Lesotho’s informal economy is one of the most active in the region. Thousands of Basotho generate income through side hustles, small trading activities, online businesses, food stalls, hair salons, backyard workshops and social media sales. These informal businesses play an essential role in supporting households, especially as unemployment remains high and traditional job opportunities are limited. Yet a major question continues to arise for many entrepreneurs: at what point must a side hustle register for tax, for VAT or for a business licence in Lesotho?
Understanding the line between informal trading and a legally recognised business is critical. Operating informally can offer flexibility, but it also carries risks, including penalties, backdated tax assessments, inability to access financing and difficulty expanding into formal markets. The law in Lesotho does not explicitly use the terms side hustle or informal trader, which means the legal threshold depends on the nature, scale and structure of the income being earned.
The first requirement to consider is business licensing. Under the Business Licensing and Registration Act, anyone who carries on a business activity on a continuous, regular or profit-seeking basis is expected to obtain a business licence. The law does not distinguish between operating from a shop, a home, a street stall or a Facebook page. If an individual is selling goods or providing services with the intention of making money, the activity is legally recognised as a business. This means that popular side hustles such as online clothing sales, baking for resale, photography services, hair braiding, home catering or car-wash operations may all require licences if they operate regularly and not as once-off transactions.
Tax obligations are also triggered sooner than many people expect. Income tax applies to all income earned in Lesotho, whether formal or informal. Once a person consistently earns money from a side business, they are required to register with the Lesotho Revenue Authority. Even small profits can form part of taxable income when combined with a person’s salary or other earnings. Failure to declare this income can lead to penalties, interest and difficulties later if the business grows and seeks to open accounts, apply for tenders or raise finance.
VAT is triggered at a higher threshold. A business, whether formal or informal, must register for VAT once its turnover reaches the mandatory VAT threshold. While many small traders fall below this level, rapid growth in online sales or bulk ordering from suppliers can quickly push a side hustle into VAT territory. Voluntary VAT registration is also possible and may be beneficial for businesses that consistently purchase stock or equipment from VAT-registered suppliers.
Another consideration is record keeping. Many entrepreneurs in the informal economy operate without receipts, invoices or proper documentation. This becomes a challenge when the business grows, when banks request financials, or when the Lesotho Revenue Authority conducts audits. Proper documentation also helps prove genuine expenses, which reduces taxable profit and prevents overpayment of tax.
There are also sector specific rules. Food businesses may require health inspections. Transport operators may need permits. Beauty and personal care services may face hygiene compliance requirements. The location of the business, especially when operating from a home, may trigger municipal or land use considerations. These requirements apply regardless of the size of the business if the service is provided to the public.
Cross border side hustles raise additional risks. Many Basotho order goods from South Africa, Botswana or China for resale. Import duties, declaration requirements and customs regulations apply even when the business is informal. Undeclared imports can lead to seizures, penalties or tax assessments. When goods are sold through social media platforms or to customers in South Africa, cross border tax and licensing considerations may also arise.
Despite the regulatory obligations, formalisation has several benefits. A business licence allows entrepreneurs to open business bank accounts, enter contracts, supply companies, participate in tenders and build a verifiable trading history. Tax registration helps avoid penalties and allows businesses to claim legitimate expenses. VAT registration provides credibility and enables input VAT claims when buying stock. Formalising a side hustle is often the first step toward expansion and long term sustainability.
For entrepreneurs unsure whether their activity requires formal registration, the safest approach is to seek guidance early. Many side hustles unintentionally breach the law simply because the regulatory requirements are not widely understood or clearly communicated. With proper advice, small businesses can structure their operations in a compliant and sustainable way while continuing to benefit from the flexibility of informal entrepreneurship.
Lesotho’s informal economy will continue to thrive as people seek new income opportunities. Understanding when a side hustle becomes a legally recognised business is essential for avoiding risk and unlocking future growth. With the right support and clear compliance steps, informal traders can transition into fully registered businesses that contribute to the economy while protecting their own long term interests.