LebGeeks

VincentKeyboard

Member

The effect of inflation on VAT

Basically VAT works like this (a simplified explanation). If I buy items worth 100 dollars from a supplier who is registered in the VAT, I pay him 100 + 11% = 111 USD. The government is supposed to give me the 11 dollars back.
Assuming I am decent person who only sells at 15% profit, I resell those items at 111*1.15 = 127.65
11% of 127.65 is 14 USD.
The government owes me 11 so I just pay them 14 - 11 = 3 USD = 4,500LL.
This wasn't completely accurate but it explains the point behind VAT.
Now imagine a shop or company that is overcharging. He buys items for 60 USD. That means he paid 66.6 USD (the goverment owes him 6.6*1500 = ~10,000LL.). Due to rising dollar prices, he refuses to get paid in USD credit and wants LBP or USD cash so he sells the items for 9 million LL tax included. His excuse is that suppliers are overcharging when they often are not and even if they do, this does not warrant 1000% profit. This means he owes the government 990,000 LL in taxes. Deduct the 10,000LL that the government owes his and he has to pay 980,000LL.
Ideally, his payment should be minimal but it is 980,000LL because he is overcharging his customers. He gets grumpy but then remembers he still made a massive profit from this deal.

This is what happened to my employer today. He owes the government close to 800,000,000LL in VAT even though he barely made any sales this year (21 invoices in total). There were 543 invoices last year and he owed the government 17 million over all the 2019 quarters. And I spoke to the accounting firm that handles our accounts. The guy said that almost all his clients are going through the same thing and did not think this whole thing through.

TL;DR Everyone is buying for cheap and selling for ridiculous prices and is getting screwed over by the VAT system.

Last edited by VincentKeyboard (August 11 2020)

nuclearcat

Member

Re: The effect of inflation on VAT

Thank you for this insightful post! This is really handy, going to warn my friends.

xerxes

Member

Re: The effect of inflation on VAT

what? your accounting firm understands nothing and your example is distracting.

give me a real case and I will explain and will give you advice

VincentKeyboard

Member

Re: The effect of inflation on VAT

Sure. My employer buy materials for cheap and the vat he pays the suppliers is at those negligible prices. He resells the materials he bought at 20 to 50 dolars for heavy prices up to 2300 USD and often tries to hide from his clients thst they can pay him the vat part at 1515 in LBP.
The purchase vat which the government refunds is literally nothing compared to the vat he pays on selling to clients

Last edited by VincentKeyboard (August 12 2020)

xerxes

Member

Re: The effect of inflation on VAT

so he buys in USD and sells in USD? or in LBP?

VAT due to the MOF is the =  VAT collected - VAT paid

so the final consumer bares the cost, businesses act as a pass-through  agent

VincentKeyboard

Member

Re: The effect of inflation on VAT

He buys a 100 USD item at 1600 LBP, pays the supplier VAT at 1515(?) and then sells in LBP at 7500 or 8000 after pricing it at 1000 or 2000 USD (VAT being 110 or 220 in this case) and collecting a substantial VAT that is often even larger than what the item cost him.
Since VAT due to the MOF is = VAT collected - VAT paid, the due amount is enormous.

It's not an issue of USD and LBP. Remember that VAT collected is calculated on the sale price which includes your profit.

Last edited by VincentKeyboard (August 12 2020)

potato

Member

Re: The effect of inflation on VAT

i just want to say that all this discussion is not accurate enough since many sellers doesnt give you an invoice and when you ask the price he will give it to you in $ and will say his lbp rate is 8000 so for example a lamp costs 5$ he will say it costs 40,000lbp. and you buy it because hes selling lower price than many sellers. I dont know how hes getting away from vat but this country alot of people are smuggling items to sell without paying anything just the shipment . (take olx sellers as another example)

Last edited by potato (August 12 2020)

VincentKeyboard

Member

Re: The effect of inflation on VAT

Small ones may not. Large ones do. You can't afford not to demand official invoices especially when we are say 500 lamps, 20 tons of xyz construction material, etc.. etc..

Also, there are illegal ways for reducing VAT. I'm sure we are not allowed to mention them here but they exist.

Kareem

Member

Re: The effect of inflation on VAT

Thats why whenever I want to buy something I ask for the price in USD, deduct 11% and pay the 11% @ 1500LL.

No store or shop can refuse.

DNA

Member

Re: The effect of inflation on VAT

Wtf, what kind of business is that he is basically stealing money for this insane markup without adding value to this product, anyway what exactly is the problem? you are selling for a high price and paying the fee i can't see any problem in owing large VAT sums when making large profit, the poor customer is paying anyways this is BS honestly.

I once had a meeting with a member of "جمعية تجار" for certain products since i wanted to sell some stuff. they agree to all of them sell for example a 2$ item for 20$ to avoid competition I told them this is roguery they said "we need to pay our bills" lol and some of them have 3 cars and 2 houses from 10m2 stores.

I am not sure what the MOF is doing but most companies do not even pay the true VAT owed for gov, they are large companies and make millions yet their VAT sums are pathetically low and no one even asks, and they wonder why the country is shit.

DNA

Member

Re: The effect of inflation on VAT

Thats why whenever I want to buy something I ask for the price in USD, deduct 11% and pay the 11% @ 1500LL.

No store or shop can refuse.

Thank you never thought about that

elserge82

Member

Re: The effect of inflation on VAT

Thats why whenever I want to buy something I ask for the price in USD, deduct 11% and pay the 11% @ 1500LL.

No store or shop can refuse.

I'm not buying from local market lately , but thank you all for bringing the subject and give me additional feedback concerning this mater..

xerxes

Member

Re: The effect of inflation on VAT

He buys a 100 USD item at 1600 LBP, pays the supplier VAT at 1515(?) and then sells in LBP at 7500 or 8000 after pricing it at 1000 or 2000 USD (VAT being 110 or 220 in this case) and collecting a substantial VAT that is often even larger than what the item cost him.
Since VAT due to the MOF is = VAT collected - VAT paid, the due amount is enormous.

It's not an issue of USD and LBP. Remember that VAT collected is calculated on the sale price which includes your profit.

this is what i was saying, he is collecting VAT based on the sale price which is higher than the usual (in prior years)

The number of invoices is irrelevant.

He is collecting more VAT from clients than he used to, and paying on the 1600 or 1700 , so it's normal to pay more VAT.

and VAT paid and collected does not affect his profit in  a direct way (it may in an indirect way where consumers tend to purchase less but that's another issue)

and sure, if a company bills in USD you can always pay at the rate of 1507.5

xazbrat

Member

Re: The effect of inflation on VAT

He buys a 100 USD item at 1600 LBP, pays the supplier VAT at 1515(?) and then sells in LBP at 7500 or 8000 after pricing it at 1000 or 2000 USD (VAT being 110 or 220 in this case) and collecting a substantial VAT that is often even larger than what the item cost him.
Since VAT due to the MOF is = VAT collected - VAT paid, the due amount is enormous.

It's not an issue of USD and LBP. Remember that VAT collected is calculated on the sale price which includes your profit.

this is what i was saying, he is collecting VAT based on the sale price which is higher than the usual (in prior years)

The number of invoices is irrelevant.

He is collecting more VAT from clients than he used to, and paying on the 1600 or 1700 , so it's normal to pay more VAT.

and VAT paid and collected does not affect his profit in  a direct way (it may in an indirect way where consumers tend to purchase less but that's another issue)

and sure, if a company bills in USD you can always pay at the rate of 1507.5

That would be what I would recommend---bill them in dollars and even if they pay in LL, convert it at the black market rate (used by many) and you would lower your tax exposure.  You can issue the invoice in $$'s with a rate given if they choose to pay in LL.

xerxes

Member

Re: The effect of inflation on VAT

He buys a 100 USD item at 1600 LBP, pays the supplier VAT at 1515(?) and then sells in LBP at 7500 or 8000 after pricing it at 1000 or 2000 USD (VAT being 110 or 220 in this case) and collecting a substantial VAT that is often even larger than what the item cost him.
Since VAT due to the MOF is = VAT collected - VAT paid, the due amount is enormous.

It's not an issue of USD and LBP. Remember that VAT collected is calculated on the sale price which includes your profit.

this is what i was saying, he is collecting VAT based on the sale price which is higher than the usual (in prior years)

The number of invoices is irrelevant.

He is collecting more VAT from clients than he used to, and paying on the 1600 or 1700 , so it's normal to pay more VAT.

and VAT paid and collected does not affect his profit in  a direct way (it may in an indirect way where consumers tend to purchase less but that's another issue)

and sure, if a company bills in USD you can always pay at the rate of 1507.5

That would be what I would recommend---bill them in dollars and even if they pay in LL, convert it at the black market rate (used by many) and you would lower your tax exposure.  You can issue the invoice in $$'s with a rate given if they choose to pay in LL.

I did not want to bring that up

I am really amazed how the Lebanese people tend to make use of everything, even disasters.  short sighted