PLEASE
LEND US YOUR ATTENTION FOR A FEW MOMENTS!
THE LEBANESE FINANCE MINISTRY
CAN RECUPERATE EIGHT BILLION US DOLLARS IN PREVIOUSLY MISSED REVENUE, WITHIN A
REASONABLE TIME PERIOD.
Here is how.
The 6% Real Estate
Registration Fees (R.E.R.F.)
A.- INTRODUCTION
Allow me to get
straight to the point. The country’s finances are in a bad shape. With a Public
Debt mercilessly growing at the current yearly rate of nearly five billion US
dollars, no one, in his right mind, can deny the fact.
With a view to attend
to this situation, the Lebanese government seeks to introduce some essential
reforms within the Administration, but is unable to raise the necessary funds
to finance the measures needed to implement the process.
Experience has shown
that this is generally the case for most countries facing similar situations.
The currently unfurling Greek melodrama brings additional confirmation to our statement.
The purpose of this presentation is to offer some suggestions to the
Authorities that may prove useful in that domain.
Before addressing the
subject directly, I would like to refer to a controversy that, three days ago, made the first page of most daily newspapers
in Lebanon, principally because it was raised by the Minister of Finance in
person who announced that he had put 57 employees of the ministry under
investigation for matters of corruption related to the registration of real estate
properties in Lebanon. The Minister stated that some of these employees had
acquired some substantial properties in downtown Beirut and elsewhere, leaving
the readers to legitimately guess at the size of the dilapidation of the State
funds.
The purpose of this presentation is to delve
deeper into this matter and attempt to assess the true extent of the losses to
the Treasury, while suggesting some ways to use this unfortunate affair to seek
a permanent solution to Lebanon’s recurrent corruption problems.
We believe that this
unfortunate scandal is only the tip of the iceberg and by following up this
affair one will be able to discover the true extent of the losses suffered by
the Authorities in this particular domain. Allow me, at this juncture, to state
that this is not the first time that I have raised this issue both privately
and publicly. Since 2006, I have never ceased mentioning this scandal in my
blogs and web sites on the internet, and in my articles on the “Opinion” section
of the L’Orient Le Jour. To provide the reader with some idea of the extent of
this particular aspect of large scale corruption, let me firmly state that,
over the recent five years alone, the public Treasury has missed collecting
some eight billion US dollars in “real estate registration fees”. The purpose
of this presentation is to reveal how it was done and suggest ways to prevent
it in future.
Furthermore, allow me to state, at this point,
that I am of the opinion that firing the employees who participated in this
outright dilapidation of public funds or taking the perpetrators to court will
not altogether solve the issue. I believe that one could also make use of this
unfortunate scandal to attain more effective and permanent results. The
proposed line of action is developed below.
B.- DEVELOPMENT
The below reasoning is
based on a combination of facts, estimates, and assumptions that lead us to
deduce that some $1.7 billion US dollars can be recuperated in real estate
registration fees for each of the past five years.
1. Fact:
The Real Estate sector in Lebanon, for the past five years, has developed at a
yearly rate hovering around fifteen million square meters, as confirmed by the
reports of the Lebanese Association of Architects. Nothing leads to suggest
that this rate will not be sustained in the near future.
2. Estimate:
According to reports published by several reputed banking and financial institutions
the average price per square meter during that period has hovered around $1,700
per square meter, though in many cases it may have been be higher, or lower,
depending on the period, the location, or the quality of the construction.
3. Fact:
The Lebanese Ministry of Finance is entitled to collect a 6% real estate
registration fee from the owners who wish to register their property
4. Assumption:
Based on all the above, and considering that, for reasons detailed in the next
paragraph, most real estate owners do not fail to register their properties,
the resulting revenue to the State would be expected to reach $1.50 billion
dollars a year, as follows: 15 million square meters. x $1,700 = $25.5 billion
US dollars x 6%= $1.53 billion US dollars
5. Assumption:
Though registration is not compulsory, most owners, if not all of them, are compelled
to register their property as, otherwise, they would not be able to secure the
financing of their operation or legally protect their interests.
6. Assumption:
The above amount of $1.53 billion stated in paragraph four represents the
estimated State revenue from the registration of newly built property alone. It
does not include the registration of formerly built property being subsequently
transacted between several owners. In this instance one could assume that such
transactions would earn the Treasury about fifty per cent of the above, or
$0.77 billion dollars, thus bringing the total expected yearly revenue to $2.30
billion.
7. Fact:
Let us now list up the revenue collected by the State in real estate
registration fees over the past five years, as indicated in the MOF yearly
reports:
Year
2009: 626 billion Lebanese pounds or 417 million US dollars, or $0.417 billion
dollars
Year
2010: 853 billion Lebanese pounds or 568 million US dollars, or $0.570 billion
dollars
Year
2011: 841 billion Lebanese pounds or 560 million US dollars, or$0.560 billion
dollars
Year
2012: 870 billion Lebanese pounds or 580 million US dollars, or$0.580 billion
dollars
Year
2013: 847 billion Lebanese pounds or 565 million US dollars, or$0.560 billion
dollars
C.- CONCLUSIONS
1.
The above considerations
lead us to assume that, on average, $1.7 billion dollars in real estate
registration fees were under-collected every year from 2009 until 2013. This
means a total estimated loss of $8.5 billion for the Lebanese Treasury during
that period alone.
2.
We may safely assume
that it may be possible to force the property holders to reimburse the Ministry
of Finance for the under-evaluated portion of the registration fees during the
past five years, after a correct re-evaluation has been properly and independently
conducted.
3.
Furthermore we
recommend that, in order to prevent similar fraudulent attempts in the future,
the details of every single property registration operation ought to be
published in the Official Gazette to enable the citizens to ascertain that the same
“errors” are no longer repeated. Any knowledgeable reader is bound to notice
when a property is flagrantly undervalued for the purpose of calculating the
real estate registration fees. This public monitoring, added to increased
administrative controls will serve to deter and prevent future cases of
corruption.
4.
On the other hand, to
assist the property owners in reimbursing the Ministry of Finance for the
under-evaluated fees, we suggest that they should be granted a ten year
facility repayment period at specially reduced interest rates.
5.
We also suggest that the
total amount that will be, in this way eventually recovered by the Ministry of
Finance, ought to be exclusively set aside to finance the construction of the
two electricity generation plants as detailed in the Electricity Plan of HE
Gebran Bassil in 2009. In this way, the State would be figuratively killing two
birds with one stone. It would put a stop to a recurrent corruption scheme that
was yearly draining public funds on a large scale. At the same time, the money
thus recuperated, would have served to improve our electricity supply and
ultimately save the Treasury some additional two billion US dollars a year in
reduced electricity generation costs, as officially declared by Minister Bassil
himself.
6.
Before concluding, may
I be allowed a last statement? In my view, that is shared by many observers of
the Lebanese scene, unless the essential needed reforms start getting implemented
in the near future, our battle against Daech and their cohorts in Lebanon
greatly risks being lost. As asserted by many local and foreign analysts, Daech
draws part of its strength from the support it gets from disillusioned and
disenchanted individuals who see no future for them under the current
conditions in which the majority of citizens live in Lebanon.
Change
and reform have become essential requirements, as many political parties have
belatedly come to recognize. But reforms do not come cheaply. The present
report aims at drawing up the attention of the Administration to a way of
securing a significant part of the funding needed to implement them. At the
same time, applying the recommendations contained in this report, constitutes
by itself an important part of the reform process.
George Sabat (A.C.M.A.)
