The rising prices have resulted in a meager wage increase of $14.6. More than 4 months after the Index Committee approved an addition of 600,000 LBP to the basis of salary, Decree No. 10598 was issued on the 19th of this month to formalize it. As a result, the basis for calculating contributions to the National Social Security Fund has risen to 2.6 million LBP, while the minimum wage remains fixed at 675,000 LBP since 2012. On May 12, an additional 1,325,000 LBP was added to the official minimum monthly wage, bringing it to 2 million LBP. About a month later, the Index Committee approved a second increase of 600,000 LBP, formalized by Decree No. 10598 two days ago.
The increase in costs for workers poses a significant risk in the private sector, not only because of its meager value and rapid depreciation from the time of decision-making until publication in the official gazette, but also because it burdens workers and employers instead of alleviating their burdens.
From a tax perspective, the difference between the official minimum wage and the approved increase (as a cost-of-living allowance) will be subjected to a monthly income tax of 4%. According to expert accountant Joseph Matta, this means the difference of 1,925,000 LBP will be reduced by 77,000 LBP, while it should be entirely exempt from any tax under Income Tax Law No. 107 issued in 1977.
Regarding social security, this increase will be subject to a monthly subscription fee of 3%, amounting to 58,000 LBP, at a time when social security benefits have not increased to meet the basic health and medication coverage needs of the insured.
Therefore, keeping the wage increases as cost-of-living allowances and not counting them as part of the official minimum wage will cost each worker nearly 135,000 LBP monthly, which is 7% of their income. Annually, a worker will pay around 1,620,000 LBP in taxes from the minimum amount, which comprises more than half of a monthly salary. The income tax is progressive, beginning with a rate of 4% on the first bracket. Ironically, this amount, which is likely to increase with every wage rise, should have been completely exempt for the worker.
The matter feels even heavier for institutions required to pay nearly 21% of each worker's income to social security as compensation for this increase that is not counted as part of the minimum wage. Conversely, these increases do not contribute to end-of-service benefits in social security since they are considered cost-of-living allowances. Consequently, significant sums in LBP could be saved if the increases were counted as part of the minimum wage.
The root of this confusion, according to Matta, traces back to 2001 when the "family deduction" was calculated for non-qualified individuals based on 7.5 million LBP, equating to 625,000 LBP monthly. This means any income equal to or below this figure is automatically tax-exempt. In 2012, the minimum wage was raised to 675,000 LBP, but the tax administration did not adjust the family deduction, resulting in the 50,000 LBP difference being subject to income tax. Despite numerous demands from trade unions, labor bodies, and accounting professionals to rectify this fundamental flaw, things have remained unchanged for the past ten years. Workers continue paying an illegal income tax of 2% on the 50,000 LBP exceeding the 625,000 LBP minimum. This difference, previously estimated at around 1,000 LBP monthly, is now about 80,000 LBP and is likely to rise with any wage increase.
Given the insistence on treating wage increases as cost-of-living allowances that are not counted as part of the minimum wage, the tax administration is expected to raise the family deduction to 31 million 200 thousand LBP. Historically, the family deduction should equal the minimum monthly wage.
All wage increases thus far remain below the rise in living costs from the date of their issuance to today. They are insufficient even for a single round trip between Beirut and Bent Jbeil. A recent study by "International Information" revealed that the minimum cost of living for a Lebanese family of four, considering the differences between rural and urban housing, and between ownership and renting, ranges from 20 to 26 million LBP monthly, averaging 23 million LBP. Concurrently, with the price of a fuel canister reaching 748,000 LBP and the dollar exchange rate hitting 40,000 LBP, "the cost of transportation has increased to a point that most Lebanese cannot bear." Transportation now costs 6,211 LBP per kilometer for a car with an average consumption of 170 kilometers per 20 liters of fuel. The round trip between Beirut and Bent Jbeil now costs 1.5 million LBP.
In light of this reality, it is evident that the patchwork solutions adopted to address the wage crisis exacerbate the problems rather than resolving them, paralleling the approaches taken to tackle issues related to deposits, housing, electricity, water, transportation, agriculture, production, and many other troubled sectors.
