BEIRUT (Reuters) – Lebanon still aims to increase taxes to finance a public sector pay rise, a senior official said on Monday, after the plan was thrown into doubt last week when the constitutional council annulled the new tax law. Many public sector workers went out on strike on Monday after the constitutional council, an arm of the judiciary, decided on Friday to reject the tax law passed by parliament to finance a $917 million public sector pay rise. The official, speaking on condition of anonymity as deliberations were still underway, said the government would adjust its proposed tax hikes as they were the only way for the heavily indebted state to pay for the wage increase.

The proposals included increases in value-added tax, corporate tax, taxes on alcohol and tobacco, lottery prizes and interest on bank deposits, as well as increases in fees and fines. The official said the government would address the points raised by the council. “The direction is to reapprove the same taxes … after clarifying the points tabled by the constitutional council,” the official told Reuters. Some economists had expressed concern about the tax hikes and the constitutional council said they were unlawful for a number of reasons, including the government’s failure to approve them as part of a state budget.

Prime Minister Saad al-Hariri’s government in March agreed the first state budget in 12 years, but it has yet to be approved by parliament. “Time is running out and we have no alternative to taxes,” the official said. “We cannot finance (the public sector pay rise) without these taxes because this will create a financial imbalance and increase the strain on the economy and increase the public debt, representing a danger to Lebanon’s credit rating.”