The Finance Ministry issued a statement Monday clarifying two measures related to income tax, whose calculation is deeply affected by the recently-ratified 2022 budget.
Nadim Daher, an expert accountant, and member of the board of the Lebanese Association for Taxpayers' Rights (ALDIC), explained to L'Orient-Le Jour how to calculate income tax in light of the new budget:
Interest and dividends from abroad
The first clarification concerns the taxation of income received in foreign currency from movable capital and, more specifically, bank interest and dividends received abroad that do not pass through a Lebanese bank.
The Finance Ministry clarified that, under Article 87 of the 2022 budget, such income will now be taxed in fresh dollars and transferred to a fresh dollar account opened by the Finance Ministry at Banque du Liban (BDL).
The declaration of revenues from investment securities abroad is provided for by Article 82 of the Lebanese law governing taxes. The revenues must be declared in Lebanon by the end of February of the year following its receipt and a 10-percent tax is due by the end of March of the same year.
Before the 2022 budget came into effect, such revenues were declared in lira at a rate of LL1,507.5 to the dollar, the former official peg still employed by BDL.
The Finance Ministry now requires these revenues to be declared in foreign currency, which may result in a significant increase in the amount of tax owed by Lebanese who receive this type of income.
Tax on the self-employed
The second clarification concerns a decision the Finance Ministry issued on Dec. 29, 2022, regarding the lump-sum tax payable by self-employed taxpayers.
Lebanese law allows taxpayers to base their profits on a flat rate applied to their annual salary to define the taxable base. A tax rate is then applied according to different brackets provided after the deduction of family allowances.
If self-employed professionals had to retain 40 percent of their annual income to make their calculation before deductions, the Finance Ministry allows them—since Dec. 29—to lower this ratio to 16 percent—a discount of 60 percent.
What might seem like good news is actually a palliative, as the budget now requires income to be reported at the “effective rate” (the Sayrafa platform rate of LL38,000 to the dollar, according to the insinuation of the ministry's decision) instead of the official peg.
Thus, a lawyer earning $50,000 a year will see their taxable base increase from LL30.15 million to LL304 million. They will also be subject to value-added tax (VAT) because the LL100 million annual income threshold — below which they would have been exempt from this tax — has still not been updated.
The two new measures further darken the future of Lebanese taxpayers. Lawmakers imposed a 2022 budget that significantly increased taxes under the pretext of rebalancing public finances, but did not include any measures that would actually improve the functioning of the state or state institutions.
The 2022 budget was referred to the Constitutional Council by MPs at the end of November. Last week, the Constitutional Council approved it, censoring certain provisions.
The question of the sudden increase in taxes levied on wages has still not been definitively resolved.
This article was originally published in French in L'Orient-Le Jour. Translation by Sahar Ghoussob.