Lebanon: Middle East Airlines Tax Feud Sparks Revenge

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MEA’s tax file is not unique. Previously, the Port of Beirut was forced to pay past-due taxes under the relevant articles. (Photo: Marwan Tahtah)

By: Mouhamad Wehbe

Published Thursday, August 1, 2013

A few weeks ago a crisis erupted between the Lebanese Finance Ministry and Middle East Airlines (MEA), with the ministry demanding the company pay taxes owed to the state. MEA responded by refusing to issue or sell plane tickets to the government.

About five years ago, the Lebanese Department of Senior Taxpayers at the Imports Directorate conducted a routine audit of MEA’s tax file, revealing that MEA did not pay taxes due under Articles 41 and 42 of the Income Tax Act.

According to the study’s summary, the company must pay taxes imposed on bank interest paid to foreign banks for the years 2005 and 2006, years which Lebanon had no agreement with certain countries to prevent double taxation.

During this period alone, the taxes incurred by MEA was estimated at LL1.2 billion ($794,000). After fines, the amount increases to LL2 billion ($1.3 million).

The taxes are not limited to bank interest, as the study suggests. The company also owes taxes on benefits paid to pilots and flight attendants outside of Lebanon, as well as taxes on chartering and leasing planes.

MEA’s tax file is not unique. Previously, the Port of Beirut was forced to pay past-due taxes under the relevant articles.

Yet in MEA’s case, some legal experts were perplexed by the Shura Council’s decision because the company’s tax exemption was for Title I taxes – a tax on profits. As for Titles II and III taxes, “These are taxes on interest and income that are not levied on the company itself, but the company has to withhold and collect them on behalf of the public treasury. These taxes have been levied since the ‘70s and are paid by all other companies operating in the field of aviation, no company can be exempted from them, whether in the private sector or a sort of public company like MEA,” according to a source in the Finance Ministry.

“No one can be excused for ignorance of the law, especially people who work at a company like MEA, [since] they are well-informed and the company … has been operating in the market for quite some time,” he added.

MEA management responded to its tax debacle by refusing to issue plane tickets to all state institutions. According to MEA Chairperson Mohamad al-Hout, the question of taxation “will be addressed with the prime minister and the finance minister.” He continued, “The news that we stopped issuing tickets to the Lebanese state is true. We had previously stopped issuing tickets to diplomats, but we [resumed selling tickets] at the request of the prime minister, even though the state does not reimburse the company for the cost of the tickets.”

On that note, Prime Minister Najib Mikati had issued a circular restricting the travel of state employees and officials to MEA. Mikati’s circular gave a huge market share to the company and granted it enormous profits, especially since a number of employees had complained about the airline’s exorbitant ticket prices, sometimes three times the rate offered to other customers.

This article is an edited translation from the Arabic Edition.

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