One of the doors leading to the inner courtyard of the Grand Serail in Beirut. (Credit: PHB)
The Finance Ministry has recently completed the initial version of the Lebanese state budget for 2023. This long-overdue document has now been officially submitted to the government for further review.
To address this crucial matter, the government has scheduled a series of meetings starting next Monday. These gatherings will focus on scrutinizing the budget, which outlines the methods through which the state plans to generate revenue and allocate expenditures for the remainder of the year.
After receiving approval from the government, the finance bill must proceed through Parliament to be enacted into law. Additionally, it will need to incorporate any expenses accrued and revenue generated by the state since Jan. 1, 2023.
Long overdue and no specific exchange rate
The completion of the budget voting process should have ideally taken place no later than January. Unfortunately, the ruling class has once again disregarded this timeline, despite being in the fourth year of an ongoing economic and financial crisis.
To put things into perspective, in the previous year, the preliminary draft budget for 2022 was completed in January, with the corresponding Finance Act being passed eight months later.
There is uncertainty regarding whether Parliament will make the effort this year to pass a law that finalizes the public accounts for 2022. This procedure, which is typically mandated by the constitution to enable MPs to oversee the budget’s execution retrospectively, has been neglected for several years.
L’Orient-Le Jour viewed the preliminary draft, which the ministry compiled along with the state budget for 2022, albeit with significant delays.
The version we examined lacks the preamble that typically explains the methodology employed by the ministry in formulating the budget. The draft does not explicitly state the exchange rate used for these calculations.
To simplify matters, L’Orient-Le Jour opted to convert the amounts into Lebanese lira using the current parallel market exchange rate (approximately LL92,000 to the dollar on informal platforms) as well as the current official rate (LL15,000 to the dollar).
The previous budget was formulated using a combination of exchange rates.
Notably, it is highly probable that the government will introduce significant modifications to the preliminary draft before submitting it to Parliament for consideration.
Key figures
The ministry has projected a forecast of LL181,923 billion in public spending for 2023, which equates to approximately $1.98 billion at the parallel market exchange rate or $12.13 billion at the official exchange rate.
Expenditure increased by LL141,050 billion compared to LL40,873 billion in 2022.
As for revenues in 2023, they are estimated at LL147,739 billion, equivalent to around $1.61 billion at the parallel market rate or $9.85 billion at the official rate.
Over the course of a year, revenue has surged by LL117,754 billion, with 76.3 percent of it coming from tax revenue, including value-added tax (VAT) and other obligatory levies.
In particular, the ministry anticipates the collection of LL36,224 billion VAT, which constitutes approximately 24.5 percent of total revenue.
It is important to note that the exchange rate currently used to calculate VAT varies between that of the central bank’s Sayrafa platform (currently LL85,500 to the dollar) and the parallel market rate, depending on the entity collecting it on behalf of the state.
Additionally, the ministry anticipates customs duties reaching LL12,019 billion, constituting approximately 8.1 percent of total revenues.
The exchange rate utilized for calculating customs duties in Lebanese lira, based on pre-tax prices denominated in dollars (commonly known as the customs dollar), has been progressively increased since the start of the year. As of last May, it has been fixed at LL86,000 to the dollar.
Taking all factors into account, this preliminary draft projects a deficit of LL34,184 billion, equivalent to approximately 18.79 percent of total expenditure.
Furthermore, there is a notable increase in non-tax revenues from the telecommunications sector, nearly doubling from LL4,479 billion to LL8,257 billion.
New tax adjustments
To ensure revenue collection, the ministry has logically implemented new measures and revised existing ones to align with the exchange rate and accommodate salary increases granted to civil servants since the beginning of the year (with their pre-crisis salaries being multiplied by seven).
Regarding income tax (as specified in Article 17 of the current draft), the number of tax brackets remains at seven, along with the corresponding tax percentages (2 percent, 4 percent, 7 percent, 11 percent, 15 percent, 20 percent and 25 percent).
However, adjustments have been made to the bracket amounts.
The first bracket now encompasses sums below LL70 million per year, while the highest bracket encompasses sums exceeding LL2.44 billion per year.
In the budget, the ministry has also applied new fixed taxes on the consumption of locally produced alcohol, tobacco and soft drinks, in addition to any existing levies.
Under these new measures, there is a tax of LL5,000 per liter of beer produced, LL7,500 per liter of arak, and LL 6,000 per liter for wine (as outlined in Article 36).
For soft drinks, whether imported or domestically produced, there is a tax of LL5,000 per liter (as stated in Article 61).
In terms of tobacco, there is an additional tax of LL7,500 per carton of cigarettes, as well as an additional tax of LL75,000 per kilogram of hookah tobacco. For cigars, a new tax equivalent to 10 percent of the retail selling price is planned (as mentioned in Article 78).
Continuing with the current regulations, travelers will still be required to pay exit taxes upon leaving Lebanon. These taxes will amount to $35 for economy class passengers, $50 for business class, $65 for first class, and $100 for passengers traveling on private jets or yachts.
For individuals entering Lebanon via land routes, a fee of LL500,000 will be levied (as stipulated in Article 51).
Moreover, the preliminary draft budget includes a provision for an annual tax of LL100,000 per kilovolt ampere (KVa) imposed on private generator owners for the electricity they supply to their subscribers (as outlined in Article 52).
Registration fees, mechanical taxes, and driving license fees, both for local and international licenses, have been increased (as stated in Article 56).
Furthermore, one provision (Article 80) specifies that the salary increases granted to civil servants since 2020 will not be considered part of these employees’ basic salary. This suggests that these increases may not have been permanently acquired by those who have received them.
This article was originally published in French in L'Orient-Le Jour. Translation by Sahar Ghoussoub.