Private sector warns tax hikes will slow economy
BEIRUT: Representatives of the private sector Thursday voiced their strong opposition to any additional taxes as these measures would put more pressure on the economy.
The representatives met with Finance Minister Mohammed Safadi to express their objection to some items in the 2012 draft budget which would create new taxes.
Among the taxes proposed by Safadi was to raise the Value Added Tax on all consumer products from 10 to 12 percent and to raise the taxes on interest rates on customer deposits from 5 percent to 7 percent.
The draft budget also calls for a new 15 percent tax on profits made through real estate transactions.
According to Safadi, the planned real-estate tax would apply to sales of land and real estate purchased after 2009. Property bought before 2009 would be taxed 4 percent of the total sale amount, the minister added.
“The hike on VAT would be equivalent to 1 percent of GDP, while the wage increase given last January constitutes 2 percent,” Safadi said in defense of his proposal to raise the unpopular VAT tax.
But it is very unlikely the budget will be approved by the Cabinet because most ministers fear that additional taxes could trigger widespread protests in the country, further undermining the credibility of the government.
Chamber of Commerce chief Mohammed Choukeir said the economy is already reeling under the severe slowdown, noting that sales and volume of business have plummeted to alarming levels.
Most businessmen and merchants complain that the political wrangling and the volatile situation in Syria have exacerbated economic conditions.
Hotels in Beirut and Mount Lebanon all reported cancellations of reservations after the United Arab Emirates, Qatar, Kuwait and Bahrain advised their citizens to avoid Lebanon this summer.
Lebanon counted heavily on the tourism season this summer to achieve economic growth, improve the balance of payments and boost foreign currency reserves.
The private sector has lobbied successive governments and rival politicians to tone down their rhetoric and cast aside their differences for the sake of the country and economy.
Companies keep reminding the government that any security setback would prompt firms, hotels and restaurants to lay off thousands of employees.
The private sector reluctantly agreed to raise the wages by a maximum LL399,000 to help employees cope with the high cost of living.
Nicolas Chammas, the head of Beirut Merchant Association, said the representatives of the private sector briefed Safadi about the economic difficulties which most companies are passing through these days.
“For this reason, we believe that additional taxes mentioned in the draft budget are not appropriate at the moment and will further complicate matters,” Chammas said.
He added that the private sector will submit two papers to the government; the first will include the demands of the companies and the second will include proposals to reform government economic policy.
However, the government of Prime Minister Najib Mikati seems to be caught between a rock and hard place and its options to boost revenues are very limited and even unpopular.
Safadi has told ministers that if the budget does not contain new taxes then the ministries will not receive additional allocations to carry out vital projects.
The minister warned that the Finance Ministry cannot keep borrowing to finance projects and for this reason taxes are important to ease the burden on the treasury.