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French Version

Azour touts higher taxes, privatization as only way out

vat would rise to 12 percent

Finance Minister Jihad Azour said on Tuesday that the only way to increase state revenues was to raise the value-added tax (VAT) from 10 percent to 12 percent and taxes on interest on bank deposits from 5 percent to 7 percent. Azour also said that privatization would help create 20,000 new jobs in Lebanon.

Speaking to a group of businessmen and investors who were invited by the Association of Lebanese Businessmen, Azour stressed that the new tax burden would only comprise 2 percent of the gross domestic product (GDP), or $400 million. Lebanon's GDP is a little more than $17 billion.

At present the tax burden in Lebanon is 20 percent of total GDP, compared to a regional average of more than 22 percent.

"About 40 percent of the government's revenues go to cover debt servicing and the rest to cover the salaries of public employees. This is no longer acceptable," Azour said.

But some of the businessmen were not receptive to the idea of new taxes, warning that the business community and the economy could not bear additional burdens.

Many political parties and trade unions have threatened to take to the street if the government of Prime Minister Fouad Siniora applies new taxes.

Lebanese bankers have warned that any new tax on interest on bank deposits would scare away potential depositors.

They stressed that Lebanon was no longer appealing to depositors because the benchmark London Interbank Offered Rate is already low at 5 percent.

"Depositors can go to Cyprus or Saudi Arabia and collect more than 5 percent on the deposits and without even paying any taxes," one banker told The Daily Star.

The International Monetary Fund (IMF) recommended that the government raise the VAT from 10 percent to at least 15 percent to help reduce the budget deficit.

The IMF also said that the government could no longer afford to subsidize Electricite du Liban, which is costing the Treasury $800 million a year.

"We considered several options ... in order not to increase considerably the burdens on citizens," Azour said.

He added that increasing the VAT from 10 percent to 12 percent would affect the 40 percent of the population whose income is below LL1 million per month.

"We are only talking about a few additional thousands of Lebanese pounds if the VAT reached 12 percent," he said.

The minister also argued in favor of raising taxes on interest on bank deposits from 5 percent to 7 percent.

"Nearly 60 percent of the deposits in Lebanese banks are in the range of $100,000 or more, which means the tax will affect 2 percent of the depositors," Azour said.

Azour said that the government was compelled to propose new taxes to help correct the fiscal imbalances.

"If we implemented the reforms after the Paris II conference, the government would have not proposed new taxes."

Late former Prime Minister Rafik Hariri was credited for raising $2.5 billion from the donor states in Paris in 2002 in the form of soft loans to help reduce debt servicing.

But Hariri, who was assassinated on February 14, 2005, failed to implement any of the promised reforms, accusing President Emile Lahoud and his team of blocking privatization and other measures.

Privatization is a key element in the government's plan to reduce the $40 billion public debt.

"Contrary to the general belief, privatization of the telecom sector, for example, will increase investments in this sector" and create jobs, Azour said.

"Privatization will move the state monopoly on companies to citizens and not a group of investors who will control the majority of the shares." He added that above all, privatization would end the intervention of politicians in the affairs of the state-owned companies.

Experts say that Lebanon could generate more than $6 billion from the privatization of the two cellular networks.

Beirut 27-06-2006
Osama Habib
The Daily Star

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