Lebanon: Do we really pay taxes?

In recent days, a tweet on taxes in Lebanon has ignited a spirited debate among Lebanese users. Some argue vehemently that taxes are non-existent, suggesting a perception gap among citizens. On the contrary, others assert that taxes are indeed present, with individuals and businesses paying their dues. As someone with a background in economics, I sought to dissect the issue objectively to answer a fundamental question: Do we pay taxes in Lebanon?

Let’s start with the official definition of taxes, according to Investopdia: “Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional, or national. Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare.” The debates revealed varying perceptions, with some claiming the absence of taxes due to a perceived lack of government services. In an interview with Garabed Fakrajian, a Fellow policy analyst at the Lebanese Institute for Market Studies, it became clear that the confusion stems from differing interpretations. Fakrajian clarified that fees, like license fees and stamp duties, technically fall under the definition of taxes.

Contrary to the belief that Lebanon is tax-free, a closer look at PWC Lebanon’s 2023 tax guide reveals a range of taxes levied on individuals and corporations. Lebanese citizens are subject to individual taxes, including progressive income tax, a 10% withholding tax on movable capital revenues, and mandatory Social Security Contributions. Corporations face a flat 17% Corporate Income Tax, a 15% capital gains tax, and various withholding taxes. Factors such as Lebanese Pound devaluation, Double Taxation Treaties, and ongoing discussions about tax reforms also play a crucial role.

In the midst of the debate, Dr. Naji Hayek, the Vice President of the Free Patriotic Movement for Foreign Parties, shared a tweet that included data on the percentage of taxes paid per region, turning the economic discussion into a political one. While the source of this information remains elusive, it was apparent that most taxes are concentrated in parts of Mount Lebanon and Beirut. Fakrajian argued that this unequal tax distribution is a common phenomenon found in many countries, driven by economic activity.

However, the Lebanese government’s operational challenges contribute to widespread tax evasion, with businesses and individuals finding ways to circumvent their obligations. In certain areas, traders attempt to evade customs duties for a competitive edge in the market. Part of the population appears indifferent to taxation, considering it non-existent. In Lebanon’s case, taxes seem to be diverted from economic development projects to the pockets of corrupt leaders, exacerbating the country’s economic challenges.

In conclusion, the evidence suggests that taxes are indeed present in Lebanon, covering various aspects of individual and corporate financial activities. However, the system’s efficacy is marred by widespread tax evasion and the diversion of funds to corrupt practices, leaving the country’s economic development in a precarious state.