Lesotho: African Development Fund Extends $4.25 Million Loan to Modernize Tax Collection, Boost Revenue

The Board of Directors of the African Development Bank Group has approved a loan of $4.25 million to the Lesotho Revenue Authority to provide digital tax services, including e-taxation and e-payment, that will broaden the country’s tax base and boost government revenue.

The 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. 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.

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.

“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.” said the Bank’s Director of Governance and Financial Management Coordination, Abdoulaye Coulibaly. “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.”

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. Revenues from the Southern Africa Customs Union, accounting for 50% 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.

The Bank’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.