The private sector successfully objected to the income taxes on those who receive their salaries in dollars, which were included in the 2022 budget based on the "Sayrafa" rate. The Minister of Finance adjusted these taxes by dividing them into brackets. Thus, the impact of the taxes on those earning in dollars became "more acceptable" compared to the originally listed rates, which were calculated based on the Sayrafa dollar price and estimated at rates up to 25% of the salary, comparable to global income taxes in a country that lacks health care and security, where end-of-service benefits have evaporated and poverty has intensified.
The Minister of Finance in the caretaker government, Youssef Khalil, issued a decision defining the "income tax dollar" between 8,000 and 15,000 Lebanese pounds, differentiating between cash salaries, checks, and transfers. The decision specified the actual value in Lebanese pounds for salaries and wages due to employers in full or in part in U.S. dollars or any other foreign currency starting from the publication date of the 2022 budget.
The actual tax value in Lebanese pounds for cash salaries and wages is determined as follows: "If salaries and wages are paid in cash, the income tax is calculated based on an exchange rate of 15,000 Lebanese pounds per U.S. dollar. If salaries and wages are paid by check or a bank transfer within Lebanon, the calculation is based on 8,000 Lebanese pounds per dollar for the portion of monthly pay not exceeding 3,000 U.S. dollars, and 1,507.5 Lebanese pounds per dollar for any amount over 3,000 U.S. dollars." The decision also stated that the revenues subject to income tax for cash salaries paid in U.S. dollars prior to November 15, 2022, would be calculated based on an 8,000 pound exchange rate, while for the period starting from November 15, 2022, the dollar would be calculated at 15,000 pounds.
For salaries paid in a foreign currency other than the U.S. dollar, that currency will be converted to U.S. dollars according to the average exchange rate, and then these salaries will be converted to Lebanese pounds per the previous rules based on 15,000 pounds for cash salaries and 8,000 pounds for the portion up to 3,000 U.S. dollars, and 1,507.5 pounds for salaries exceeding that amount if received through checks or bank transfers. According to this equation, the value of the tax deducted from the salary is somewhat acceptable compared to the rate specified in the budget that was contested.
### Calculation Method
Certified public accountant and expert Jamal Ibrahim Al-Zoghbi explained that "those receiving their salary in Lebanese pounds will not be affected by this tax because the family deductions deducted from them will exceed the value of their salary." Family deductions vary between married individuals with children under 18 or under 25 who are still studying, and whose wives work, versus married individuals whose wives do not work, or unmarried individuals.
The family deduction for an individual according to the new decision is 37,500,000 pounds, with 2,500,000 pounds for each child (the child deduction is reduced by 50% if the wife works), and if she does not work, an additional 12,500,000 pounds is added to the family deductions. Al-Zoghbi provided an example: A married individual with two children and a working wife earning a monthly salary of about 3 million pounds (36 million pounds annually) has an annual family deduction of 7,500,000 pounds. The portion for the children is 500,000 pounds (50%) because the wife works, resulting in a taxable salary of 28 million pounds.
The tax is calculated as follows:
- First 6 million pounds * 2% = 120,000 pounds
- First 9 million pounds * 4% = 360,000 pounds
- 28 million pounds of taxable annual salary * 7% = 910,000 pounds.
The total annual tax due is 1,390,000 pounds.
### After the Minister's Decision
Following the issuance of the 2022 budget and the Minister's recent decision, the tax on the salary in Lebanese pounds is calculated as follows:
- Annual salary 3,000,000 * 12 months = 36 million pounds.
- Annual deduction for the individual = 37,500,000 pounds.
- Deduction for two children (50% because the wife works) = 2,500,000 pounds.
Thus, the taxable annual salary totals 4 million pounds. Since the total family deductions amount to 40 million pounds, which exceeds the total annual salary, the employee owes no taxes on salaries and wages.
### Salaries in U.S. Dollars
For salaries paid in cash U.S. dollars, the tax is calculated as follows: If the monthly salary is 2,000 U.S. dollars, the income tax before the 2022 budget and recent Ministerial decision would have been calculated on an annual salary of 24,000 U.S. dollars (36 million pounds at an exchange rate of 1,500 pounds), with the same individual deduction of 7,500,000 pounds, and the deduction for the two children (50% because the wife works) being 500,000 pounds, bringing the total to 28 million pounds. Consequently, the individual would incur the same income tax amount of 1,390,000 pounds as calculated for the salary in Lebanese pounds.
However, following the recent adjustments to the calculation of the dollar-to-pound exchange rate (set at 15,000 pounds), the equation changed, resulting in a net annual salary subject to tax after family deductions of 173 million pounds, leading to a total annual tax of 13,720,000 pounds instead of 1,390,000 pounds.
### Example Calculation
For example, if the individual's monthly salary is 2,000 dollars:
- The income tax before November 15 would be calculated on 10 and a half months at 8,000 pounds, totaling 21,000 dollars or 168 million pounds.
- The remaining month and a half would total 3,000 dollars * 15,000 pounds = 45 million pounds.
- Therefore, the total gross salary according to the Minister's recent ruling is 213 million pounds.
With family deductions (37,500,000 pounds) plus the deduction for two children (2,500,000 pounds after a 50% reduction for the working wife), the taxable annual salary becomes 173 million pounds.
### Annual Tax Calculation
The annual tax for this scenario is calculated in brackets as follows:
- First bracket: 18 million pounds * 2% = 360,000 pounds
- Second bracket: 27 million pounds * 4% = 1,080,000 pounds
- Third bracket: 45 million pounds * 7% = 3,150,000 pounds
- Fourth (remaining): 83 million pounds * 11% = 9,130,000 pounds.
Thus, the total annual tax amount for someone earning 2,000 dollars with a working wife and two children is 13,720,000 pounds.
### Conclusion
Thus, it is evident that the tax amount varies for each individual based on their family situation. The minimum family deductions have amounted to 37,500,000 pounds, with a maximum of 62 million pounds for a family with five children, effectively multiplying the amount by five. It should be noted that while taxes are typically annual, they are paid quarterly, with a year-end adjustment for salaries and wages. The tax bracket percentages have not changed, but their values have shifted with the increase in the "tax dollar" exchange rate. The tax obligation for 2023 is expected to see significant increases, in line with the market dollar exchange rate rather than the 15,000 pounds used for the 2022 calculations!
