Place de l'Etoile in Beirut, where the seat of Parliament is located. (Credit: PHB)
The Parliamentary Finance and Budget Committee hopes to complete its examination of the 2024 draft budget as early as next week.
If adopted, the budget will regulate public spending and modify taxes for the coming year.
“We plan to look into the provisions relating to the ‘consumption cost’ that the cabinet wants to impose on some products [including tobacco and alcohol], before reviewing the rest of the articles,” committee head MP Ibrahim Kanaan (FPM/Metn) told L’Orient-Le Jour.
Kanaan noted the MPs had not followed the order of the draft sent by the caretaker cabinet, and preferred to reorganize the content in the sessions that began in October.
“Once this has been done, the committee will then focus on each of the institutions’ budgets, with the aim of completing the examination before the end of the constitutional time frame, i.e. the end of January 2024 at the latest,” added Kanaan.
Once the deadline has expired and if Parliament fails to vote on the draft, the cabinet may adopt the draft budget by decree, if some other conditions are also met.
VAT remains at 11 percent
During their deliberations, the MPs rejected an article allowing the tax authorities to calculate taxable salaries, i.e. the amounts used as a basis for calculating tax, on the Sayrafa platform rate.
“We asked [the cabinet] to review [this article], and it is possible that the new version of the article provides for the Finance Ministry and Banque du Liban to decide [on the matter],” Kanaan said.
This measure would have contributed to a drastic increase in taxes paid by companies and employees. The tax rate for salaries in 2022 was calculated per the exchange rate of LL8,000 from Jan. 1 to Nov. 14, 2022, and LL15,000 to the dollar over the remaining month and a half of the year.
The Finance Ministry made the decision to increase salary taxes after Parliament delegated it to the issue in the 2022 Budget law. This marked the beginning of the process of abandoning the former official parity of LL1,507.5 to the dollar and unifying the exchange rates, that have multiplied since the start of the 2019 crisis.
Kanaan added that VAT would remain at 11 percent, whereas the cabinet was planning to increase it to 12 percent. “The committee realized that many of the tax increases and adjustments, which the cabinet proposed, would not be necessary to achieve a balanced budget had the collection rate been higher. Today, only 20 percent to 30 percent of taxpayers pay what they owe to the tax authorities,” he said.
Constitutional problems
This is not enough to reassure civil society groups and the private sector, who regard the 2024 budget with pessimism, at least in its current form. The Lebanese Association for Taxpayers’ Rights and Information (ALDIC, Kulluna Irada, The Legal Agenda, and the Policy Initiative, a Beirut-based think tank) listed their multiple objections to the budget in a joint statement published on Thursday, Nov 30.
In the statement, the organizations criticized the caretaker cabinet. “The budget proposes no reforms to address key issues that limit fiscal space,” the statement said. Fiscal space refers to the amount the cabinet can utilize to finance its actions, without jeopardizing its financial position, or the stability of the country’s economy. Debt restructuring and public sector reform were not addressed in the draft sent to the committee.
The association’s statement pointed out that the draft budget is based on revenue projections made in May 2023 which have not been modified in the light of the amendments that the Finance Committee added. They also criticized it for failing to account for the possible consequences of the Hamas-Israel war’s spillover into South Lebanon. They urged the cabinet to update its projections.
The statement indicated that the cabinet breached several articles of the Constitution by adopting the budget, including article 65 which requires the cabinet to obtain the approval of at least two-thirds of its members for decisions relating to fundamental issues.
The statement also says that the executive violated Constitution Article 81 and Article 82 by granting the Finance Ministry the power to modify tax brackets on several occasions, while this authority is reserved for Parliament.
This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.