ON THE RISE

Lebanon 2017 | ECONOMY | FOCUS: TAXES

The new national budget passed in March is a long time overdue; though, it comes with a much larger tax burden aimed to fund the new expenses that could hurt the economy more than it helps.

On March 15, 2017, there were strong protests in the country motivated by the new tax increases launched by the Lebanese Parliament. These protests revealed, once again, the discontent of the population with the political class, complaining that elites seem to be shifting the heavy tax burden onto average citizens to make necessary reforms.

In March 2017, the Cabinet passed the first national budget since 2005. This budget was intended to stimulate the economy, but the needed reforms came with numerous tax increases to fund them.
In total, 22 taxes were added in the national budget, of which these are the most prominent:
All goods and services are subject to VAT, except those stipulated in the Value Added Tax Law, which include medical services, education, insurances, banking services, NGOs, bets, various food items, livestock, books, magazines and newspapers, gas, pesticides and agricultural machinery, medical equipment, precious stones, paper and metal money, yachts, and air transport.

It is not excessive to describe the budget of 2017 as a “tax budget," especially when it includes 22 measures ranging from imposing new taxes to raising existing taxes and fees, so that revenues coming from taxes now account for about 80% of total public revenues.

In any case, economic theory could make the argument that during economically difficult periods, government policies should not impose taxes. Taxes could be detrimental to economic activity, which will be affected by the principle of supply and demand but also by the effect of inflation. According to several economists, there are some ways to stimulate the economy without raising taxes.

The first, and perhaps most relevant for Lebanon, of them being combating tax evasion. Tax evasion in Western countries such as the US, the UK, and European countries is about 2-3% of GDP. In Lebanon, the value of tax evasion is estimated at 5-10% of GDP.

Second, better allocation of state property could save the state billions of Lebanese pounds to put toward new reforms, benefiting by leasing or selling what is not strategic. There are more than 239 state properties in Beirut, while the state rents many buildings to its ministries and institutions at a cost of more than LBP100 billion (USD65.3 million) annually. Should the government consolidate the use of its properties, it could increase revenue from selling or leasing no longer needed properties. Therefore, the Lebanese government could consider creating a supreme committee for the management of Lebanese state property.

Third, the adoption of the law of partnership between the public and private sector would indirectly increase the revenues from the tax on corporate profits and the work of Lebanese employees. With taxes and backlash on the rise, the Lebanese Parliament may want to consider other avenues for raising revenue.