Lebanon’s 2026 Budget Proposal: VAT Deduction Limits and Expanded Digital Enforcement Measures

VAT-Related Highlights from the 2026 Draft Budget Law

1. Restrictions on VAT Deductibility

• New limitations on deducting VAT for certain expenses:
  • Passenger cars costing over $25,000 (except for rental and taxi businesses)
  • Water, electricity, communications, internet, and gasoline consumption — no longer deductible for VAT purposes
• Criticized for being overly broad and lacking exceptions for legitimate business use (e.g., employee transport vehicles)

2. VAT Obligations for Event Organizers

• Unregistered event organizers must now:
  • Collect and declare VAT on revenues from entertainment activities
  • File and pay VAT within 7 days after the end of the month in which the event occurred
• Intended to curb abuse by short-lived entities avoiding VAT registration
• However, it conflicts with Article 45(5) of Law No. 379/2001, creating legal ambiguity

3. Withholding Tax Mechanism with VAT Implications

• A new 3% withholding tax may be applied by public bodies and customs on certain transactions
• Although not a VAT per se, it interacts with VAT compliance and cash flow
• Lacks clarity on recovery, treatment of losses, and coordination with existing tax laws

4. Critique of VAT Policy Direction

• The draft budget continues to rely heavily on indirect taxes, including VAT, which:
  • Account for over 80% of total tax revenues
  • Are regressive and disproportionately affect lower-income taxpayers
• Calls for a shift toward progressive direct taxation and a unified income tax system

Source ALDIC

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

---

---