Bet­ter to have than to have not

The 2018 bud­get re­mains de­spite mul­ti­ple con­sti­tu­tional vi­o­la­tions

Executive Magazine - - FRONT PAGE - By Jeremy Ar­bid

A le­gal chal­lenge of the 2018 bud­get law taken to the Con­sti­tu­tional Coun­cil, Le­banon’s high­est court, threat­ened to can­cel what was the coun­try’s sec­ond state bud­get passed in the last six months, on the back of no bud­get at all for al­most 12 years. Par­lia­ment rat­i­fied the 2018 bud­get with­out ap­prov­ing an au­dit of pub­lic fi­nances, amount­ing to a vi­o­la­tion of the con­sti­tu­tion the court says, and in­serted clauses to the law that the court deemed nonessen­tial to bud­getary mat­ters.

In to­tal, the court struck seven ar­ti­cles from the bud­get law and re­buked Par­lia­ment for its lack of over­sight on govern­ment spend­ing and col­lec­tion, say­ing that by not ap­prov­ing an au­dit, they had left the door open to cor­rup­tion. Given the weak­nesses in Le­banon’s econ­omy and the chal­lenges fac­ing the state’s cof­fers, how­ever, the court de­cided against an­nulling the law in its en­tirety—in­stead rul­ing that it is bet­ter to have a bud­get than not.

The bud­get projects an over­all spend­ing re­duc­tion of nearly $9 mil­lion to $15.85 bil­lion (LL23.89 tril­lion)— down 0.06 per­cent from the pre­vi­ous fis­cal year, as Ex­ec­u­tive re­ported last month. As for rev­enue, the bud­get es­ti­mates $12.4 bil­lion (LL18.6 tril­lion) for 2018. About 77 per­cent of this will come from tax col­lec­tion, $9.5 bil­lion— (LL14.3 tril­lion)—with the re­main­der pro­jected to be raised from non-tax rev­enues and the prof­its of state-owned en­ter­prises and pub­lic in­sti­tu­tions—$3 bil­lion in to­tal (LL4.5 tril­lion). (See rev­enue in­fo­graphic, page 51.)

This year, Value Added Tax is es­ti­mated to gen­er­ate $2.6 bil­lion (LL4 tril­lion) af­ter the rate was raised from 10

to 11 per­cent in last year’s bud­get law. Tax on in­ter­est in­come is es­ti­mated at $863 mil­lion (LL1.3 tril­lion). Cus­toms du­ties could bring in $572 mil­lion (LL863 bil­lion), real es­tate reg­is­tra­tion fees an­other $588 mil­lion (LL886 bil­lion), in­come tax on prof­its $990 mil­lion (LL1.5 tril­lion), and in­come tax on salaries and wages some $517 mil­lion (LL780 bil­lion).

Non-tax rev­enues in­clude trans­fers from telecom­mu­ni­ca­tions sur­plus, ex­pected at $1.4 bil­lion (LL2 tril­lion), prof­its from Casino du Liban, $78.3 mil­lion (LL118 bil­lion), and from the Port of Beirut, $142 mil­lion (LL214 bil­lion). Banque du Liban, Le­banon’s cen­tral bank, is sched­uled to trans­fer about $41 mil­lion (LL61 bil­lion). Prop­erty held by the state is ex­pected to gen­er­ate around $70 mil­lion (LL105 bil­lion), whiles fees paid for ad­min­is­tra­tive ser­vices would add an­other $542 mil­lion (LL817 bil­lion).

Govern­ment rev­enue has fluc­tu­ated over the past sev­eral years, ac­cord­ing to fig­ures pub­lished in the Pub­lic Fi­nance Mon­i­tor (PFM) by the Min­istry of Fi­nance. In 2014 the govern­ment raked in $10.9 bil­lion (LL16.4 tril­lion) be­fore dip­ping to $9.6 bil­lion (LL14.4 tril­lion) the fol­low­ing year, and re­bound­ing to $10 bil­lion (LL15 tril­lion) in 2016. PFM has not yet pub­lished full-year fig­ures for 2017, but rev­enue es­ti­mates in the

2017 bud­get law came to $10.7 bil­lion (LL16.2 tril­lion).

AU­THO­RIZA­TION PLUS

Mar­wan Khatib, a se­nior as­so­ciate at Ka­balan & As­so­ci­ates law firm, says the bud­get law does much more than just au­tho­rize the govern­ment to spend money and col­lect rev­enues. The law in­cludes in­cen­tives for tax­pay­ers to set­tle their dues and over the long-term might al­low the govern­ment to im­prove tax col­lec­tion rates and strengthen the over­all pub­lic fi­nance sit­u­a­tion.

Ar­ti­cle 55 of the law re­duces cus­toms du­ties and ex­cise taxes on im­ported hy­brid and elec­tric ve­hi­cles. The new rule lim­its cus­toms du­ties on hy­brid ve­hi­cles qual­i­fied as per­sonal use au­to­mo­biles to 20 per­cent re­gard­less of the value, and to 10 per­cent if in­tended for pub­lic use. Elec­tric ve­hi­cles, mean­while, will be fully ex­empted from cus­toms du­ties. Own­ers of both types of ve­hi­cles will not pay reg­is­tra­tion and are ex­empt from their first “Mechanique” fee. Pre­vi­ously, ve­hi­cle pur­chases were levied cus­toms du­ties at 20 per­cent for all ve­hi­cles val­ued at $13,300 (LL20 mil­lion) or be­low, and 50 per­cent on ve­hi­cles worth over $13,300.

Ar­ti­cle 13 al­lows a trea­sury ad­vance to Elec­tric­ité du Liban (EDL) of nearly $1.4 bil­lion (LL2.1 tril­lion) to cover the cost of fuel pur­chases, es­ti­mated to reach $1.38 bil­lion (LL2086 bil­lion), and to cover in­ter­est and loans which are pro­jected to amount to $9.3 mil­lion (LL14 bil­lion). The ar­ti­cle also states that EDL, with the Min­istry of Fi­nance and Min­istry of En­ergy and Wa­ter, have six months from the date of pub­li­ca­tion of the bud­get law to come up with a mech­a­nism to re­im­burse the trea­sury for the ad­vance.

Ar­ti­cle 15 de­lays cap­i­tal ex­pen­di­tures on and main­te­nance al­lo­ca­tions for state in­fra­struc­ture by a year. In­vest­ments in in­fra­struc­ture ad­vo­cated by the ar­ti­cle in­clude: main­te­nance of build­ings at the Lebanese Uni­ver­sity; in­creas­ing the ca­pac­ity of drink­ing wa­ter de­liv­ery around the coun­try; im­prov­ing ir­ri­ga­tion and sewage; con­struc­tion of a tourist port in Jounieh; en­larg­ing and main­tain­ing the road from Sul­tana to Saida, and from Kfar Re­men to Mar­jaay­oun; re­mov­ing land­mines in the south; mod­ern­iz­ing the Army’s IT depart­ment, as well as con­struc­tion and main­te­nance of fa­cil­i­ties and equip­ment; im­prov­ing school build­ings, fur­ni­ture and sup­plies; and up­grad­ing and ex­pand­ing the coun­try’s fixed tele­phone line net­work.

STRAINED TRANS­PARENCY

Ar­ti­cle 16 al­lo­cates just un­der $500 mil­lion (LL750 bil­lion) over five years for the pur­chase or con­struc­tion of new build­ings to house govern­ment of­fices, to pro­vide space deemed ad­e­quate through 2050. The ar­ti­cle does not clar­ify which agen­cies would be pri­or­i­tized nor does it say which re­gions of Le­banon would re­ceive fund­ing first. But it does show the al­lo­ca­tion by year: $6.6 mil­lion (LL10 bil­lion) in 2018, $133 mil­lion (LL200 bil­lion) in 2019, $133 mil­lion (LL200 bil­lion) in 2020, $110 mil­lion (LL165 bil­lion) in 2021, and $116 mil­lion (LL175 bil­lion) in 2022. It also stip­u­lates that all govern­ment agen­cies rent­ing space must end their leases by 2022.

Khatib added that many of the ar­ti­cles in the bud­get law 2018 may be cru­cial to the op­er­a­tion of govern­ment. Ar­ti­cle 17, for ex­am­ple, de­creased fines on tax­pay­ers be­hind on their bills by up to 90 per­cent, pro­vid­ing an in­cen­tive for them to set­tle their un­paid tax bills by pay­ing only a 10 per­cent fine in­stead of the full amount owed. This de­crease will ap­ply to de­layed Mechanique fees, mu­nic­i­pal­ity fees, and NSSF con- tri­b­u­tions. Khatib sug­gested many tax­pay­ers who had pre­vi­ously not paid in full may now pay up given the lower penalty, al­low­ing the govern­ment to col­lect higher amounts in rev­enue than it other­wise would. An­other ex­am­ple that Khatib points out is ar­ti­cle 29, which up­dated prop­erty taxes ap­pli­ca­ble at dif­fer­ent rates de­pen­dent on build­ings con­structed af­ter Septem­ber 1962. He also high­lighted ar­ti­cle 38, which amends fees for pass­ports. A one-year pass­port now costs $40 (LL60,000), a five-year pass­port costs $200 (LL300,000), and 10-year pass­port costs $332 (LL 500,000). The Con­sti­tu­tional Coun­cil also struck down ar­ti­cle 26 of the bud­get law, which would have of­fered waivers for com­pa­nies be­hind on their tax bill, stat­ing that it vi­o­lated the spirit of the con­sti­tu­tion, among other rea­sons (see box of court de­ci­sion, page 52).

In April, the Min­istry of Fi­nance

The bud­get law does much more than just au­tho­rize the govern­ment to spend money and col­lect rev­enues. The law in­cludes in­cen­tives for tax­pay­ers to set­tle their dues.

pub­lished a doc­u­ment ti­tled “Cit­i­zen Bud­get 2018,” of­fer­ing greater trans­parency of high-level pub­lic fi­nance fig­ures that were pre­vi­ously buried in the bud­get law pub­lished in the Of­fi­cial Gazette (which, in mid-May, was put be­hind a pay­wall). A let­ter ad­dressed to Ex­ec­u­tive and signed by the Min­is­ter of Fi­nance, Ali Has­san Khalil, stated that the min­istry “has pledged, as of this year, to reg­u­larly pub­lish the Cit­i­zen Bud­get, in par­al­lel with the adop­tion of sub­se­quent bud­gets in the com­ing years, mak­ing it a per­ma­nent and on­go­ing tra­di­tion.” In­shal­lah.

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