On 9 January 2023, the Minister of Finance issued decision number 2/1, based on Law number 10 of 15/11/2022 and in relation to article 10 in the Budget, that replaced decision number 686/1 of 23/11/2022, and which stipulates that USD wages, paid in whole or part, will be valued at the following exchange rates when subject to taxation: 8,000 LPB for the annual period prior to 15/11/2022; and 15.000 for the period starting 15/11/2022. In addition, brackets and rates have been adjusted according to the following:
- Rate of 2% for wages up to 18 million LBP
- Rate of 4% for wages between 18 and 45 million LBP
- Rate of 7% for wages between 45 and 90 million LBP
- Rate of 11% for wages between 90 and 180 million LBP
- Rate of 15% for wages between 180 and 360 million LBP
- Rate of 20% for wages between 360 and 675 million LBP
- Rate of 25% for wages above 675 million LBP
The new tax is subject to a deductible of 37.5 million LBP per person, plus an additional 12.5 million LBP for married persons, plus an additional 2.5 million LBP per child (up to the age of 18, or 25 in case of child pursuing university education). The tax should also be withheld at source by employers.
Aside from the efficiency considerations of the tax, is it fair? From an absolute fairness perspective, it is fair: people who earn more should pay more taxes. What about relative fairness? In other words, and for instance, why public employees who convert their LBP wages to USD at the Sayrafa rate are not subject to the tax? More important, why corporations who earn their income in USD are not subject to the tax? Hence, the fairness of the tax is not clear cut.
Lastly, it seems that the tax has little to do with fairness and efficiency, as it was mostly imposed (in addition to valuing the customs dollar at 15,000 LBP too) to increase tax revenues to fund the 3-times increase in public wages that parliament decreed late in 2022. Restructuring the Lebanese tax system on more efficient and equitable will have to wait for a comprehensive agreement with the IMF, if it ever comes!