Customs rate hike without countermeasures may have huge impact for crisis-hit Lebanon, say experts

Since Lebanon raised the customs exchange rate by tenfold from the long-standing 1,507.5 Lebanese pounds against one U.S. dollar to 15,000 pounds on Dec. 1, 2022, experts have warned of huge repercussions for the nation in the absence of necessary countermeasures.

According to officials, hiking the rate on taxes and fees collected from imported goods will boost state revenues and represents a step toward unifying different exchange rates existing in Lebanon, as required by a staff-level agreement reached between the country and the International Monetary Fund last April in exchange for a 3-billion-dollar bailout.

Despite supporting a unified exchange rate, Patrick Mardini, president of the Lebanese Institute for Market Studies, advises a more cautious approach by reducing the tariff rates in parallel to the customs exchange rate hike.

“Reducing tariff rates at the same time would offset the steep increase in the exchange rate and protect existing businesses from illicit competition,” Mardini told Xinhua.

However, the government raised the customs exchange rate and tariffs simultaneously, making it very costly to do business in Lebanon, slowing the recovery and worsening the recession, he noted.

The move to hike the customs exchange rate has also raised public concerns about the government’s ability to control food prices even though 70 percent of the food commodities should be exempted from the new customs policy.

“Previous experiences show importers and merchants will increase the prices of all goods regardless of their exemption from the new policy, as the government has not been effective in monitoring and controlling prices of goods over the past years,” Ayman Omar, an economist and the director of the Ishraq Center for Studies based in Lebanon’s Tripoli, told Xinhua.

The state revenues should be increased through general political or economic reforms aimed to “improve tax collection and prevent and combat evasion” rather than a simple tax increase that would cause a drop in public consumption and thus additional economic contraction, said Omar.

As a matter of fact, the government won’t be able to generate necessary revenues from the new customs exchange rate in short order because the rate hike decision had been announced three months before its official implementation in December, which allowed importers ample time to import goods at the previous customs rate of 1,507.5 pounds, according to Bilal Alameh, a professor of economics at the Modern University for Business and Science in Beirut.

“Merchants imported goods valued at 16 billion dollars in the first 10 months of 2022, which means they will import only a few needed commodities in 2023,” he explained.

Since 2019, Lebanon has been struggling with an unprecedented financial crisis that has led to the devaluation of the local currency by more than 95 percent, plunging about 82 percent of the population into poverty.

The Lebanese people have to cope with multiple exchange rates co-existing in the country, including the official rate set at 1,507.5 pounds per dollar, the rate of 8,000 pounds for withdrawing deposits denominated in dollars from banks, the central bank’s “Sayrafa” rate set at 38,000 pounds used by commercial banks and foreign exchange dealers, and the black market rate that reflects the actual value of the dollar, which currently stands at 43,000 pounds.

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