The decision to raise taxes on employees in Lebanon, published in the official gazette, has caused confusion among startups and employees earning salaries in US dollars from outside Lebanon due to the "huge" amounts involved and the way they are calculated. Furthermore, two significant gaps were registered: first, taxes are imposed not on profits but on the principal salary, and second, their implementation does not coincide with a package of social benefits for citizens.
The news about the tax calculation based on the 2022 budget struck employees receiving salaries in dollars and companies earning fees from abroad like a bolt from the blue. There were rumors that some companies plan to relocate from Lebanon to prevent their workers from losing up to 25 percent of their salaries in higher brackets. Meanwhile, individuals dealing with foreign institutions expressed that they would seriously consider moving to other countries to mitigate the recently imposed taxes.
The government set the tax brackets into seven tiers: the first is 2 percent, the second 4 percent, the third 7 percent, the fourth 11 percent, the fifth 15 percent, followed by 20 percent, and the seventh 25 percent, which is the highest for those earning more than approximately $25,000 annually. It is evident that the first four tiers will include those earning salaries in Lebanese pounds, while the other tiers will affect those earning salaries in dollars, resulting in higher taxes for them.
The increase in tax burdens on those receiving salaries in US dollars (or any other foreign currency) is due to its calculation based on the dollar exchange rate on the "Sayrafa" platform of the Central Bank of Lebanon (30,300 pounds for one dollar). This significantly increases the salary's value in Lebanese pounds, pushing it into the higher brackets.
Financial sources and auditors informed the "Middle East" newspaper that the tax is calculated based on a specific mechanism that considers income in dollars using the Sayrafa rate. Family deductions are subtracted—these are the allowances for families—before tax computations begin according to the seven tiers, covering the entire taxable amount.
The government resorted to these taxes as part of a plan to correct wages and tax collection simultaneously. According to member of the Economic and Social Council in Lebanon, Sadiq Alouie, laws in every country are written based on the national currency, and foreign currency is converted to the local currency based on its actual value. He noted in a statement to the "Middle East" that the new tax scale is "the most significant correction in the budget after taxes were imposed based on an imaginary rate that no longer exists," which was the official exchange rate of 1,515 pounds.
While he pointed out that the actual value of the dollar is 40,000 pounds, he mentioned that the Ministry of Finance used the Sayrafa rate (30,000 pounds) to somewhat alleviate the burdens, indicating that "the division of the tiers has effectively reduced the tax values for those earning in pounds compared to before 2019," while "it has increased for people whose income exceeds the average income," stressing the need for "everyone to pay taxes based on their income and its value."
Social media users circulated a table illustrating the difference between taxes before and after the latest budget. The table shows a 20 percent tax for those earning $12,000 annually and 15 percent for those earning $6,000 annually, noting that the tax is calculated after deducting family allowances and according to the tier scale. Previously, the tax was 4 percent for those earning 6 million pounds (4,000 dollars) before the crisis, but is now levied on those earning 18 million pounds (600 dollars) annually. Similarly, it was 25 percent for those making 225 million pounds (equivalent to $150,000 annually), whereas now this percentage is applied to those earning 675 million pounds, which is $22,500.
However, this decision fundamentally lacks tax justice, as the tax is imposed on the principal salary, not on profits, an inconsistency recognized by Alouie, since it "was not imposed on net profit" in the same way it is for traders and industrialists, for instance, whose taxes are calculated based on their net profits, not on gross income.
According to the new law, employees will have to pay taxes without receiving services as the situation deteriorates in Lebanon. They will have to acquire health insurance, pay education fees, and cover two bills for electricity, water, and communications, all after paying the new imposed tax.
The announcement of this decision caused confusion, considering that the tax amounts without corresponding services surpass the tax scales in most regional countries; this has prompted many to contemplate a relocation plan from Lebanon if the decision is implemented. Employees at foreign companies and freelancers cooperating with foreign firms told the "Middle East" newspaper that "if this decision is applied, we will be compelled to relocate from Lebanon to Turkey, Georgia, Egypt, Dubai, or any other country that considers the tax calculation."
While startups benefit from tax exemptions, these incentives do not extend to employee earnings. However, employees and freelancers, if subjected to taxes, will see relocation as their option. One such individual, a developer at a digital company, told the "Middle East" that "relocation would be appropriate because what remains after the tax won’t cover the cost of services we pay heavily for due to the poor services provided by the state, such as electricity or internet; making the option to move better."
The Ministry of Finance announced, the day before yesterday (Thursday), that the budget included, in some of its provisions, corrective texts for the new situation due to the exchange rate disparity and the distortions resulting from its multiplicity, specifically the provisions that outlined the expansion of brackets in calculating tax rates and those related to increasing family deductions; in order to avoid imposing any additional tax burden on citizens. It clarified that some corrections suggest increasing tax deductions fivefold, as well as doubling the homeowner deduction, tripling the tax brackets to enhance tax fairness, and reducing the rental value from 5 percent of the property value to 2.5 percent, along with lowering the transfer fee on property ownership from 5 percent to 3 percent.
The decision also specified the actual value in Lebanese pounds of salaries and wages owed by employers to their workers, fully or partially in dollars or any other foreign currency, and calculated property valuation fees based on the Sayrafa price at 50 percent of the amount assessed in dollars.
