Value Added Tax (VAT) is a form of an indirect tax levied on goods and services supplied in and outside Lesotho. It was introduced in July 2003 to replace an old system of indirect taxation called General Sales Tax (GST). It is applicable on all transactions where value is added. A registered business is charged with a responsibility of collecting VAT when supplies are made to customers. Registered businesses are also entrusted with the responsibility of declaring VAT on supplies made and claiming VAT on expenses incurred. This system has proved to be more effective than the former tax regime (GST).

As an administrative requirement, registered businesses (Vendors) are required to file a return every month and make payment where it is due. Sometimes a business can incur more than it is selling, this results in a refund. Because the vendor runs the business and charges VAT on the supplies made, independently, LRA officials need to verify the information provided on the return. Therefore vendors need to keep records properly and they should be readily accessible for audit and inspection. Should an inspection or audit result in an issue of an assessment, vendors have a right to request an explanation, object and even appeal to such a decision.