The main provisions expected for the 2019 draft budget
L’Orient-Le Jour was able to obtain a copy of the latest version of the 2019 draft budget that is being compiled by Saad Hariri’s government. The main provisions of the budget follow below. But the document does not include the latest estimates of government expenditures and revenue, making it impossible to calculate the projected government deficit.
Since the beginning of the month, the Council of Ministers has held intensive meetings aimed at reaching a final agreement on the budget amid sharp tensions between Finance Minister Ali Hassan Khalil and Foreign Minister Gebran Bassil. The tensions could cause the adoption of the draft budget and its referral to parliament to be further delayed.
Austerity measures aimed to achieve budgetary savings:
- Capping the fees for judges providing advisory services in other administrations at three times the minimum wage (currently $450).
- A freeze on early retirement for civil servants for a period of three years (including military and security forces), unless civil servants agree to a 25 percent pension reduction.
- A three year blanket freeze on all recruitment in the public sector, including in the army. Top tier civil servants will not be affected by the freeze.
- Capping total allowances received by the military (as well as other civil servants) per year at the equivalent of 75 percent of their main salary for the same year.
- A monthly deduction of 3 percent to the pensions of retired military personnel that will be used to finance their health care coverage.
- Reduction of annual leave, beginning in 2020 (excluding teachers and judges), from 20 to 15 days with the possibility of earning an extra day off every five years.
- Prohibiting the combination of a civil service salary and a civil service pension.
- A halt to bonuses and other allowances other than those earned in the 12 month salary structure, with the exception of certain public establishments which will still be able to pay a 13 or 14 month salary each year.
- An investigation by the Central Inspectorate to determine the cost of the State's contribution to tuition fees for pupils enrolled in free private schools.
- An increase in the number of years of effective service required to apply for retirement from 20 to 25 years in administration, 18 to 23 years for soldiers and noncommissioned officers in the army, 20 to 25 years for officers and 15 to 18 years for specialist officers.
- Rescheduling some loan programs.
New tax provisions
- The introduction of a temporary tax (effective until the end of 2022) of 2 percent on the value of imports, to be collected by Customs. The tax will exclude electric and hybrid vehicles and equipment and raw materials used in the agricultural and industrial sectors. From 2020 to 2022, 35 percent of the revenue generated by this tax will be allocated to support programs for productive sectors and the financing of subsidized housing loans.
- Amendments to the income tax law
+ On monthly salaries and on retirement pensions that will be subjected to income tax starting July 1, 2019:
• 2 percent on wages and salaries not exceeding 6 million LBP ($4,000) and 1 percent on retirement pensions in that same bracket.
• 4 percent on wages and salaries ranging from 6 million LBP ($4,000) to 15 million ($10,000), and 2 percent on retirement pensions falling in the same bracket.
• 7 percent on salaries, wages and pensions ranging from 15 million LBP ($10,000) to 30 million LBP ($20,000).
• 11 percent on salaries, wages and pensions ranging from 30 million LBP ($20,000) to 60 million LBP ($40,000).
• 15 percent on salaries, wages and pensions ranging from 60 million LBP ($40,000) to 120 million LBP ($ 80,000).
• 20 percent on salaries, wages and pensions ranging from 120 million LBP ($80,000) to 225 million LBP ($ 150,000).
• 25 percent on salaries, wages and pensions exceeding 225 million LBP ($ 150,000). This is a new tax bracket for taxpayers.
+ The addition of a sixth tax bracket above 225 million LBP ($150,000) for taxpayers taxed on industrial and commercial profits that will be taxed at 25 percent as of the fiscal year of 2019. Until then, these taxpayers will be included in the 5th bracket and taxed at 21 percent.
- A temporary increase in the tax on bank interest from 7 percent to 10 percent. This increase will be effective the day after the publication of the Budget Law for 2019 and remain in effect for a period of three years.
- The VAT Law has been amended to reduce the minimum turnover below which companies are not subject to VAT. While it was reduced in 2017 from 150 to 100 million LBP a year ($100,000 to $66,000), it will now be reduced to 50 million ($33,300).
- The cancellation of all customs exemptions (of all types), with the exception of goods subject to trade agreements, materials and equipment used by the industrial and agricultural sectors, equipment used by persons with special needs, electric and hybrid vehicles and tax exemptions granted under the tax law governing the offshore hydrocarbon sector. Goods that can be proven to have been sent directly to Lebanon before the publication of the 2019 Budget Law will qualify for exemptions.
- The cancellation of exemptions from vehicle registration fees and the MOT tax, with the exception of persons with special needs, the State, public institutions, municipalities, consular and diplomatic corps and UN organizations . The President, Parliament Speaker and Prime Minister, deputies and ministers who benefited so far from these exemptions are also affected by this cancellation.
- The monthly allowances received by the President, the Parliament Speaker, the Prime Minister, deputies and former deputies will now be subjected to income tax. The former Presidents of the Republic, Speakers of the Parliament and former Prime Ministers are also affected by this provision.
An increase in fees collected by General Security:
• 35,000 LBP ($23) for an authorization to broadcast an advertisement;
• 700,000 LBP ($467) for a work permit for 1st category artists;
• 250,000 LBP ($167) for a work permit for 2nd category artists;
• 25,000 LBP ($17) for port entry (monthly declaration);
• 250,000 LBP ($167) for port entry (annual declaration);
• 75,000 LBP ($50) for visas valid for three months / single entry;
• 150,000 LBP ($100) for visas valid for six months / multiple entries;
- Tour companies that host foreign tour groups for organized tours will be subjected to a new fine of 3 million LBP (US $1,950) for each tourist under their responsibility who does not show up for the group's scheduled return. The payment of this fine must be made before the return of the rest of the group of tourists.
- The introduction of new fees to be collected by General Security:
• 50,000 LBP ($33) for any advertisement poster;
• 50,000 LBP ($33) for any sponsor change for foreign workers;
• 200,000 LBP ($133) for each annual authorization granted to an agent to access the port premises;
- The introduction of a contribution of at least 20 million LBP ($13,333) for the registration of new 3-digit car registration plates in addition to an annual fee of 1 million LBP ($667) to 2.3 million LBP ($ 1,533); a contribution of at least 350,000 LBP ($233) for those with 4 digits in addition to an annual fee ranging from 160,000 LBP ($107) to 1.3 million LBP ($867), among others.
- To encourage natural and legal persons who acquired real estate to register them in the land register, they are to pay only 2 percent of the amount of the purchase for transactions below 375 million LBP ($250,000) and 3 percent for those over this amount.
- The introduction of a new tax on each night in a hotel or apartment-hotel:
• 10,000 LBP ($6.67) in a 5-star hotel, 5,000 LBP ($3.33) in a 4-star hotel and 3,000 LBP ($2) in a 3-star hotel.
• 7,000 LBP ($4.67) in 1st class apartment-hotels and 5,000 LBP ($3.33) in 2nd class apartment hotels.
- An increase on work permit fees (granted annually to foreign workers) collected by the Ministry of Labor:
• 3 million LBP ($2,000) instead of 1 million LBP ($667) for the first category;
• 2 million LBP ($1,333) instead of 1 million LBP ($667) for the second category;
• 1 million LBP ($667) instead of 300,000 LBP ($200) for the third category;
• 300,000 LBP ($200) instead of 50,000 LBP ($33) for the 4th category;
- A 200,000 LBP ($133) tax on any personal firearm license.
- A 200,000 LBP ($133) tax on any tinted window installation permit for the entire vehicle and 100,000 LBP ($ 66) for a portion of the vehicle.
- A 1,000 LBP ($0.66) tax on each hookah/shisha consumed in a restaurant, café, hotel or nightclub.
Measures to prevent tax evasion
- Municipalities are now required to report to the Ministry of Finance the companies and professionals they grant building permits to who do not have a fiscal number.
- Municipalities should conduct field surveys of businesses and professionals to compile tax information and forward it to the Ministry of Finance.
- A more comprehensive definition of tax evasion is included in the law on tax provisions in order to cover “intentional element”.
The new provisions on public accounting
- The Government is now required to submit a report to Parliament each quarter on the real Government deficit, disbursed expenditures, repayment installments for domestic and foreign debts, the results of treasury bills and Eurobonds and Treasury advances.
- Expenditure related to external grants and loans agreements with public entities and approved by government decree or law must now be subjected to an audit by the Court of Audits. These funds will be transferred to the relevant public entities through the Ministry of Finance, which will include the disbursement (either as lump sum or gradually) of these credits into the budgets of the fiscal years concerned. These credits will be entered in the Treasury’s grants account.
- The opening of exceptional credits by the President for the financing of emergency expenses is capped at $66.3 million.
- The Council of Ministers will now determine which sectors will be prioritized to benefit from loans subsidized by the Central Bank, and the eligibility conditions for these loans, following a proposal by the Ministers of Finance and the Economy, and after consulting the Central Bank governor.
- A $1.13 billion treasury advance will be granted to Électricité du Liban (EDL), which will be added to the $527 million advance already granted by the Parliament to EDL last March for the purchase of fuel. EDL does not have the right to use these advances for any other purpose.
- Starting in 2021, all supplementary budgets will be canceled and included in the consolidated state budget.
(This article was originally published in Frecn in L'Orient-Le Jour on the 22nd of May)