Global Blue, the tourism shopping VAT refund world leader, arrived in Lebanon in 2002 and is expected to learn more about its future in the country during a cabinet meeting scheduled for Wednesday.
Tax refunds are the reimbursement of VAT paid in a country and are particularly useful when tourists purchase top-of-the-range or luxury goods. Passengers passing through Lebanon — be they Lebanese or foreigners, provided that they are non-residents — may reclaim VAT on some of their purchases made in the country, as can be done elsewhere in the world.
Since early March, however, the Lebanese subsidiary of Switzerland’s Global Blue International has put its operations on hold while it awaits cabinet’s validation of a new “mechanism” modifying the VAT refund system. This mechanism was prepared by the Finance Ministry, which has yet to officially communicate its details.
Speaking to L’Orient-Le Jour, Joe Yacoub, director of Global Blue SAL, did not voice his expectations about Wednesday’s meeting. However, he pointed out that according to a study carried out by the company, the most affluent travelers generally spend more money in countries that offer tax-refund services and that their average expenditure in Lebanon has grown at a higher annual rate than that of “normal” tourists.
He said the VAT the country is waiving is largely offset by the wealthy tourists’ willingness to spend the money they “know they will get back on purchases made during their stay.” In the 2022 budget, which came into force 10 and a half months late, the cabinet forecast VAT revenues at LL5.5, or more than a fifth of projected revenues.
Stop losing money
According to explanations provided to L’Orient-Le Jour in February, Global Blue wanted to replace the current system that integrates the Finance Ministry with a new one that would no longer cause it to lose money.
Under the old system, a traveler making a purchase of more than $100 in Lebanon from a retailer that is part of Global Blue’s network would pay the VAT and then fill in a tax-refund form online with the retailer. Upon leaving the country, typically through the airport, the traveler would first go through customs to have the slip validated, then go to the Global Blue’s desk to have the refund operation processed. Once this stage is completed, the refund will be made less the commission charged for executing the transaction.
Before the onset of the financial crisis in 2019 — which has seen the lira collapse and ad hoc banking restrictions placed on dollar deposits — Global Blue reimbursed VAT in dollars and cash.
Since the start of the 2019 crisis and until February 2022, it continued to make these repayments, but this time in Lebanese lira and via bank transfer — a system that was no longer attractive to buyers due to restrictions on the conversion of lira into dollars and bank transfers from Lebanon to other countries.
The second problem relates to the Finance Ministry’s tardiness in repaying Global Blue the VAT that had already been paid by travelers and which Global Blue had already reimbursed to customers. These refunds were made in lira and through bank transfer, leaving the company with large amounts that it could not freely convert into dollars. In addition, between the time Global Blue paid the VAT to customers and the time the Finance Ministry reimbursed the company, the lira-to-dollar exchange rate on the parallel market could undergo significant fluctuations, effectively depreciating the value of the money recovered by the company.
This rate has been particularly volatile over the past four years, with the exception of the precarious stability in recent months. While the official rate was not changed from the previous official parity of LL1,507.5 to the dollar to LL15,000 until Feb. 1, in accordance with a cabinet decree published in late April, the VAT must now be calculated in line with three different rates close to the market.
In order to avoid these inconveniences, Global Blue demanded that it be permitted to deal directly with merchants, but there is no indication at this stage that the Finance Ministry is going to favor this solution over one in which it would remain part of the mechanism.
The number of retailers in the company’s network dwindled with the crisis, from 600 to just over 300, with fewer than 1,000 shops served, compared with more than 2,000 previously.
This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.