Lebanon passes 2024 budget but debate rages on taxes and ‘dollarisation’

Reuters/Mohamed Azakir

• Criticised for tax burden on poorer citizens
• Plan to raise VAT to 12% abandoned
• Last year’s budget only passed a fortnight ago

Lebanon’s caretaker cabinet passed a draft budget for 2024 on Tuesday with a focus on raising tax revenue and a move towards collecting fees and taxes in dollars.

It was the first time since 2002 that a budget was approved within the constitutionally delineated time period of 31 October, which caretaker prime minister Najib Mikati called “a great achievement”.

Last year’s budget, by contrast, was only passed two weeks ago, presenting the possibility of parliament voting on two annual budgets at the same time.

• Economic activity in Lebanon remains sluggish
• Lebanon to ditch Sayrafa currency exchange platform
• Lebanon’s energy dilemma: power cuts and costly solar

Mikati said that the 2024 budget would be sent to parliament at the end of the week in time for the next autumn session in the second half of October.

Analysts say that the current draft budget could change drastically through parliamentary negotiations.

Although the speed of the budget’s approval has been roundly praised, its content has been criticised for increasing the tax burden on the poor and middle class while failing to implement measures to widen the tax base or make collection more progressive.

The budget has also been called a defacto “dollarisation” of the tax system.

“There is no strategic vision of the role for the state or public administration reform,” said Sibylle Rizkl, policy director at Kulluna Irada, a Lebanese think-tank that advocates policy reform.

“They are going to the easiest way to raise taxes without any strategic vision.”

The draft budget includes an article raising VAT from 11 percent to 12 percent. However, on Monday, caretaker public works minister Ali Hamieh announced that this provision would be abandoned.

While the VAT increase remains in the draft budget for now, opposition to it has made it unclear if the increase will make it into the final version.

The budget may also allow the government to collect more fees and taxes in US dollars. Under previously published plans, customs fees, port and airport fees, bills to power provider Electricité du Liban, residence fees and some fees related to the petroleum sector would all be collected in dollars.

Rizk said that these plans constitute “an attempt to dollarise taxation”. 

However, following the budget’s approval, Mikati appeared to backtrack on these plans and said: “We held a meeting yesterday with the International Monetary Fund, which advised that public revenues remain in Lebanese pounds.”

Other fees collected in lira have been increased in line with inflation, such as legal fees related to registering private companies, which have increased ten-fold in lira terms.

Yet despite forecast increases in tax revenue, the 2024 budget has a deficit of LL42 trillion ($464 million), which is around 13.9 percent of public expenditure and 2.5 percent of GDP. It is unclear how the government will bridge this gap.

“The deficit faces a financing challenge,” said group chief economist and head of research at Bank Audi, Marwan Barakat.

He cited the government’s inability to borrow on international markets before restructuring its current debt and the central bank’s recent refusal to dip into reserves to make up the budget shortfall.