Over the past two years, Lesotho Tribune-has conducted a deep investigation into a complex web of corruption, negligence, and environmental degradation within Lesotho’s most valuable industry—diamond mining.
In an explosive five-part investigative series, we reveal how the government of Lesotho has been missing out on over a billion Maloti annually, resulting in a devastating loss of national wealth.
At the heart of this issue is the illegal renewal of Letšeng Diamonds’ lease. This maneuver not only bypasses regulatory frameworks but has also caused significant harm to the Moloraneng stream and the surrounding environment.
Our investigation goes further, exposing how successive Ministers of Mines have blatantly violated the Mines and Minerals Act, disregarding legislation intended to protect Lesotho’s natural resources. Additionally, we uncover how diamond mining corporations have exploited depreciation laws that do not exist, costing the country billions in lost tax revenue.
This series delves into the tangled relationship between power, policy, and profit, bringing to light stories that have remained hidden—until now.
The Diamond Export Sales Tax under the Precious Stones Order of 1970
The Precious Stones Order of 1970 governs the trade of precious stones in Lesotho, specifically imposing a 15% sales tax on diamond exports. While this regulation predates many of the country’s modern mining laws, it applies to all individuals involved in prospecting or mining, provided they are authorized under current mining legislation. Section 17 of the Order clearly mandates a 15% sales tax on the true market value of diamonds before export, to be paid to the Commissioner by the licensed exporter. Though this law has remained in force for over five decades, enforcement has been notably absent.
The statutory language is simple and clear—no loopholes or exemptions. The 15% sales tax is imposed on the US dollar value of every diamond prior to export, without discretionary power granted to any government minister to alter the tax rate. This tax has the potential to reshape the diamond industry, encouraging local processing by making the export of unprocessed diamonds more expensive. From an economic standpoint, if the law were enforced, the market would adjust to this added cost through domestic beneficiation.
Economic Benefits of Local Diamond Processing
The principle behind taxing natural resources is that their extraction should provide the nation with long-term economic benefits. Lesotho’s diamonds are non-renewable, and their wealth belongs to the people. However, the lack of enforcement of the 1970 law has deprived the country of significant revenue. The Revenue Services Lesotho’s failure to enforce this law, absent an amendment by Parliament, denies the national fiscus a major source of income at a time when it is sorely needed.
This tax falls under the excise tax category, more specifically as an ad valorem tax on diamond exports. Such taxes serve to compensate for the economic loss when natural resources are extracted and exported without generating local economic benefits. By imposing a 15% tax on the true sales value of every exported diamond, Lesotho could mitigate the revenue lost through forgone local processing and employment opportunities.
Reinforcing Tax Policy with Economic Rationale
The 15% diamond export tax aligns with broader economic goals, ensuring that mining companies contribute to national revenue. It acts as a form of compensation for the nation’s loss when valuable diamonds are processed elsewhere, depriving the country of employment, skill development, and economic growth. The 10% royalties that mining companies are required to pay provide some compensation, but this excise tax directly addresses the financial loss incurred from exporting diamonds without any local value addition.
Mining companies exporting rough diamonds should bear the tax as a corrective mechanism for the negative externalities caused by non-beneficiation. Local diamond polishing could generate significant tax revenues, foreign exchange earnings, and other economic benefits—positive externalities that should be rewarded. By contrast, exporting raw diamonds enriches foreign markets at the expense of the Basotho.
International Perspective on Diamond Export Taxes
From a global trade perspective, Lesotho’s 15% diamond export tax functions as both an excise tax and a trade restriction, as recognized by the World Trade Organization (WTO). The WTO has long classified export taxes, like this one, as a tool to encourage domestic value addition by taxing the export of raw materials. Lesotho’s failure to enforce this tax has drawn criticism, particularly as international trade reviews have consistently highlighted the tax’s importance in Lesotho’s diamond sector.
Within the Southern African Customs Union (SACU), the export tax is in line with practices followed by neighboring countries, including South Africa, which imposes similar taxes on diamonds through its Diamond Export Levy Act. Lesotho’s disregard for this established tax undermines SACU’s principles of fairness and regional cooperation, while forfeiting a crucial revenue stream.
Equity in Taxation and Social Justice
The concept of tax equity demands that all sectors of the economy contribute fairly to national revenue. Lesotho’s failure to enforce the diamond export tax violates this principle, disproportionately benefiting the diamond sector while imposing greater burdens on other industries and lower-income segments of society. This selective enforcement distorts competition, undermines market fairness, and ultimately weakens public trust in the government’s commitment to fiscal integrity.
Intergenerational Equity: Preserving National Wealth
The failure to collect revenue from diamond exports also breaches the principle of intergenerational equity, which requires that today’s resource wealth be managed for the benefit of future generations. Lesotho’s diamonds, being a non-renewable resource, offer limited opportunities for revenue. Once they are exported without proper taxation, the country loses the opportunity to benefit from its natural wealth. Without this tax, the benefits of Lesotho’s diamonds are siphoned away by foreign companies, leaving little behind for future Basotho.
International Financial Consequences
Lesotho’s refusal to enforce the 1970 law risks damaging its reputation with international financial institutions like the Millennium Challenge Corporation (MCC) and the World Bank. These organizations evaluate countries on fiscal responsibility and governance, and non-compliance with taxation laws weakens Lesotho’s standing. Enforcing the diamond export tax would demonstrate greater adherence to sound fiscal policies, possibly improving the nation’s eligibility for international support.
The Case for Enforcement
The non-enforcement of the diamond export tax under the Precious Stones Order of 1970 represents a significant lost opportunity for Lesotho. By neglecting to collect this tax, the government forfeited over M9.7 billion in potential revenue, while foreign mining companies continue to exploit the country’s non-renewable resources.
Data source: https://www.kimberleyprocess.com/en/lesotho-0
Implementing the 15% excise tax would not only bring financial benefits but also support social justice by ensuring that Lesotho’s natural wealth is used for the collective good of its people. This law, in force for over five decades, provides a clear path for Lesotho to reclaim the economic benefits of its diamonds, securing a fairer and more prosperous future for all Basotho.
