Lesotho has finalised a new tax agreement setting taxation rules for companies that run Lesotho businesses from Mauritius.
The treaty with Mauritius allays concerns over multinational corporations dodging tax payments through shell companies on the island.
The new arrangement replaced a 1997 treaty that Lesotho authorities have in recent years complained of as being unfair.
A statement by the Lesotho Revenue Authority stated that “the process for renegotiating the treaty was initiated by Lesotho in recognition that the old one was compromising its interests and because some of the key elements of a modern tax treaty were missing.”
Lesotho, a mountainous kingdom of two million people is rich in diamonds but has a staggeringly high poverty rate. World Bank projects almost half of its population live below the poverty line.
The International Consortium of Investigative Journalists’ 2019 Mauritius Leaks investigation focused on Tax treaties signed between Mauritius and mostly African countries.
The investigation showed how Mauritius became choice destination for corporations doing business in Africa and seeking to reduce tax payments.
Although the intention of such treaties is generally to avoid double taxation on the same pool of money, savvy firms took advantage of Mauritius’ tax rate which is often as low as 0% in order to pay little or no tax at all.
An official with the Lesotho Revenue Authority,Setsoto Ranthocha told ICIJ the country regretted signing the 1997 treaty. “The companies are the winners,” he said. “It makes me go mad.”
Mauritius has denied facilitating tax avoidance that harms neighbouring African countries.
Since the Mauritius Leaks investigation, Senegal and Zambia have torn up treaties with the island tax haven, describing them as unbalanced and unfair. Senegal alleged that its agreement with Mauritius cost it US$257 million in lost tax revenue over seventeen years.
According to financial statements, many diamond mining companies in Lesotho, including those headquartered in Australia, Canada and France, use subsidiaries in Mauritius to evade tax.
