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Lebanon raises VAT to 12pc in 2012 budget

Beirut, October 4, 2011

Lebanon plans to increase value-added tax in 2012 to 12 percent from 10 percent, the country's finance minister said on Tuesday, to raise additional revenues.

Finance Minister Mohammed Safadi said the 2012 budget projects the ratio of debt to gross domestic product will fall to 132 percent from 135 percent, a level which makes it one of the most highly-indebted countries in the world.

He told a news conference the deficit is projected to fall to 8.1 percent from 9.4 percent.

The country's public debt stands at around $51 billion. Debt is expected to rise to $55 billion in 2011 and analysts warn that it could hit $65 billion in the next three to five years with the deficit widening more.

But the government of Prime Minister Najib Mikati, who took office earlier this year after the collapse of the previous government of Saad Al-Hariri, seems to be determined to avoid widening the deficit or increasing the debt.

Last month, Lebanon's parliament passed a $1.2 billion bill aimed at boosting electricity output. Safadi said that the 2012 budget, which assumes economic growth next year of 4 percent and projects inflation at 5 percent, will introduce a 3 percent fee on sales of real estate.

"The draft budget comes amid a critical international economic situation and a fall in growth in Lebanon in the first half of (2011)," Safadi said. "It seems that growth in the second half (of the year) is in significant improvement."     

Lebanon is famous for its robust service-oriented sectors, but many investors are discouraged from setting up businesses in a country where power cuts are frequent, road networks beyond the capital are insufficient and communication lines are slow.

It brushed off the global downturn in 2008 and enjoyed  strong growth of between 7 and 9 percent in the past three years. But political divisions blocked the 2010 budget in parliament, preventing the government from spending $2 billion allocated to much-needed infrastructure projects.      

A 2011 draft budget is also stuck in cabinet.  Safadi said that investment spending will be around 14.6 percent of total spending, or around 4.5 percent of GDP.     

"The 2012 budget focuses on providing the long-awaited services ... like water, electricity, roads ports and communication." 

Lebanon's debt stood at 79.2 trillion pounds ($52.6 billion) at the end of June, according to government figures.   The government expects sharply lower growth this year of around 2.5 percent. But it says it can increase budget spending by 15 percent next year and still keep the debt under control.  - Reuters

Tags: Budget | lebanon | GDP | growth | VAT |

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