Estimates of the Profits and Taxes Made on Sayrafa Transactions

On December 16^th, 2021, BDL issued circular 161/13384 that allowed people and companies to purchase US dollars at an exchange rate on the Sayrafa platform which is determined by BDL on daily basis. There were two main reasons why BDL issued this circular:

1. Pay the salaries of public sector employees and retirees in US dollars as per the exchange rate of Sayrafa platform. Therefore, this will improve marginally the purchasing power of public employees that are estimated around 340,000 employees (including the armed forces).
2. Absorb the huge amount of Lebanese pounds circulating in the market through the use of US dollars at BDL. This will lessen the rapid increase of USD against LBP.

However, some people and companies made huge profits on arbitrage through the Sayrafa operations. As such, a couple of weeks ago, the Lebanese Ministry of Finance (MOF) released decision No. 647/1 on June 4^th, 2024, based on article #93 of the 2024 Lebanese Budget Law (law 324), which stipulated that profits made on Sayrafa transactions in 2021, 2022, and 2023 will be taxed at the rate of 17%. It is to be noted that the Constitutional Council did not suspend the implementation of the related article in the budget.

The table below shows the estimates of profits made through the Sayrafa operations in 2021 (16/12/2021 – 29/12/2021), 2022, and 2023 (till 31/07/2023, the end of BDL’s ex- Governor Riad Salameh term as a Governor of BDL).

The total volume of Sayrafa transactions were calculated as per BLOMInvest Bank’s database, generated from BDL’s daily press releases regarding total amount of Sayrafa operations and Sayrafa rate.

The profits made were calculated as follows:

• Average daily parallel market exchange rate minus Sayrafa rate (on daily basis)
• Total volume of Sayrafa operations multiplied by the result in “a” above (the product being the profits from Sayarfa operations in LBP).
• Result of the calculation in “b” above divided by the average daily parallel market exchange rate (the division being the profits of Sayrafa operations in USD).

As per the decision of MoF, the tax will be applied on the profits made by natural or legal persons who executed the Sayrafa operations, calculated at 3,226 million USD from total volume of Sayrafa transactions of 24,723 million USD. At the rate of 17%, gross taxes should amount then to 548.5 million USD (3,226 x 0.17) – a decent sum.

But there is a catch. MOF’s decision exempts Sayrafa transactions that do not exceed 15,000 USD per person over the entire period. We estimate these transactions by assuming – quite reasonably — that these are the Sayrafa transactions that would have been made by public employees over the 20 month period. Given an estimated size of public employees of 340,000, then the total exemption would amount to 5,100 million USD. As such, using linear approximations, the exempted profits would be 666 million USD. Consequently, net profits made would be 2,560 million USD (3,226 – 666); and the net taxes to be collected on them would be 435.2 million USD – still not a small sum.

Though preliminary, the estimate of close to 500 million USD is reasonable; more important, it is badly needed and fair. The government could use these tax revenues for multitude of purposes, not the least as part of the Deposits Recovery Fund. Also, the exemption relieves a lot of limited-income people from the burden of the tax. Moreover, the execution of the tax, though demanding, is not formidable as all the Sayrafa transactions are recorded with financial institutions and BDL – notwithstanding concerns regarding banking secrecy and retroactivity.

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