Top Lebanese banker warns against raising interest income tax

Bloom Industries

02/05/2019 13:31

BEIRUT, May 2 (Reuters) - A top Lebanese banker warned on
Thursday that a proposed hike in the tax on interest income
would affect capital flows to Lebanon, weaken banks' ability to
play their financing role in the economy, and obstruct growth.
    The Lebanese government is currently discussing a draft 2019
budget that would raise the tax paid on deposit interest income
to 10 percent from 7 percent. Interest income had been tax free
until the levy was introduced last year. 
    Lebanon is saddled with one of the heaviest public debt
burdens in the world and Prime Minister Saad al-Hariri's
government has vowed to enact long-delayed reforms to put state
finances on a sustainable path.
    Joseph Torbey, chairman of the Association of Banks in
Lebanon, said Lebanese banks hope to see the government succeed
in agreeing an austerity budget, calling for a "fundamental
reduction" in spending.
    But, addressing a Beirut economic conference, Torbey warned
against underestimating the impact of "subjecting the banking
system and its deposits to seasonal taxes at every opportunity -
as happened last year" - a reference to the new levy in 2018.
    This "may be repeated today through raising the tax rate on
deposit interest to 10 percent, affecting capital flows to
Lebanon, weakening the ability of the banking sector to play its
its financing role, negatively affecting interest rates and the
cost of financing the Lebanese economy, and obstructing growth".
    Finance Minister Ali Hassan Khalil told Reuters the draft
budget projects a deficit of less than 9 percent of GDP compared
to 11.2 percent in 2019.  urn:newsml:reuters.com:*:nL5N21Z6BN
    The budget, seen as a critical test of Lebanon's will to
reform, is based on an economic growth forecast of 1.5 percent
in 2019, which could rise to around 2 percent as the economy
picks up, Khalil said.
    Lebanon's public debt issome 150 percent of GDP. State
finances are strained by a bloated public sector, high debt
servicing costs and hefty subsidies spent on the power sector.
    Serious steps toward reform could unlock $11 billion in
financing pledged at a donor conference last year to help
Lebanon build infrastructure to boost economic growth.

 (Reporting by Tom Perry, Ellen Francis and Laila Bassam
Editing by Mark Heinrich)
 ((thomas.perry@thomsonreuters.com; Reuters Messaging:
thomas.perry.reuters.com@reuters.net))