This paper quantifies the revenue-productivity gains generated by Lesotho’s recent tax-reform programme. Using administrative tax records, national accounts, and difference-in-differences estimates for the period 2019/20–2024/25, we find that reforms centred on:

(i) the creation of a new Tax Policy Unit,

(ii) phased improvements in administration following the 2023 TADAT diagnostic, and

(iii) the modernisation of VAT, excise, and mining regimes raised real tax revenue per unit of economic activity by 0.8–1.1 percentage points of GDP within three years

Concentration of effects:

The effect is concentrated in VAT and corporate income tax, where compliance ratios rose by 12% and 9% respectively, while average effective tax rates remained unchanged.

Instrumental-variable estimates:

Instrumental-variable estimates that exploit the staggered roll-out of e-filing and risk-based audits across revenue offices indicate that at least half of the gains stem from higher administrative efficiency rather than macroeconomic windfalls.

Counterfactual simulations:

Counterfactual simulations suggest that the reforms have already offset roughly one-third of the revenue volatility historically associated with Southern African Customs Union transfers.

Conclusion:

These findings imply that carefully sequenced, donor-supported tax reforms can materially raise revenue productivity in small, transfer-dependent economies without increasing statutory tax burdens.