HomeOpinionCommentaryBudget 2024 seeks an unconstitutional full dollarization of fees and taxes

Budget 2024 seeks an unconstitutional full dollarization of fees and taxes

While the government hopes that dollarizing fees and taxes will help to limit inflation and stabilize the country, it in fact poses a significant risk of further impoverishing the people and worsening the crisis.

A handout picture provided by the Lebanese photo agency Dalati and Nohra shows Lebanon's Prime Minister Najib Mikati (C) chairing a cabinet meeting to discuss the budget, at the Grand Serail in the capital Beirut, on January 27, 2022. Photo: Dalati and Nohra, AFP

While the 2023 budget has been ratified, the Ministry of Finance has placed a new budget 2024 law on the table seeking to generate revenues without any clear economic vision or fair tax policy. The World Bank has warned that the “size of the Cash Economy is estimated at US$9.9 billion or 45.7 percent of GDP in 2022.” The World Bank also cautioned that the “dollarized cash economy echoes a rapid shift towards hard currency cash transactions following a complete loss of confidence in an impaired banking sector,” threatening to “compromise the effectiveness of fiscal and monetary policy, heightening the risk of money laundering, increasing informality, and prompts further tax evasion.”

The 2024 budget seen by NOW Lebanon is what is referred to as a “Tax Dollarization Budget” seeking the receipt of fees and taxes on pair with the so-called free-floating rate determined by the new Bloomberg platform, which will be introduced in the next month according to sources in the Central Bank of Lebanon (BDL). The Bloomberg platform is an electronic platform for set up through international providers forexchange rate determination.  

The 64 articles of the 2024 budget project ignore justifying or explaining the reasons behind some of its new tax provisions, especially those that discriminate among taxpayers. 

Taxes have been increased significantly, sometimes up to 40 times if compared to the 2023 budget. These include patent royalties, literary and intellectual property, artistic and literary creations, commercial and industrial properties, among others. The Lebanese pound has lost as much as 98 percent in value since late 2019, and now most restaurants and many stores are demanding to be paid in dollars. The government recently began allowing grocery stores to start doing the same.

Reportedly, all fees starting in 2024 must be paid in US dollars, not in Lebanese pounds, a clear breach of the Lebanese constitution.

The amended fees and taxes are as follows: 

  • On top of the amended fees are those related to salaries and wages. The tax on dollar-denominated salaries and wages will be collected in US dollars instead of Lebanese pounds subjected to a 40 percent rate of the official exchange rate, 
  • A significant change in salary compensation has been exerted on wages. Employers and employees will now have to pay taxes in the same currency paid to employees, and employees, in turn, will have to pay those taxes in the same currency they receive.
  • Additionally, fees for departing passengers by sea and air have been dollarized, as well as consular fees, customs duties, internal consumption taxes upon import, fees collected by the Lebanese Electric Utility (EDL), airport fees, value-added tax (VAT) applicable to airport fees, port fees, residence fees for work permit holders of all categories, fines collected by the General Directorate of Public Security, and many more
  • The Value Added Tax (VAT) rate has been raised from 11 percent to 12 percent starting January 1, 2024.
  • Higher education institutions tariffs will conform to the official Bloomberg platform exchange rate.
  • Adjustments to the fees collected by the Ministry of Labor for work permits, pre-approvals, administrative transactions, and more.
  • The stamp duty for mukhtars (local leaders) has increased from 5,000 to 50,000 Lebanese pounds for all transactions, certificates, and approvals.
  • Import and export permits and re-export fees have been raised from 75,000 Lebanese pounds to 5 million Lebanese pounds.
  • The judicial fees related to the commercial registry have been increased by approximately 1,000 times
  • The rental value of properties has been raised, and the minimum rate for property tax rates has been adjusted, along with an increase in fines for property owners. Many modifications have also been made to building permits, renovations, occupancy fees, and more

New taxes

As for the newly imposed taxes, many of them suffer from flaws, loopholes, and inequality among taxpayers. 

Here is a non-exhaustive list of those:

  • One of the most audacious is the tax levied on deceased bodies coffins coming from abroad, considering them as imports! 
  • New taxes and fees have been introduced on a range of services, especially those from the Ministry of Education and Higher Education, including: requests for permission to practice engineering, credential equivalency, educational certificate copies, attestations, recognition of degrees and university studies, documents needed for graduation, and new fees for all attestations and more.
  • A tax flat fee has also been imposed on all divorce, separation, annulment, parentage proof, marriage proof, inheritance determination, and other court-related cases, as well as on all decisions of the religious courts.
  • Fees of over 1000 dollars have been imposed on over 1,500 imported items, including corpses, meats, oils, vegetables, foodstuffs, chocolates, gifts, personal imports, baby diapers, all kinds of pens and stationery, medical devices, respiratory devices, pharmaceuticals, and more. Notably, this fee equates foodstuffs and pharmaceuticals with weapons, yachts, tourist boats, and other commercial imports. This provision is likely to have a significant increase in consumer prices.
  • A new fee has been introduced for fast and emergency services at public administrations in exchange for expediting transactions. The revenue from this fee is distributed among various directorates, including employees of the relevant directorate, oversight authorities, the Public Administration Employees’ Solidarity Fund, and the General Treasury. This provision openly governs and institutionalizes bribery.
  • A fee is imposed for obtaining a tourist guide permit, in addition to dozens of new fees and taxes on transactions, institutions, services, and more.

Policymakers might believe that this “dollarization” aims to ease inflation and stabilize the economy, but it also threatens to push more people into poverty and deepen the crisis since few in Lebanon have access to dollars to pay for food and other essentials. 

The policy makers have to plan a solution for endemic corruption such as long-term reforms to banks and government agencies that would end wasteful spending and jump-start the economy.

Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy

The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW.