VAT DRAFT LAW – SUMMARY SHEET

INTRODUCTION OF THE VALUE ADDED TAX

The VAT draft law was approved by the Council of Ministers on the 7^th of June. It will be imminently submitted to the Parliament for ratification. The law should be enforced on the 1^st of January 2002.

The implementation of the VAT in Lebanon is a major element of the fiscal reform the government is currently undertaking. On one hand, it will contribute in redressing the economy by enhancing revenue, reducing the deficit and containing the debt. On the other hand, it will allow Lebanon to better integrate into the global market place by getting prepared to trade agreements such as WTO, EU and Arab Trade Union.

VAT is currently implemented in more than 120 countries and constitutes the major source of revenue for governments.

The VAT will be levied on all goods and services imported or domestically produced at a single rate of 10%. There are some exemptions that aim to lessen the regressive effect of the tax on the lower income households. They cover basic foods and agricultural raw products, medical and educational services, public transportation of individuals and some other activities. The exemptions represent 55% of the lower income households’ consumption.

At a first stage, only businesses with a turnover above 500 millions LBP will be liable to register starting October 2001. Businesses with a turnover between 250 and 500 million LBP can choose to register. Thus, they will charge VAT to customers on their sales and benefit from a tax credit for the VAT paid on their business purchases.