Monday, Feb 20, 2017

Beirut: Lebanon Finance Minister and Amal party member Ali Hasan Khalil has proposed a series of taxes to balance country’s ballooning budget deficit, including increase in the value added tax (VAT) from 10 to 11 per cent, hiking the interest rate on bank deposits from 5 to 7 per cent, levies on company profits from 15 to 17 per cent, a 15 per cent duty on profits from real estate transactions and a 4 per cent fee on the import of kerosene.

The most exuberant tariff, however, is a 500 per cent tax on alcohol, on top of existing rates, which will translate into an increase from LL200 ($0.13) to LL1,000 ($0.66) for a litre of wine and champagne, and from LL400 ($0.26) to LL2,000 ($1.32) on a litre of hard liquors. Cigarettes and shisha were not included in his tax raise proposal.

Liberals worry that taxes on alcohol could infringe on the country’s liberal policies, which they feel have come under increasing attack.

The biggest worry, however, comes from contemplated hikes on bank deposits, which could dissuade investors and Lebanese expatriate workers from sending roughly $7-8 billion in remittances to Lebanon each year.

These tax proposals have been severely criticised by economists, bankers and businesses, all of whom warned that such measures would slow the already-struggling economy that is heavily dependent on the tourism and entertainment industries.

The Christian Lebanese Forces issued a statement against the new tax proposals, but what surprised many was that the Shiite Hezbollah group also condemned the move.

Fresh taxes risk triggering social unrest and demonstrations by labour unions and civil society groups at a time when the country is experiencing an economic slowdown.

One of Khalil’s arguments for introducing new taxes is to meet previous commitments made to labour unions and civil society groups to finance overdue salary increases for civil servants and state school teachers. The minister estimated the cost of financing the proposed salary scales would be LL1.2 trillion ($800 million).

The draft budget under evaluation has total expenditures at LL24.7 trillion ($16 billion), an increase of 7.7 per cent over 2016 [when the government merely accepted outlays without approving a budget], while projected revenues in 2017 stood at around LL13.4 trillion ($8.7 billion).

The anticipated 2017 revenues represented 20.5 per cent of Gross Domestic Product.

Government critics argue that rather than covering budget deficits with more taxes, roughly estimated to take over 25 per cent of all incomes without delivering tangible services in return, authorities should first reduce spending.

By Joseph A. Kechichian Senior Writer

Gulf News 2017. All rights reserved.