Paying the price: Fuel hike and VAT plan stir debate over Lebanon’s finances

Report by Maroun Nassif, English adaptation by Mariella Succar

In a move described as shocking and reminiscent of policies adopted by successive governments since 1992, the government led by Prime Minister Nawaf Salam decided at its most recent Cabinet session to increase the price of a gasoline tank by 300,000 LBP, or $3.35. 

The government also submitted to Parliament a proposal to raise the value-added tax (VAT) rate from 11% to 12%.

According to the government, the increases — which directly affect citizens’ incomes — are intended to finance the monthly compensation scheme, or the equivalent of six additional salaries, for public sector employees, both civilian and military. The total cost of the measure is estimated at $800 million.

To raise $800 million, several alternative revenue sources are available.

First, improving customs revenue collection. Lebanon imports goods worth approximately $20 billion annually, meaning customs revenues should reach around $1 billion per year. 

However, current revenues stand at only $560 million, leaving an estimated $440 million uncollected. This does not account for widespread smuggling and customs evasion at land and sea borders.

Second, annual VAT revenues amount to roughly $2.2 billion, while they should be closer to $3 billion. Due to the absence of proper automation and effective collection mechanisms, Lebanon is losing an estimated $800 million annually.

Third, revenues from fees and fines related to illegal occupation of public maritime property currently generate between $25 million and $35 million per year. Adjusting property valuation rates and increasing the fee paid by violators or licensed occupants from 0.5% of property value to between 3% and 4% could raise annual revenues to approximately $335 million.

Fourth, the cost of buildings rented by the state — most notably the headquarters of the UN Economic and Social Commission for Western Asia (ESCWA) — costs the treasury about $23 million annually, paid to Solidere and other landlords. These expenses could be reduced through a reassessment of actual space needs and by consolidating multiple ministries and public institutions into fewer buildings.

Fifth, Lebanon’s Golf Club, which covers an area of 425,000 square meters, is leased for just $50,000 per year, raising questions about the appropriateness of such a rate.

Sixth, the Sidon Rest House, the Tyre Rest House, and the Mir Amin Palace collectively generate only $33,000 in annual rent.

Seventh, additional revenues could be secured by increasing taxes on private electricity generator operators and illegal internet distributors who use Electricité du Liban’s infrastructure. This could be coupled with improved electricity bill collection and fees on artesian well operators.

Eighth, before imposing new taxes on citizens, authorities should clarify what actions Banque du Liban took regarding influential figures who received subsidized dollar-denominated loans and repaid them at the former exchange rate of 1,500 LBP, despite the dollar trading at a significantly higher rate at the time.

Ninth, and most importantly, the monthly cost of public sector wages and pensions stands at approximately $280 million, according to Finance Minister Yassine Jaber. A restructuring of the public sector could reduce staffing levels by half, lowering the monthly cost to $140 million. Such a reform would require administrative automation and the merger of overlapping government departments.

Despite these alternatives, the government continues to ask how funding can be secured. These examples represent only a small portion of potential solutions. The core issue remains the absence of political will, with policy decisions consistently placing the burden on citizens’ pockets.