ABSTRACT
This chapter presents a discussion of the mechanisms: the need for fiscal revenue, the problem of finding a market for the country's export products, the likely negative effects on Lesotho's industrial development and the possibility of retaliation from South Africa should Lesotho leave the union. Lesotho would then lose a substantial share of government revenue, unless South Africa agreed to a revenue-sharing scheme for the sales tax incomes within the customs union, or granted a value added tax rebate on intra-union trade. After negotiations in 1990, the latter case seems to have been adopted, and the tax rate in Lesotho can be maintained even after a change of the South African tax system. Forming a customs union with bantustans would mean endorsing their 'independent' status at least indirectly and that is, of course, politically impossible for Lesotho, even without having South Africa as one of the union partners.
