Official lira to US dollar exchange rate increases tenfold

Little information has been given about the gradual phasing in of the new LL15,000 official lira to US dollar exchange rate that was announced by the finance minister in September.

Official lira to US dollar exchange rate increases tenfold

The 2022 budget, approved on Sept. 26, could be published this Thursday in the Official Gazette. (Credit: Skorzewiak/Bigstock)

Caretaker Finance Minister Youssef Khalil announced at the end of September that the lira exchange rate, which had been pegged at LL1,507.5 to the dollar since the late 1990s, would increase tenfold, i.e., to LL15,000 to the dollar as of Nov. 1. The gradual shift into the new rate, however, has not been clearly prioritized or communicated.

According to a government source who is not authorized to speak to the press, the Finance Ministry is likely to announce today how the new exchange rate is expected to phase in gradually, initially applying to “certain fees and charges.” However, the ministry has yet to specify which fees and charges will be initially affected.

“The ministry plans to communicate on the subject later today [Tuesday] and publish the updated fees on its website,” the source said, adding that in principle this should not concern “either taxes or duties” or the customs dollar, i.e., the rate used to calculate customs duties in lira from the pre-tax prices of goods controlled at the border.

Enactment delay

According to the same source, the announcement could therefore concern tax stamp fees or registration fees, especially since those, such as notary fees, have officially been calculated for some time at the rate of LL8,000 to the dollar.

But, according to tax lawyer Karim Daher, the ministry’s announcement could as well mention the various measures introduced in the long-overdue 2022 budget that Parliament approved on Sept. 16 and that will be published in the Official Gazette on Thursday.

Although former President Michel Aoun did not sign the law before his departure from the Baabda Presidential Palace on Sunday, Article 57 of the Constitution stipulates that any law is “considered enforceable by operation of law and must be published” in the Official Gazette in the event that the prescribed time limit — one month, in this case — has “expired without the law being promulgated or returned” to Parliament for a second reading.

The new budget calls for an increase in indirect taxes, such as traveler’s fees, tax stamps and customs duties, based on the LL15,000-to-the-dollar rate, which is officially approved by Parliament.

“If things continue as they are, the country will go back into a spiral of tax inequity, with an increase in regressive indirect taxes [where the tax rate decreases as the taxable amount increases] instead of focusing on implementing measures that improve [tax] collection, increase the number of taxpayers and strengthen the state’s capacity to fight tax evasion,” Daher explained.

Neither Daher nor the Basil Fuleihan Institute of Finance, which plans to publish a summary of the budget for the general public (the Citizen’s Budget), have yet had access to the final text.

When contacted by L’Orient-Le Jour, the Finance Ministry press office declined to comment. The finance minister, who is also a former Banque du Liban executive, did not respond to L’Orient-Le Jour’s request for comment.

At the end of September, just after the budget vote, Khalil announced that the official lira to dollar exchange rate, which has been pegged at 1,507.5 to the dollar since 1997, would be changed on Nov. 1. This measure remains inadequate given the soaring exchange rate on the parallel market, on which the lira was hovering around LL36,000 to the dollar on Monday. On BDL’s Sayrafa exchange platform the dollar was on Monday trading LL30,000. The Sayrafa rate is updated daily during the business week.

Customs computer system

The new official rate is the first step toward the “gradual unification” of the multiple exchange rates that currently coexist — one of several reform conditions of the International Monetary Fund to unlock a multi-billion-dollar financial assistance package.

The unification of exchange rates will have major consequences, as it will eventually impact compulsory levies (taxes and duties), which are still calculated at the rate of LL1,507.5 to the dollar.

This will also affect the way taxes are calculated and credits can be repaid, and the way companies’ financial statements are prepared.

At the time of the minister’s announcement, Nadim Daher, an accountant and board member of the Lebanese Association for Taxpayers' Rights and Information (Aldic), expressed confusion as to the reasons why the minister decided to implement the new exchange rate starting Nov. 1, rather than the beginning of the next fiscal year.

Prime Minister-designate Najib Mikati, however, quickly intervened to clear up confusion, assuring that the new LL15,000 exchange rate would be implemented gradually, with exceptions such as the balance sheet of banks and the repayment of real estate loans, which would still be subject to the old rate.

Mikati also indicated that the LL15,000-to-the-dollar rate would initially apply to customs duties and VAT for goods priced in dollars and that this transition would be organized with BDL’s assistance.

According to a banking source who did not wish to be named given the sensitivity of the subject, the meeting of the BDL Central Council on Wednesday touched on the issue — something that the central bank did not confirm.

The same source added that the new exchange rate was also one of the main topics of the government’s session on Monday, when it met to review the 2023 draft budget.

BDL has yet to issue a circular on this issue. L’Orient-Le Jour contacted the union of food importers, the union of gas cylinder distributors, the Beirut Merchant’s Association and ALDIC, all of which assured that they had not yet been notified of any change in the exchange rate.

“The rumor is that its implementation has been postponed for a month. But what is certain is that the Ministry of Energy and Water, with whom we are in regular contact, has not yet received official notification,” Jean Hatem, head of the gas cylinder distributors’ union, told L’Orient-Le Jour.

A source close to the Directorate General of Customs, who did not wish to be named, said that the computer system configuration at this department has not been updated yet to reflect the new exchange rate.

In a statement on Thursday, the Directorate General of Customs denied press reports saying it was updating its systems, after such alleged updates were attributed with causing delays in the processing of customs clearance operations during the morning of the same day.

The management said the slowdown resulted from an Internet connection problem, according to a brief statement relayed by the Finance Ministry.

This article was originally published in French in L'Orient-Le Jour. Translation by Sahar Ghoussoub.

Caretaker Finance Minister Youssef Khalil announced at the end of September that the lira exchange rate, which had been pegged at LL1,507.5 to the dollar since the late 1990s, would increase tenfold, i.e., to LL15,000 to the dollar as of Nov. 1. The gradual shift into the new rate, however, has not been clearly prioritized or communicated.According to a government source who is not authorized to...