The Association of Banks in Lebanon would like to respond to the reactions over ABL’s recent movements following the proposed taxes by the Parliamentary Committee, some of which contained inaccurate analysis and information. For this reason, ABL is keen to clarify the following points:
- On the issue of raising taxes on interest rates from five to seven percent: This tax increase will affect the customers’ of the banks. And contrary to the information propagated by some circles, these taxes will also affect the banks’ investments in treasury bills and certificate of deposits (CDs).
The Central Bank currently deducts the proceeds collected from the taxes on interest rates invested by the banks and pays them directly to the treasury. Hence, the taxes on interest rates collected by the finance ministry in 2012 and 2013 reached LL647 billion and LL660 billion respectively, according to the numbers of the finance ministry. This amount is almost distributed between 58 percent for the customers and 42 percent for the banks.
- On the proposed amendments: The five percent tax deduction on the value of the proceeds from the banks’ investments which are discounted them from the taxes on profits, was never in violation income tax law and most notably article 8. Hence, the current proposal which calls for reducing the value from the net revenues generated by the banks and not from the taxes on profits would lead to double taxation. This means that the taxes on the banks’ profits would surge from 15 percent to 37 percent on average for the sector. This average would even be much higher for a big number of banks, which would create an unprecedented discrimination and illegitimate law between various banks on one hand, and between them and other tax payers on the other.
- On the issue of profits: The talk on the volume of banks’ profits contains exaggeration and over blown statements that are far from reality. The profits of the banks are not measured purely by the absolute numbers, but by their proportion to the volume of equities and assets. These proportions in Lebanon are 12 percent and 1 percent respectively. These averages are lower than their counterparts in in the region and from registered proportions in rival countries that banks deal with.
- On the banks contributions to taxes: The banks also make significant contribution to income taxes in the country with nearly 28 percent of all wage taxes collected. The banks also contributes 5 percent of the total value added tax and it also contributes to the collection of taxes and fees for the state ( income tax, VAT and car mechanics) with lower cost and some of them are free.
- On the issue of financing the economy and contribution to monetary stability: There is no doubt that the banking sector is the main financer of the Lebanese economy. In February 2014, total loans to the resident private sector reached $42 billion; none resident $6 billion and public sector $38 billion. This brings the total amount of credit lines to all these sectors at $86 billion, or more than doubles the country’s GDP. In addition, the banks keep accounts in the correspondent banks abroad to facilitate financing Lebanon’s trade and external payments. Banks also contribute through their deposits in foreign currency at the Central Bank in boosting the reserves of the latter. These reserves have allowed the Central Bank to maintain the stability of the national currency as well as the purchasing power and especially for limited income families. The banks also hold 58 percent of the public debt ($37.8 billion at the end of February 2014). This took place amid the diminishing contributions of the external markets in financing the Lebanese state amid prevailing political and security conditions domestically and regionally.
The Directorate of Communication & PR
April 13, 2014