Would increased professional tax rates reflect negatively on Syrian economy?
Enab Baladi – Yamen Moghrabi
The prolonged military operations in Syria, executed by the Syrian regime across the country and losing control over extensive regions, led to the drying up of the financing sources for the country’s public treasury. This happened with the suspension of exports and industries, a halt in tourism, and a decrease in foreign currency reserves.
For years, the regime attempted to create new financing sources through direct financial loans from its allies (Russia and Iran) or by granting them investment contracts in sectors constituting Syria’s wealth, such as phosphates, electricity, railroads, seaports, and telecommunications, in addition to continuous privatization of several other sectors.
These steps were taken amidst the economic crisis prevailing in the regions under the Syrian regime’s control, which includes, among its aspects, a significant depreciation of the Syrian pound against the US dollar, the effects of which are directly visible not only on the daily market prices in Syria but also on the state’s general budget.
In a new attempt by the regime to secure new financial inflows for its treasury, a decision by the Ministry of Finance on December 30, 2023, to raise tax rates on several professions and sectors, with some reaching 45%, was taken, along with a decision to reduce them if the payment is electronic rather than cash.
Despite these attempts by the Syrian regime, the effects of the decision could lead to opposite results on the economy, the market, and the citizens as well, especially since the economy in the regime’s areas does not seem to be operating according to clear plans and is also losing its human capital.
The ministry considered that the decision came to “achieve tax justice among taxpayers, and to determine the net profit for each activity or enterprise subject to tax in the fixed income category, starting from their actual business figures.”
Expected negative effects
Since 2021, the regime’s government has repeatedly increased taxes under harsh economic conditions in the areas under its control.
At the same time, along with rising inflation, the collapse of the Syrian currency, shortage of financial resources, and successive migration attempts due to economic conditions, comes the new decision, which will lead to an increase in costs, as merchants usually transfer the tax burden to the consumers by raising prices.
According to Dr. Firas Shaabo, a specialist in finance and banking sciences, the decision came amid weak demand and purchasing power and decline in the value of the pound, which means “condemning trade, economy, and industry to failure,” and there will be an increase in cost values, added to the difficulties that merchants and industrialists suffer.
He added that these costs directly mean a burden on merchants and consumers and, therefore, on the economy as a whole.
Therefore, the year 2024 will witness significant shifts in the exchange rate of the dollar because the budget has doubled by 115%. With the regime pumping more local currency, the monetary supply will reach 35 trillion Syrian pounds this year, which means the economy is condemned to inflation before the year begins. With the raise of prices, increased taxes, and rising costs, the situation will be bleak, according to Shaabo.
The budget value, according to the official exchange rate set by the Central Bank of Syria at 8500 Syrian pounds per dollar, is around 4.1 billion US dollars.
While the initial appropriations amount to 2.5 billion US dollars, according to the black market (unofficial) exchange rate, which is 13,850 Syrian pounds to the dollar, the prevalent rate at the time of the budget’s release.
Every year, the state’s general budget’s appropriations increase when calculated in Syrian pounds, while they decrease in US dollars.
The general budget for 2023 amounted to 16,550 billion Syrian pounds, which is equivalent to about 6.6 billion US dollars when it was approved, according to the official exchange rate at that time, which was set at 2500 pounds to the dollar, with a deficit of about five trillion Syrian pounds.
It seems that the latest decision may also carry negative effects on the economy, services, and consumers, according to Shaabo, who believes that the decision is nothing but a means to generate financial resources and a procedural operation that will not reflect on the economy and services except for the worse, and on costs except for the increase, and on the citizen except for the deterioration of conditions.
Reactions necessitate clarifications
After the decision was announced and the broad reactions to it, the General Commission for Taxes and Fees set out to clarify what happened through the local media, both government and private, with Enab Baladi monitoring four consecutive press talks by the general director of the commission, Mundhir Wannous.
Wannous, in a conversation with the official Syrian news agency (SANA) on January 2 of the current year, considered that the latest decision “included a wide range of reductions on the net profit rates subject to tax,” thinking that the net profit percentages “are commensurate with the business figures that will be adopted to be more realistic.”
Wannous’ statements to SANA were repeated to the local Global website on January 3, while he told the local newspaper Al-Watan, close to the Syrian regime, that the decision came “after discussion with the owners of the professions and economic activities, according to the variation and rise in production costs and expenses.”
According to Dr. Firas Shaabo, the Syrian regime deals with taxes and income in two different ways; the first is when talking about raising taxes, it associates it with the rise of the US dollar exchange rate against the Syrian pound, and it should be at the same level.
The dollar exchange rate reached 14,300 Syrian pounds, according to the S-P Today website, specialized in foreign exchange rates, at the time of writing the report.
Meanwhile, when it comes to raising the income of the citizens, the regime talks about limited and scarce resources as if the Ministry of Finance “is dealing with the mentality of a merchant, not a state,” and the directorates are overburdening the merchants with taxes.
Promotion of electronic payment
Since 2023, the Syrian regime has been promoting electronic payment transactions, which are hampered by the absence of the necessary infrastructure to implement them. Nonetheless, the promotion continues.
Banks also face administrative problems that have worsened since the regime linked some transactions to specific banks that are not able to perform the assigned tasks.
The regime’s insistence on electronic payment, including promoting it through taxes in the latest decision, is due to “an attempt to reduce tax evasion,” according to Shaabo, explaining that if the regime manages to electronically link the bills, it will have complete and comprehensive control over the market, and therefore will control the imposition of taxes, especially with merchants’ attempts to evade taxes.
Electronic payment also means a direct deduction of taxes to the state treasury, thus providing a quick financial source that can be collected monthly, unlike the usual system, which takes a longer time to provide liquidity, according to Shaabo’s analysis.
In September 2023, the Minister of Communications and Technology, Iyad al-Khatib, together with the Minister of Electricity, Ghassan al-Zamel, and the Governor of the Central Bank of Syria, Mohamed Issam Hazime, discussed the potential for facilitating the process of paying electricity bills through the electronic payment system and phasing out the traditional payment method.
Similarly, during the same month, al-Khatib held discussions with the Minister of Water Resources, Tamam Muhammad Raad, along with Hazime, regarding the reality and mechanism of electronic payments at the General Establishment for Drinking Water and Sewerage and the Syrian Telecommunications Company.
One of the latest promotional efforts came with the recent decision to raise taxes in regime areas, where the tax rate was reduced if linked to the electronic payment system. The reduction rate ranged between 2 and 4 percent.
In a survey conducted by the United Nations in 2022 on electronic governments, Syria ranked 156th globally out of 193 countries, while it reached the 131st position globally in 2020, indicating a decline in the state of electronic services in Syria over the years.
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