Lebanon taxes: An additional burden or a relief to the debt?

The word on everyone’s mouth this summer excluding Ibiza Mykonos Monaco weddings was Taxes! Everyone was complaining about the new tax measures voted by the government. We regained our smiles when the constitutional court halted these new measures in September but again during the legislative session that took place on Monday 9th of October they finally voted in the taxes.

There were mainly two points of view being discussed:

  1. The General Confederation of Lebanese Workers opposed any taxes that would hurt workers or lower income households such as raising VAT from 10 to 11%.
  2. The leading economic bodies opposed the new taxes and in particular the principle of double taxation. Their argument is that taxing revenues generated from T-BILLS and Eurobonds are considered double taxation, adding that banks are already paying 5% tax on interest generated by these bonds.

A glimpse at voted taxation

VAT to increase 1% from 10 to 11%, Taxes on Bank Deposits will also increase from 5% to 7%, Taxes on Capital Gains from 10% to 15%, Corporate Income Tax from 15 to 17%, Dividend Distribution from 5 to 10% and while it was previously non-applicable, you will now have to pay 2% on the sale of Real Estate contracts!

The Lebanese government hopes that the revenues of the expected taxes could surpass $1.2Bn (i.e.: 2.3% of GDP) and according to the finance minister it will not only be used to finance salary increase but also to fund the budget deficit.

The pros and cons:

Many argue that taxes are unfair and will encourage tax evasion and a stronger black market. How can you improve economic growth when the fiscal impact will lower the already very low expenditures!?

The optimistic argue that the salary hikes of public employee would be able to compensate for the additional taxes. But I say: what about the private sector? Not encouraging to these guys who work extra hours while others work less and earn more …

Also, it is not looking good for real estate developers and contractors. Some developers have to increase the price of their apartments to cover the VAT cost. All taxes including registration fees, municipality taxes, construction permits could reach 1/3 rd. of the total cost of the project, especially in Beirut.

What can be done?

Economists are calling for other reforms to boost revenue and stop the debt rising, including passing a budget, reforming the heavily subsidized electricity sector, raising fuel tax and tax collection and improving the investment environment. Another smart way is to get more investment into the country by turning state-owned infrastructure into the private sector (undergoing several PPP agreements). This could turn out to be an immediate magnate of funds! Revenues from oil and gas are also promising but longer term…

Conclusion: Our politicians should get together to do some structural changes economically and politically… time to cooperate and unite guys!

References:

https://www.nytimes.com/reuters/2017/08/30/business/30reuters-lebanon-economy-analysis.html

http://www.almonitor.com/pulse/originals/2017/03/lebanon-state-budget-tax-hikes-reform-economy.html#ixzz4sdQ5fQRH

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