Finally, the Lebanese parliament approved the overdue 2022 annual budget, requested by the IMF as a pre-condition for ratifying the final agreement. The budget increased the exchange rate at which imports’ prices are converted to calculate the customs duties from around 1,500 Lebanese pounds (LBP) to 15,000 LBP to the dollar. Still, the new rate differs substantially from the 36,800 LBP to the dollar prevailing on the black market throughout September. The government justified the move as a necessity to move closer to the market rate and needing to finance an increase in public sector salaries by three- fold.  

LIMS showed that the salary increase is equal to the fiscal deficit meaning that this increase is not funded, despite the large increase in customs duties. Back in 2020, the government lost access to the debt market after the default on the payment of Eurobonds. Therefore, the salary increase will be paid for exclusively through the printing of LBPs, thus creating more inflation and LBP devaluation.  

LIMS added that taxes on income have been covertly increased through the manipulation of tax brackets. Most taxpayers fall under the progressive income tax scheme. After the devaluation of the Lebanese currency, those who earned a certain raise to partially keep up with inflation entered higher tax brackets. The tax brackets in the 2022 budget did not reflect the actual devaluation in currency. Therefore, taxpayers will need to pay higher taxes, while the actual income value remained the same or even less than what it used to be.   

Additionally, LIMS explained that that budget will have a recessionary impact and will not be able to raise the projected revenues. In other words, this will make the deficit even larger than current estimations. The increased tariffs and fees will further shrink the economy and incentivize tax evasion. Businesses will have to choose between shutting down or evading taxes and tariffs, which is easily done due to the large loopholes and corruption. Eventually this increase will only provide smugglers with an increase in revenue, as opposed to the treasury.  

LIMS argued for the simplification of tariffs and taxes through unifying all rates—flat tax and tariffs—closing huge loopholes for evasion. Simultaneously taxes and tariffs should undergo a substantial reduction to render evasion unprofitable. As a result, overall revenues could increase, and the economic activity would profit.  

LIMS Media Interviews: 

• Special Report: Budget File Being Discussed In General Parliamentary Sessions, So What Are The Approval Chances? September 11, 2022: VDL, Radio Interview AR 
• Mardini To Voice Of Beirut International: An Unfair Budget Deepens Economic Slowdown, September 14, 2022: SBI, Article AR 
• Patrick Mardini: 2022 budget Is Not Reformist, It Is Inflationary And Will Increase The Exchange Rate, September 24, 2022: Al Jadeed, TV Interview AR 
• Exclusive From Beirut24: Fakrajian—More Poverty And Unemployment…These Are The Repercussions Of Current Budget, September 26, 2022: Beirut 24, Article AR 
• Official And Customs Dollar To 15 Thousand…What Awaits Us? September 29, 2022: Anbaa, Article AR 
• Lebanon Lowers Price Of Lebanese Pound To Face Expansion Of Its Financial Crisis, September 29, 2022: Al Arab, Article AR 
• Fakrajian To The Voice: No Ceiling Exists For The Dollar As A Result Of Inflationary Monetary Policy, September 29, 2022: Assawt, Article AR 
• How Do Economic Experts Interpret The Decision To Raise Official Exchange Rate To The Dollar At The End Of October? September 30, 2022: Al Fajer, Article AR