Fi­nally, some clar­ity

They may be frozen, but now we can list our new taxes

Executive Magazine - - Economics & Policy -

Af­ter de­lib­er­at­ing for much of 2017, Par­lia­ment met in late July

to rat­ify new taxes. The leg­is­la­tion then sat on the desk of Pres­i­dent of the Re­pub­lic Michel Aoun for nearly a month, while he con­tem­plated whether or not to sign the taxes into law. In late Au­gust, he fi­nally inked his name, briefly end­ing a pe­riod of public uncertainty and frus­tra­tion around law­mak­ers waf­fling on the is­sue. But, adding a fresh layer of con­fu­sion, as Ex­ec­u­tive went to print the Con­sti­tu­tional Coun­cil is­sued a freeze on the tax hike pend­ing fur­ther re­view.

The mea­sures had, when first an­nounced in the open­ing months of this year, led to street protests against a hike. Through­out the year, there was much con­fu­sion over which new taxes would be in­tro­duced or in­creased, how much more peo­ple and busi­nesses would have to pay, when the new mea­sures would en­ter into force, and what the rev­enues would ac­tu­ally be used for. It did not help that con­flict­ing nar­ra­tives from both sides of the aisle skewed the public con­ver­sa­tion, con­fus­ing — in­ten­tion­ally or not — the de­tails of the taxes and ne­ces­sity of the mea­sures. In an ef­fort to make sense of the dis­course at the time, Ex­ec­u­tive re­ported in April that opaque de­ci­sion mak­ing made for con­fused tax pol­icy.

Public per­cep­tion then was that the new taxes would pay for a salary in­crease for public sec­tor work­ers, but that is not ac­cu­rate, as Di­rec­tor Gen­eral of the Min­istry of Fi­nance Alain Bi­fani pointed out more than once and re­it­er­ated in an in­ter­view with Ex­ec­u­tive (see page 44). The leg­is­la­tion does not al­lo­cate the added rev­enue that the new taxes would gen­er­ate. In­stead, that money will head to the trea­sury to­ward cov­er­ing the deficit. Deficit spend­ing is set to in­crease be­cause of the salary in­crease es­ti­mated at $1.2 bil­lion — a fig­ure that could grow or not de­pend­ing on public sec­tor re­cruit­ment — and that new spend­ing needed to be cov­ered by rev­enue that did not ex­ist, hence taxes. So yes, it is true that the new spend­ing is cor­re­lated to the new taxes, but the

The re­al­ity is that these taxes are not de­signed for pay­ing the wage scale in­crease

new rev­enue is not specif­i­cally al­lo­cated to pay for the wage in­crease.

Ac­cord­ing to the Min­istry of Fi­nance all tax­a­tion money is fun­gi­ble and not tied to a spe­cific pur­pose. That is the prin­ci­ple. This prin­ci­ple is prac­ti­cally in­vis­i­ble to the public, and has not been prop­erly ex­plained by MP’s and min­is­ters. It also seems that some mem­bers of the Le­banese Par­lia­ment might not know the term fun­gi­ble, or have lit­tle un­der­stand­ing of tax­a­tion, so even they have linked the new taxes to the salary scale. But the re­al­ity is that these taxes are not de­signed for pay­ing the wage scale in­crease, but for fill­ing a hole (the deficit), which is be­ing made big­ger by the wage in­crease.

For much of the year, the gov­ern­ment did lit­tle to cor­rect this nar­ra­tive with the gen­eral public. Since the new taxes were an­nounced, Ex­ec­u­tive has sought to un­der­stand their me­chan­ics, and though the topic had come up in a March in­ter­view with the Min­istry of Fi­nance, the an­swer then was that the min­istry was not yet in a po­si­tion to de­tail the pro­posed taxes.

All but two of the new taxes (see box list of taxes) en­tered into ef­fect im­me­di­ately upon pub­li­ca­tion of the leg­is­la­tion in the Of­fi­cial Gazette on Au­gust 21, 2017 — though are now frozen.

An in­crease of the Value Added Tax (VAT) to 11 per­cent will not take ef­fect un­til the start of the fourth fis­cal quar­ter of the year, Oc­to­ber 1, the law reads. The rate at which cor­po­ra­tions will be taxed was in­creased to 17 per­cent to be ap­plied at the start of next year, Jan­uary 1, 2018.

The Min­istry of Fi­nance es­ti­mates the new taxes to­gether will gen­er­ate ad­di­tional rev­enue of LL410 bil­lion ($272 mil­lion) for the re­main­ing months of this year, and in 2018 es­ti­mates col­lec­tion of LL 1.6 tril­lion (more than $1 bil­lion), ex­clud­ing the new al­co­hol tax rev­enue as the Min­istry of Fi­nance ex­pects that mea­sure to be re­vis­ited.

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