Damascus, Asharq Al-Awsat- With the opening of Damascus’s money market, Syria will take the first step towards significant economic achievement both domestically and in the sphere of improving its investment atmosphere. Syria has so far succeeded in completing most of its tax and customs reforms. This lays the appropriate groundwork to begin the country’s reform program that is represented by its 10 th five-year plan, which Syria hopes will transform its economy into a market economy.
In this respect Syrian Finance Minister Muhammad al-Husayn spoke to Asharq Al-Awsat about a number of developments, which include the preparations to open Damascus’s money market. In the minister’s opinion, this step will constitute the expected leap forward in the country’s economy. Work is proceeding rapidly to ensure that it starts operating this year. He pointed out that the market’s board of directors is at the stage of concluding a contract to obtain the necessary electronic exchange machinery. Employees are being trained in cooperation with several Arab and foreign stock markets.
He pointed out that the most important step at this time is to pass a law allowing individual and family-owned companies, which currently form the bulk of the Syrian private sector, to be transformed into joint stock companies. He explained that the Finance Ministry is currently working on the necessary legislation with the help of the private sector and some financial experts.
During the interview, which was held in his Damascus office, the Syrian official said that the important part of the legislation is to complete the tax structure pertaining to the new companies. It is known that the Finance Ministry has granted significant tax cuts that lowered the tax by half from 28 percent to 14 percent as of 1 January 2007. The companies have also been exempted from capital gains tax that they would otherwise have to pay on the income obtained from their real estate transactions that are part of their activities. The legislation that allows family-owned companies to be turned into joint stock companies will also provide some tax breaks.
The finance minister expressed the opinion that joint stock companies are among the best types of companies and the least subject to corruption. They help to expand the base of ownership by attracting shareholders who thus use their savings to buy shares. This helps them to stay away from more risky speculations in the real estate market, the automobile import business, or investing their money in capital investment firms. He explained that the proliferation of joint stock companies will help family-owned businesses to avoid the fate of splitting up or simply disappearing when their original proprietors die.
On another issue the finance minister reported that his ministry cooperated with other departments to organize accounting and auditing firms after first drawing up regulations to govern these firms. He said that their role is important in auditing the companies’ various transactions in a way that will ensure transparency and allow the citizens to view all the information pertaining to these activities.
Minister Al-Husayn remarked that the financial and tax reforms that Syria carried out in the past few years are very important because they are now capable of attracting investors. He added that this can be clearly seen from the rising investment figures in the same period. He said: It is enough to note that the combined value of the projects that were approved in accordance with the Investment Law exceeded 490 billion Syrian lire in 2006.
Asked about the rate of progress in these projects, he said that they are proceeding well and developing and noted that the establishment of a Damascus money market will give greater impetus for further investment.
In answer to a question, Al-Husayn denied that Law 51, which abolished earlier tax exemptions, has discouraged investment. He said that the opposite is true because the income tax rate was reduced from 35% to 22% for ordinary companies and to 14% for joint stock companies. He noted that an additional number of exemptions has been provided depending on the size of the venture. All this, he said, comes on top of exemptions from customs duties.
On the issue of how far Syria is prepared to liberalize its commerce with foreign countries, particularly in connection with the lists of banned commodities, he said: We are working with the Economy and Trade Ministry to prepare special lists of commodities that can be imported from various foreign countries outside the range of the general Arab trade region.
He explained that the permission to import these commodities will be accompanied by a lowering of tariffs in order to ensure that they are imported directly from their foreign sources and prevent them from carrying an Arab certificate of origin. He said that this will have a clear impact in the sphere of foreign trade and help Syria’s future efforts to join global trade blocs.
Speaking about customs duties, the minister said that reforming this sector will require more time and effort, explaining that it is not enough to lower the fees but it is necessary to automate the system and introduce an invoicing system that will prevent fraud. He said customs duties have already been lowered. He added that the use of an invoicing system will show the real value of the imported commodities and enhance collection to compensate for the fall in revenue that has resulted from the lower customs duties. He said this system is already showing promise and revenue from customs duties rose by 48% in 2006 compared with 2005.
The minister declared that Syria has no other choice but to improve the methods in which customs duties and taxes are collected in order to enable the state to provide the necessary revenues for the investments that it plans to make from now and until 2010. These investments will amount to 900 billion lire.
He said that Syria is pursuing a policy of reducing its foreign borrowing as much as possible and will try to compensate for the deficit caused by its oil imports by relying on tax revenues and other fees. The way to do this, he explained, is not to levy new taxes or tariffs but to improve the methods of collection and the management of revenues.
On the issue of providing the necessary revenues to pay for the state’s investments, the finance minister asserted that when one looks at the size of the investment budgets of the last few years, one can see that it is possible to provide the needed 900 billion lire for this purpose by 2010. He noted that state investments amounted to 258 billion lire this year alone.
He pointed out that Syria possesses several important elements of strength that are capable of strengthening its economic status and will enable it to press ahead with its reform program without complying with foreign dictates. He said that these elements include its policy of reducing its reliance on foreign loans as much as possible, noting that its current annual borrowing does not exceed 12-15 billion lire and that it gets many of its loans on easy terms. He added that Syria has succeeded in settling its foreign debts, which has given it an additional factor of economic strength when added to the constant flow of new investments, the strong position of its currency and its stable value against the US dollar. He said that the lire’s current price is very normal and able to benefit Syria’s economy.
Asked about the pressure to which Syria is subjected and its effect on its economy, he replied: Syria has been able to take precautions to avoid this pressure and any new pressure in the future. It exchanged half of its dollar reserves for Euro reserves and other currencies and transferred all its official foreign transactions from the dollar to the Euro. This has enabled it to maintain stability and avoid the consequences of the successive US pressures.
Al-Husayn did not try to downplay the fact that the Syrian economy has been affected by this pressure, especially its reform program because US institutions refuse to have any dialogue with Syria about the Syrian Commercial Bank, which the United States accuses of money laundering and financing terrorism.
He asserted that the US accusations are politically-motivated and have no economic justification, noting that Syria possesses documents that demonstrate this bank’s innocence of these charges.