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Discussions on the
launch of a Value-Added Tax (VAT) began under the Hoss administration,
with the tax finally coming about based on Law No. 379 on December 24,
2001 under the Hariri government. The VAT was then implemented on the
first of February 2002.
VAT Compliance
The VAT applies to all operations within Lebanese borders that involve
financial transactions and any services provided for a fee by persons
subject to the tax. Those subject to the tax are natural or legal
persons who undertake such transactions or services as part of their
independent commercial activities, with the proviso that turnover over
the four quarters exceeds LL 500 million ($331,000). Businesses whose
transactions range between LL 150 million ($100,000) and LL 500 million
have the option of voluntary compliance to the VAT.
Specifying which business transactions fall under the VAT can be
complicated due to the incorporation of many basic services in one final
product. While the final product itself may not be subject to VAT, those
involved in generating it may fall under VAT requirements. For example,
services provided by doctors or medical professionals, and medication
expenses are not subject to the VAT, while electricity, gas, heating and
refrigeration are subject to the VAT and are part of the medical
services.
The following services fall under the VAT:
Private property rental
Communications
Water
Electricity
Visual and audio-visual media
Commercial activities
Slaughter houses
Warehouses
Tobacco
Car parks
Cooperatives
Ports and airports
Gas
Property and fixed assets
The law clearly dictates that the following activities are exempt from
the VAT:
Education
Medical services
Insurance and reinsurance
Banking and financial services
NGO activities
Agricultural crop delivery
Betting and lottery
Finished real estate rental
Public transport
Agricultural equipment
Fertilizers and seeds
Books, newspapers & other publications
Cattle, poultry, fish, cheese, bread, flour, meat, milk and dairy
products.
Implementation decrees
Some VAT decrees were issued days before the VAT law went into effect,
while many followed even after it was implemented. More specifically, 20
decrees were issued before the law was put into practice and 21 decrees
followed afterward.
Calculating the VAT
Article 25 specified the VAT at a rate of 10%. However, the method used
to calculate the VAT can render a higher rate. For example, if a
merchant imports a product for LL 80,000, the applicable VAT is LL
8,000. The importer then sells the product to a retailer for LL 85,000
(with LL 500 as additional tax). The retailer sells the product to a
consumer for LL 95,000, adding LL 1,000 to the paid tax and therefore
the total VAT paid reaches LL 9,500, resulting in 10% of the price of
the final product sold or 11.8% of the original import price.
Companies subject to VAT
The number of registered companies initially reached 7,328, out of which
6,429 were obliged to pay VAT while 899 opted to register. The majority
of registered companies (87.33%) were located in Beirut (37.43%) and
Mount Lebanon (49.9%). By September 2002, the number of registered
companies totalled 8,150 with 3,956 in Mount Lebanon and 3,091 in
Beirut.
Therefore, at present, 86.5% of companies subject to VAT are located in
the regions of Beirut and Mount Lebanon.
VAT Revenue
In the 2002 budget, VAT revenues were estimated to reach LL 800 billion
($530 million), which is approximately 20% of total estimated tax
revenues and 14.5% of all government revenues. Based on the general
budgets monthly figures as issued by the Ministry of Finance, collected
VAT amounted to LL 654.4 billion ($433 million) at Septembers end. The
month of September by itself generated LL 65.5 billion ($43 million)
while LL 71.9 billion ($47 million) was collected for August and LL 161
billion ($106 million) for July. These are in comparison to the LL 46.4
billion ($30 million) that was collected in the first month of February.
Total tax revenues reached LL 2,989.4 billion ($1.98 billion) by the end
of September with total revenues at LL 3,988.8 billion ($2.6 billion).
These figures reveal that the portion generated from VAT made up 22% of
total tax revenues and 16.4% of all government revenues.The figures also
illustrate that strict collection methods were adopted in the case of
the VAT, while tax collection in other areas was not implemented as
strongly.
Government Payments
Based on VAT laws, the government and its different departments and
administrations are obliged to pay VAT on all purchases and activities
subject to the tax. However, since the VAT was not included in the
budget of each of the ministries, an additional letter of credit was
issued to them. Table 1 below shows the ministries subject to the VAT.
Based on this, the total amount due by the end of September reached LL
37 billion ($24.5 million), constituting 5.6% of the total amount
collected.
VAT in the near-term
Article 20 of the 2003 budget adjusts the category of companies that are
subject to VAT, with institutions that have a turnover of LL 300 million
($199,000) annually being required to pay VAT, effective the first of
January (this is down from the LL 500 million requirement of the
previous budget). In 2004, this figure will, once again, be adjusted to
encompass companies that have a turnover exceeding LL 150 million
($100,000).
VAT revenues are estimated to reach LL 1,100 billion in 2003, resulting
in an increase of LL 300 billion or 37.5% from the previous year. While
nine months is not long enough to judge the economic implications of the
VAT, it is estimated that the tax will ensure LL 800 billion by the end
of the year. Perhaps after one year of implementation, analysts will be
in a better position to assess the impact of the tax on consumption
activities, and consequently growth. However, a question mark lies in
the ability of the VAT Directorate to control so many institutions once
the ceiling is lowered to LL 300 million, then to LL 150 million as this
amounts to over 70,000 institutions that need to be monitored.
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