The main provisions of 2019 budget
Below are the main provisions of the final version of the 2019 budget as voted on by Parliament last Friday. However, MPs were not able to vote on the final budget figures due to amendments added to the text on the day of the vote.
The text has not been published yet in the Official Gazette because President Michel Aoun refused to sign it on Thursday, but it has already been signed by Prime Minister Saad Hariri and Speaker of the House Nabih Berry.
Sources close to the President said his decision was due to Article 80 of the budget, which institutes a freeze on all forms of recruitment (contractual, daily, service providers, etc.) in the civil service, including the army. The President believes the article should have been removed from the final version of the text. And members of the Strong Lebanon bloc, which primarily consists of members from the Free Patriotic Movement, founded by Aoun, strongly oppose its inclusion. The article provides for reserving the rights of "applicants for state positions who have passed the Civil Service Board exam" to be hired even after two years from the announcement of the results.
Austerity measures aimed at achieving budget savings are as follows:
- A freeze on all forms of recruitment (contractual, daily, service providers, etc.) in public service, including the army. Top tier public servants, judges, professors of the Lebanese University, presidents and members of the boards of directors of public institutions and employees of control bodies as well as volunteers at the Civil Defense will not be affected by this freeze. This freeze will remain in effect until the government holds a civil service human resources audit and a census of the occupied and vacant positions in cooperation with specialized consulting bodies and the relevant government establishments (including the Central Inspection). A copy of this report must be submitted to the Parliament.
- A freeze on early retirement for civil servants for a period of three years, including the military and security forces. Judges and colonels are not affected by this freeze and neither are public servants subjected to disciplinary or medical decisions.
- 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.
- Capping judges' fees for advisory tasks in other administrations at three times the minimum wage (currently $450).
- A monthly deduction of 1.5 percent on retirement pensions of former soldiers, which will be used to fund their health coverage. The government originally planned a 3 percent deduction, but MPs lowered it under pressure from retired soldiers.
- Prohibiting the combination of a civil service salary and a civil service pension.
- A halt to bonuses and other allowances other than those for the twelve months of the year, with the exception of certain public establishments which will still be able to pay a thirteenth and fourteenth month’s salary each year.
- An increase in the number of years of effective service required to apply for retirement from 20 to 25 years in administration. For the army, this period is to increase from 18 to 23 years for regulars and noncommissioned officers, from 20 to 25 years for officers and 15 to 18 years for specialist officers.
- The share of revenue collected from fines resulting from traffic offenses or court decisions allocated to the Treasury has been revised upwards as of 1 January 2019. While the shares of such revenues allocated to internal security forces, municipalities and legal assistants have been reduced. It was suggested to reduce the proportion of such revenue allocated to the Mutual Fund of Judges, as planned by the government in the draft budget, but the deputies rejected the provision under the pressure from judges.
- Reducing annual leave as of 2020 (excluding teachers and judges) from 20 to 15 days with the possibility of earning an extra day off every five years.
- Gradual decrease of 15 percent in the amount of school tuition aid provided by the State for public servants for the education of their children as of the 2019-2020 school year.
- Rescheduling of a number of financial program acts.
New tax provisions
- The introduction of a temporary tax (for a period of three years) of 3 percent on imported products subject to VAT, about 55 percent of imported products. Fuel will be exempted from this tax, at the request of Hezbollah deputies. Industrial equipment and raw materials will also be exempted, at the insistence of MPs (and industrialists) Michel Daher and Neemat Frem. Given the exceptional revenue it will generate, this tax is one of the main measures that the government counts on to reduce the public deficit in 2019. It will probably apply to European products despite the association agreement linking Lebanon to the European Union. Part of this revenue would initially be allocated to support programs dedicated for productive sectors and for subsidized housing loans, but all revenues will eventually go to the Treasury.
- 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 for a period of three years.
- Retirement pensions will now be subject to income tax (with the exception of the pensions of the of the beneficiaries of the martyrs of the army and the security forces and those of soldiers who suffered combat related injuries). The first 10 million L.B.P ($6,600) of the annual pension salaries are tax deductible. This taxation will be effective August 1, 2019, as follows:
• 1 percent on pensions not exceeding 6 million L.B.P ($4,000).
• 2 percent on pensions ranging from 6 million ($4,000) to 15 million L.B.P ($10,000).
• 7 Percent on pensions ranging from 15 million L.B.P ($10,000) to 30 million L.B.P ($20,000).
• 11 percent on salaries, wages and pensions ranging from 30 million L.B.P ($20,000) to 60 million L.B.P ($40,000).
• 15 percent on pensions ranging from 60 million L.B.P ($40,000) to 120 million L.B.P ($80,000).
• 20 percent retirement pensions ranging from 120 million L.B.P ($80,000) to 225 million L.B.P ($150,000).
• 25 percent on retirement pensions exceeding 225 million L.B.P ($150,000).
-The monthly allowances received by the former Presidents, Parliament Speakers, Prime Ministers and deputies will now be subjected to income tax.
-The addition of a seventh taxation bracket on taxpayers whose salaries and wages are greater than 225 million L.B.P ($150 000).
-The addition of a sixth bracket of greater than 225 million L.B.P ($150,000) for taxpayers taxed on industrial and commercial profits which will be taxed at 25 percent as of the fiscal year of 2019. Until then, they are to be included in the fifth bracket and taxed at 21 percent.
- 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 exceptionally 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.
An increase in fees collected by General Security:
• 35,000 L.B.P ($23) for an authorization to broadcast an advertisement;
• 700,000 L.B.P ($467) for a work permit for 1st category artists;
• 250,000 L.B.P ($167) for a work permit for 2nd category artists;
• 25,000 L.B.P ($17) for port entry (monthly declaration);
• 250,000 L.B.P ($167) for port entry (annual declaration);
• 75,000 L.B.P ($50) for visas valid for three months / single entry;
• 150,000PL.B.P ($100) for visas valid for six months / multiple entries;
The introduction of new fees to be collected by General Security:
• 50,000 L.B.P ($33) for any advertisement poster;
• 50,000 L.B.P ($33) for any sponsor change for foreign workers;
• 200,000 L.B.P ($133) for each annual authorization granted to an agent to access the port premises;
- Without modifying the current passport fees, it will now be possible to apply for a passport with a validity of one year for 60,000 L.B.P, three years for 200,000 L.B.P, five years for 300,000 L.B.P or 10 years for 500,000 L.B.P.
- An increase in work permit fees (granted annually to foreign workers) collected by the Ministry of Labor:
• 3 million L.B.P ($2,000) instead of one million L.B.P ($667) for the first category;
• 2 million L.B.P ($1,333) instead of one million L.B.P ($667) for the second category;
• 1 million L.B.P ($667) instead of 300,000 L.BP ($200) for the third category;
• 300,000 L.B.P ($200) instead of 50,000 L.B.P ($33) for the fourth category;
- The Ministry of Labor and the General Directorate of General Security will now be authorized to grant work permits and residence permits for the terms of one, two or three years. The fees will consist of the current fees multiplied by the number of years of validity.
- An increase in taxes on airline tickets issued after the publication of the 2019 budget: 125,000 L.B.P (instead of 110,000 L.B.P) for business class travelers and 200,000 L.B.P (instead of 150,000 L.B.P) for first class travelers. On the other hand, the tax on private jets travelers will decrease to 400,000 L.B.P (instead of 450,000 L.B.P). The economy class tax will be maintained at 50,000 L.B.P, although there were initially talks of increasing it to 75,000 L.B.P.
The introduction of fees for tourist establishments wishing to obtain a smoking permit and meeting the sanitary and legal requirements:
• A flat fee of 5 million L.B.P and 3,000 L.B.P per square meter for 5-star hotels;
• A flat fee of 2.5 million L.B.P and 2,000 L.B.P per square meter for 4-star hotels, restaurants, bars, party rooms;
• A flat fee of 1.5 million L.B.P and 1,500 L.B.P per square meter for 3-star hotels;
• A flat fee of 1 million L.B.P and 1,000 L.B.P per square meter for 2-star hotels;
-Tour companies that host foreign tour groups for organized tours will be subjected to a new fine of 3 million L.B.P (US $1,990) 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 a contribution of at least 20 million L.B.P ($13,333) for the registration of new three digit car registration plates, in addition to an annual fee of 1 million L.B.P ($667) to 2.3 million L.B.P ($1,533); a contribution of at least 350,000 L.B.P ($233) for those with 4 digits in addition to an annual fee ranging from 160,000 L.B.P ($107) to 1.3 million L.B.P ($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 L.B.P ($250,000) and 3 percent for those over this amount.
-Building permits with a validity that ends this year may be renewed for a period of two years and those still valid for one year may be extended for one additional year. This provision was added at the last minute by M.P. Bahia Hariri to allow persons who have applied for a permit, but who have not been able to carry out their construction during this period for economic reasons to do so.
- A flat tax of 75 000 L.B.P for each generator, which will have to be paid by the owners of these generators. This provision was also added at the last minute by MP Yassine Jaber.
- Companies or start-ups operating in the technology sectors supported by the Lebanese Investment Development Authority (IDAL) will have their social security contributions covered by the latter for new employees whose annual salary does not exceed 45 million L.B.P during their first two years of business.
Measures to prevent tax evasion
- Municipalities are now required to report to the Ministry of Finance on the companies and professionals to whom they grant building permits without them having 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 that particularly covers the “intentional element”.
The new provisions on public accounting
- The government is now required to 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 a lump sum or gradually) of these credits into the budgets of the fiscal years concerned. These credits will be entered in the Treasury 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 the priority sectors 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 Economy and following consultations with 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 French in L'Orient-Le Jour on the 25th of July)