Lebanese banks are now facing a 17% tax on provisions they were instructed to set aside—ironically, to absorb losses from sovereign bonds the State itself defaulted on. In line with directives from the Banking Control Commission at the Central Bank, banks provisioned approximately 75% of their Eurobond exposure. Yet the government’s decision to treat these provisions as taxable profits has sparked a wave of concern across the sector. What’s at stake goes beyond the immediate tax burden. It calls into question how Lebanon accounts for its own default and sets a precedent that could deter banks from holding sovereign instruments going forward. Banks have until August 31 to comply with the new tax obligation, adding urgency to an already controversial decision.
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When Assets Become Liabilities! The Debate Over Taxing Defaulted Eurobond Provisions