You are a tax lawyer and a member of the Lebanese Association for Taxpayers' Rights and Information (ALDIC). You recently participated in the drafting of a proposal and a bill, two texts that concern the financing of a possible bank deposit restitution fund. Can you summarize them?

The two texts are complementary and the common objective is to allocate taxes that must or should be collected on profits made by taxpayers via three types of mechanisms that have flourished during the crisis.

The bill covers the repayment of loans taken out before the crisis at a market value that is tiny compared to the one at the time the loan was taken out. The bill includes conversions at the Sayrafa rate (the platform of the Central Bank whose rate was, in a sense, more advantageous than the market rate), and mechanisms for subsidies on the exchange rate.

The aim, each time, is to ensure that the recovered funds feed a fund or a cash box specifically dedicated to the reimbursement of depositors' assets, which have been unduly confiscated by Lebanese banks over the past five years. Without this allocation mechanism, the taxes collected by the public treasury will be allocated to the general expenditure of the State as provided for in its budget, whether this year or the following ones, with the risk that they will be wasted.

So these two texts do not create new taxes?

No, but they are calling on the tax authorities to collect taxes that should have been paid on these transactions and return them to this specific fund.

The bill that intervenes on the issue of loans is based on an existing tax that applies to all income realized from any operation or transaction that is not categorized anywhere, but which is not expressly exempted either. Section 4(d) of the Income Tax Act of 1959 considers that this income is therefore subject to the general tax on industrial and commercial profits and non-commercial profits (BIC and BNC) of Title 1, which is progressive in tranches between 4 and 25% for individuals and fixed at 17% for capital companies.

The proposed law works on the same principle with some subtleties. For transactions related to Sayrafa, the legal basis is the State budget for 2024 (Article 93 of the Finance Law No. 324/2024) and it has been validated by the Constitutional Council (Decision No. 3 of 4/4/2024).

For subsidies, this involves applying Law No. 240/2021 aimed at auditing subsidy recipients to detect possible fraud and embezzlement. The proposed law provides for allocating tax on possible undeclared profits, but also on amounts unduly received as well as penalties.

Why turn to this type of solution today?

This is clearly not the most appropriate or fair solution to the country's problem after five years of crisis, during which funds have been confiscated and embezzled without justice being rendered to those who have paid the price.

The implementation of a more global solution is slow in being implemented because decision-makers - executives, banking and business lobbies – are reluctant to assume their share of responsibility and are especially afraid of opening Pandora's box that would expose the infractions and excesses committed over the years, making them accountable not only to justice and the administration but also to their electoral base.

The lever of earmarked taxes is in this context a rapid and legal means which can ensure an increase in the funds made available to depositors.

For this to work, it is absolutely necessary to provide the Ministry of Finance with sufficient human and material resources to enable it to monitor and redress taxpayers who are at fault. It is also necessary to push the Council of Ministers to adopt the decree provided for by Law No. 306/2022, which amends banking secrecy and defines the procedure to be followed to ensure transparency and protection of the taxpayer according to the tax procedure code.

Has this type of process already been used in Lebanon?

Yes, for more than 35 years after the 1956 earthquake with a surcharge added to income tax and property tax to feed a fund allocated to compensation and indemnities owed to victims.

There are many cases in the world. In the United States, for example, there are "sin taxes" (pecuniary taxes) levied on products that are dangerous to health (tobacco, alcohol, etc.) and whose proceeds are exclusively allocated to projects that deal with the consequences; or "vacancy taxes" imposed on owners of empty or underused housing and whose proceeds finance housing assistance. In France, there is the CSG (general social contribution) perceived as an earmarked tax to support the National Social Security Fund, among others.

How can we convince taxpayers who have difficulty understanding why they should be taxed on profits they made using the few mechanisms that worked in their favor during the crisis that has been unfolding since 2019?

There are two ideas to be addressed here. The first relates to the feeling of usurpation and injustice, as well as the impression of being penalized for an operation that had not been prohibited by law, which was often tolerated on the regulatory level (and wrongly by BDL) or quite simply offered by the play of circumstances of the crisis.

But this is a misperception or at least a misunderstanding of the two texts and of the situation itself. This bill and this proposed law are in no way intended to punish or create a new retroactive tax. Nor are the beneficiaries asked to return all the profit they may have made (legally). They are simply required to fulfill their existing tax obligations and make them contribute jointly and severally and in reasonable proportions to the bailout of those who have lost their money.

The other idea here relates to tax civic-mindedness and the need to know that what one voluntarily pays in taxes is used wisely by the tax collector (the State). This has never been the case in Lebanon, where the lack of transparency and the absence of basic public services are sorely felt and lead to incivility. With this project and this proposal, the taxpayer will be able to follow for the first time the use that will be made of his money, which will go to a good cause in everyone's opinion, as I have reason to believe.

Another critic points out that these laws, if passed, could prove ineffective if the deposit restitution fund is not allocated. Is that not the case?

To address this risk, the draft and the proposal speak of any fund other than the Deposits Recovery Fund that the government plans to launch and which could even be either the fund for the recovery of ill-gotten gains and corruption money, which was created by Law No. 214/2022, or a trust account at the BDL that feeds the banks' accounts for this purpose exclusively.

This article originally appeared in French in L'Orient-Le Jour.