The façade of the National Social Security Fund, Beirut, in September 2023. (Credit: Mohammad Yassine)
Increase in contributions paid to the National Social Security Fund (NSSF) in March and then in April, increase in daily transport allowance paid to employees as of mid-February, change in school allowance and readjustment of the minimum wage that rose from LL9 million to LL18 million: This succession of changes affects the employee’s salaries and the costs for their employers.
A large proportion of these employers have still not recovered from the devastating effects of an economic crisis that has been ongoing for over four and a half years.
While some companies were already expecting this rise and started to set aside the funds since the beginning of the year, others couldn’t afford it and are now facing bankruptcy.
Pre-crisis level
“Generally speaking, these increases bring these charges back to pre-crisis levels,” said Nadim Daher, a certified public accountant and board member of the Lebanese Association for Taxpayers' Rights and Information (ALDIC). “What is different, however, is what employees and employers receive in return for these contributions,” he added, pointing to the ongoing deterioration in public services.
On the one hand, the state does not have the necessary means to provide what it should. “State expenditure is mainly devoted to salaries and current expenses, representing over 86 percent of the total, leaving no room for infrastructure investment, education, health and many others,” said Nicolas Boukather, chairman of the Business Leaders Association of Lebanon (RDCL).
On the other hand, “The NSSF, which is virtually bankrupt after having invested almost everything in Lebanon’s Treasury bonds that are no longer worth much, covers barely five percent of healthcare costs and only reimburses pensioners’ end-of-service indemnity in lira and by cheque,” added Daher.
These shortcomings weigh heavily on legal entrepreneurs, who “are trying to adapt to the new reality that has been unfairly imposed on them by incurring them even more costs, at the risk of shutting down,” said Boukather.
Double dues
Soumaya Merhi, founder of Taqa cookies in 2016, heads a team of six people. Faced with the collapse of NSSF benefits, she decided in 2022 to take out corporate private healthcare insurance for her employees and their families (covering 100 percent and 50 percent respectively). “I had no choice. I’m in charge of my team,” she said. She pays nearly $10,000 a year just to have “the peace of mind.”
To add insult to injury, “the worst thing is that I’m still paying [the NSSF] for no services, and now they want to raise the fees again!”
According to the employers interviewed, the problem is even more acute regarding the measures planned to restore order to service allowances. Calculated based on the old exchange rate of LL15,000 to the dollar for salaries paid in dollars, the contributions (8.5 percent of the employee’s salary) have been registered at the rate of LL89,500 since February, i.e. a six-fold increase.
“What’s worrying is that the measure could be implemented with a retroactive effect concerning the entire salaries paid, which would entail additional costs for employers, estimated between $2.5 and $3 billion. This is inconceivable, given that these charges have already been paid,” said Daher.
“Any contribution to the NSSF becomes an unjustified tax, and the private sector and their employees are calling for this injustice to be rectified immediately before it’s too late,” said Boukather. He believes that this double taxation is unjustified and that the state must contribute to this adjustment.
“Article 66 of the social security law clearly stipulates that in the event of a national disaster resulting in a considerable deficit at the NSSF, the state may grant the fund exceptional assistance without increasing contributions to remedy the deficit,” he added.
Parallel economy
Another business owner fears that he won’t be able to cope with the rising costs. He said on condition of anonymity, “I no longer want to register my employees with the Ministry of Finance and the NSSF, to avoid paying taxes and contributions for nothing. I don’t think the NSSF will be able to cover hospitalization costs as it used to any time soon, and I can’t continue to pay for [private] insurance and the NSSF with the increase in contributions.”
Faced with the public institutions’ inability to assume their responsibilities, and with the private sector shouldering the entire burden, more companies are turning to the informal economy.
Available figures show a clear deterioration in the situation. According to the Central Administration of Statistics (CAS), only 45 percent of workers were registered with the NSSF and paid their income tax in 2019, i.e. just over 715,000 people.
Today, this figure more likely ranges between 350,000 and 400,000, Daher estimated. “The parallel economy now accounts for almost 70 percent of the Lebanese economy, and continues to grow daily,” said Boukather.
Nabil Fahed, CEO of Fahed supermarket chain, said “While this proves to be easily feasible for small businesses, large companies will find it much harder to do, as they cannot easily escape control.”
Despite this, the latest increases could widen the gap even further when “the state was supposed to do everything it could to reduce the size of this parallel economy and broaden the tax base,” Boukather argued.
This article was originally published in L'Orient-Le Jour. Translated by Joelle El Khoury.