Listen to the article
A new idea pertaining to the creation of a bank deposit recovery fund is gaining momentum. It has taken the form of a bill approved by the government but still needs to be voted on by Parliament to come into effect.
The bill for the creation of a bank deposit recovery fund is based on a tax imposed on private sector individuals who repaid their loans in dollars at a rate of 1,507.5 Lebanese pounds per dollar, while the national currency was hitting record lows against the dollar.
Exceptional Gains
According to the bill, the individuals targeted would have accumulated “exceptional gains” by repaying their loans from banks in dollars at an exchange rate that had no connection to the market reality. Simply put, these gains should be subject to income tax. According to the existing law, income tax is a progressive tax ranging from 4% to 25% on profits made. However, calculating “exceptional gains” can be complicated, especially considering that repayment of previous loans was often done from a credit account to a debtor account belonging to the same depositor.
Complicated but Feasible
Banking sources contacted by This is Beirut have indicated that the Association of Banks in Lebanon has not yet taken an official position on the matter but would be in favor of any project aimed at recovering bank deposits. Asked about the feasibility of the bill from a technical standpoint, the same sources state that its implementation would be complicated but not impossible and would primarily require time. The risk center at the Central Bank of Lebanon will be involved in determining loan balances as of October 19, 2019, while the Ministry of Finance will have a central control role to play, according to the same sources, who also believe that it is not clear whether taxable individuals will be able to pay their dues on time.
Furthermore, an economic expert talking to This is Beirut on condition of anonymity disapproved of the project, calling it unserious, populist, heretical, and the result of a government that is doing anything but the right thing. “How can the government apply this retroactive bill? How could it bypass the bank secrecy law?” questioned the economic expert.
15 Billion Dollars
According to the estimates of the International Monetary Fund (IMF), the total profits made by borrowers through the repayment of loans in bank checks denominated in “lollars” or Lebanese pounds, amount to $15 billion. This figure does not include the profits that would have been made after mid-2022. As for individuals who had taken out personal and housing loans, they will not be subject to taxation.
That being said, there is much to discuss before the bill is finalized in Parliament, especially as the exchange rate for “lollars” varied from day to day. For example, a borrower of one million dollars could repay their loan with a check for $150,000, $130,000, or $120,000, depending on the daily exchange rate.
