2012 Budget Draft unveiled

Tax and spending increases

The Minister of Finance, Mohamad Safadi submitted the 2012 budget plan to be studied and adopted by the Cabinet and Parliament. If approved, this draft would be the county’s first budget since 2005.

The budget draft included the increase of the Value Added Tax from ten to 12 percent. Many experts and politicians have already begun criticizing the tax increase.

Economist and former advisor to the Minister of Finance, Roger Melki said that increasing the VAT is part of the tax reforms Lebanon has committed to during the Paris III conference. In the 2007 conference, the government proposed to gradually increase the VAT to 12 percent in 2008, so that it would reach 15 percent by 2010.

Melki said that the tax on consumption is feasible economy-wise. He said that a 12 percent VAT would not be so much of a burden on low-income consumers. “However this issue is generally met by strong rejection because it is used in political bickering,” he said.

The budget draft also raised the tax on interest rates on bank deposit from five to eight percent. According to Melki, though this tax would irritate bankers, it would not have a negative impact on the economy. “Some might say raising the tax on interests would result in capital flight, but this is not necessarily true because Lebanon has a relatively high interest rate on deposits compared to many other countries,” he said.

The size of the 2012 draft budget is $14 billion an increase of more than six percent compared to the 2011 draft budget. Current expenditures are around $8 billion an increase of 12.8 percent compared to the 2011 budget draft. Investment expenditures are around $2 billion, equivalent to 14.6 percent of total expenditures and 4.5 percent of GDP.

Total projected revenues in the 2012 draft budget are around $9.8 billion, an increase of more than three percent compared to the 2011 draft budget. The ratio of the projected revenues to GDP is around 22 percent.

The overall budget deficit in 2012 is expected to reach around $4 billion, an increase of 14 percent from 2011, and equivalent to nine percent of GDP.

Some of the most significant spending allocations noted in the 2012 budget draft:

-$41 million to cover Lebanon’s share of the funding of the International Tribunal (STL) probing the murder of PM Rafic Hariri (the total allocation is $72 million to be paid over two years)


-$2 billion allocated to the Electricité du Liban, a $511 million increase from the 2011 budget draft


-$233 million in transactions to the National Social Security Fund, of which $27 million to cover the optional insurance deficit.


-$307 million allocated to the energy sector to generate additional 700 megawatts of electricity (the total cost of the project is $1.2 billion to be paid in four installments)


-$170 million for the expansion of the natural gas network within the country


-$46.7 million for building dams


-$10 million for purchasing buses for public transport (the total cost of the purchase is $33.4 million to be paid over three years)


-$25 million for expanding and enhancing the port of Tripoli


-$10 million for tackling the issue of Sidon landfill and building a maritime barrier (the total cost is $15 million to be paid over two years)


-$12 million allocated to the construction of a tourist port in Jounieh (the total cost is $40 million to be paid over three years)


-$167 million to cover the expropriation arrears (the total allocation is $534 million to be paid over three years)


The budget draft called for a number of tax amendments:
-Increasing the Value-added Tax from ten to 12 percent

-Increasing the tax on deposit interest rates from five to eight percent

-Introducing a three percent tax on land real estate transactions (on sellers), prelude to imposing a tax on real estate profits in 2013.

-Settling all construction violations committed since the beginning of 1994

-Raising the tax discount which the property-owner benefits from if he is living in his property (according to the Built-Property Tax Law) from $4,000 to $6,000

-Applying the tax on property transactions based on the leasing value of the property multiplied by 20 (which was formerly multiplied by 12), whenever the latter is more than the one declared or mentioned in the contract

-Reducing the fines imposed on those who failed to pay their subscriptions to the National Social Security Fund for 2010 by 90 percent.