development goals will suffer a massive knock. The LRA must therefore push for that balance.