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French Version

Lebanon's VAT becomes main source of government income (Daily Star)

Consumer tax represents 26.3 percent of revenues

Lebanon's value-added tax (VAT) has become the main source of income for the government, which is desperately struggling to reduce the budget deficit.

According to a report by the Finance Ministry released last week, revenues from VAT in the first nine months of 2004 represented 26.3 percent of total budget income.

Revenues from VAT rose to LL1.241 trillion ($827 million) in the third quarter of this year, an increase of 30.29 percent compared to 2003.

The 10 percent VAT was introduced in Lebanon in late 2002 and since then consumer tax became one of the main source of government income.

Before the introduction of VAT, Lebanon depended on revenues from customs duties to reduce a large percentage of the budget deficit.

VAT is slapped on all imported goods as well as items which are used by local manufacturers. Fresh vegetables, fruits, medications and books are exempted from VAT taxes.

Former Finance Minister Fouad Siniora fiercely defended the implementation of the VAT in Lebanon, arguing that the new tax is essential to boost revenues and pin down all those who are dodging income and profit taxes.

Siniora's team, in collaboration with international agencies, trained hundreds of staff from the ministry on the use of VAT.

Many economists and merchants ridiculed the introduction of VAT in the beginning but as revenues from VAT have risen, these initial analyses have been allayed.

Total revenues from taxes and tariffs in the first nine months of 2004 reached LL5.594 trillion, an increase of 14.11 percent compared to the same period of 2003.

But despite the improved revenues from taxes and tariffs, the country is plagued with a $35-billion public debt, which represents 180 percent of Lebanon's gross domestic product.

The Finance Ministry said that the total budget deficit in the first nine months of 2004 decreased by 28 percent, reflecting the 14 percent upsurge in total revenues and the two percent drop in total spending.

"The consolidation of the fiscal position was also confirmed by the 54 percent improvement in the total primary surplus which reached LL763 billion at the end of September 2004," the ministry said in its report.

The primary surplus are the net revenues collected by the government after excluding the cost of debt servicing, which consumes the bulk of the budget.

The Lebanon Weekly Monitor bulletin, which is released by the Audi-Saradar Group, said that the impressive growth in VAT revenues was attributed to a 14 percent increase in VAT collected on internal operations and a 38 percent rise in tax collected at imported items.

"The revival in economic activity had an impact on income taxes as well. Taxes on income, profits and capital gains grew by 17.2 percent and amounted to LL761 billion," the bulletin said.

The government of Prime Minister Omar Karami intends to submit the 2005 draft budget in two months with new plans to reduce the public debt.

Beirut 20-12-2004
Osama Habib
The Daily Star

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