TRALAC - Trade Law Centre

Lesotho Scraps Tax to Boost Rag Trade

Friday, 10 February 2006

Source: Business Day

Lesotho Finance Minister Timothy Thahane yesterday announced a zero tax rate on certain of its clothing exporters in a move intended to diversify the country’s export range.

Thahane’s statement was in response to a number of investors who opted for SA’s lower general company tax rate, instead of that of Lesotho.

“To put an end to firms taking advantage of the lower tax rate in SA and to further improve (Lesotho’s) competitiveness, Lesotho is reducing the general company tax rate from 35% to 25% effective from April 1,” the minister said.

According to Commark Trust, a regional development agency in Lesotho, Lesotho is the largest sub-Saharan exporter of clothing to the US.

“Lesotho’s tax cuts mean that any manufacturer supplying the US or Europe from within Lesotho will be free from company tax,” Commark Trust spokesman Andy Salm said.

However, Thahane said, only those companies that were up-to-date on their tax payments and had a valid tax clearance certificate from the Lesotho Revenue Authority would be eligible for the zero percent rate.

“Lesotho’s move to lower its tax was in a bid to increase investments and sustain the industry in the country,” said Salm.

“Lesotho is basically trying to garner support for its textile industry, and lowering the taxes across the board is just one way of doing so.”

Further tax reductions included “income generated from farming and manufacturing”, from 15% to 10%.

Salm also said that Lesotho’s tax cuts could mean good news for SA, as Lesotho’s increased worldwide textile delivery could stimulate South African raw material supplies into the Lesotho clothing industry.

“Lesotho is trying to market itself as a country that upholds strong labour ethics.

“By lowering the tax rate Lesotho is trying to maintain the capacity of the industry to attract the larger international buyers.

“Many textile companies are struggling. Although the situation has stabilised and some purchase orders continue to come in, we are not out of the woods yet,” Thahane said.

In the coming year the Lesotho government would look at how it could extend this zero percent rate to income earned within the Southern African Customs Union as well.