## 1lbnea2023003

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---

### Preface / Mission
- IMF Fiscal Affairs Department (FAD) mission visited Beirut September 25 – October 6, 2023 to confirm reform and capacity development (CD) priorities for the next 36 months and evaluate potential expansion of the CD project.
- Mission leader: Mr. Joshua Aslett (FAD).
- Mission team: Messrs. Robert Kokoli (FAD), John Middleton and Mohammed Al‑Said (both FAD external experts).
- Joined by: Mr. Frank Van Driessche (Long‑Term Tax Administration Advisor).
- Supported by: Mr. Rosen Bachvarov (METAC Regional Tax Administration Advisor), Mr. Andrew Allan (METAC Regional Customs Administration Advisor), and Ms. Rita Achkar (Local IMF Economist).
- High‑level meetings included H.E. Saade Chami (Deputy Prime Minister) and H.E. Youssef El Khalil (Minister of Finance) among others.
- Report structure: Executive Summary; (I) Context for Reform; (II) Determining Current Priorities; (III) Tax Administration; (IV) Customs Administration; (V) Capacity Development Support.

### Key observations on capacity needs and risks
- Operations in Lebanon’s tax and customs administrations risk collapse four years into the economic crisis.
- Staffing levels in the VAT Directorate, Revenue Directorate, and Lebanese Customs Administration (LCA) are dangerously low.
- IT is in a dire state:
  - One member of regular IT staff remains in the LCA; none remain in the tax directorates.
  - MOF’s IT Center has lost nearly half of its staff.
  - Without qualified IT workers, loss of core IT systems or data is likely, risking halt of operations and further economic/fiscal damage.
- Working conditions: high workloads, unsuitable and poorly maintained facilities.
- Organizational models and digital tools are antiquated; customs under‑uses existing tools.

### Immediate operational priorities (mission-identified)
- Protect continuity of critical functions by:
  - Retaining experienced staff and recruiting key technical specialists at market salary rates (examples: IT staff, data analysts, risk analysts, large taxpayer specialists including auditors).
  - Acquiring essential resources for critical functions (e.g., key IT hardware and software).
  - Securing training for specialists from development partners if required.
- Stabilize IT operations in the VAT and Revenue Directorates (including administration of SIGTAS and MOF collection gateway dependencies).
- For LCA, provide technological training specifically on ASYCUDA to Brigade staff assigned to IT duties.
- Deploy ASYCUDA modules (e.g., Valuation Control, Airway Manifest Control) and implement a centralized risk management group and procedures, including mandatory use of ASYCUDA’s “Inspection Act” form.
- Cease HCC overreach into operations; implement “one‑head, one‑body” governance and transfer administration of ASYCUDA from the HCC to the DG Customs.

### Strategic options and reform mechanisms
- Prioritize tax and customs administration in the existing budget.
- Consider expediting introduction of a semi‑autonomous tax administration to enable salary flexibility.
- Review increasing and using customs service charges to support modernization (tax and customs), noting regional examples.

### Short‑term and medium‑term CD sequencing
- Immediate actions:
  - Urgent intervention to ensure continuity of mission critical functions (emphasizing IT stabilization), a living wage for staff, and essential office improvements.
  - Expedite introduction of a semi‑autonomous tax administration.
  - Review and confirm support for the proposed CD activity plan for tax administration (Section V) or provide input for adjustments.
- Next 6 – 12 months (Tax):
  - Integrate reform priorities into the joint strategic plan (2022 – 2026).
  - Identify a small team to receive CD support for data analytics, risk analysis, large taxpayer operations, and compliance strategy.
  - Produce and implement two compliance strategies: one for large taxpayers and one for all others.
  - Re‑launch an integrated Large Taxpayer Office (LTO) including only the very largest taxpayers.
- Next 6 – 12 months (Customs):
  - Revise the draft strategic plan into a strategy accounting for priorities in Section IV.
  - Implement a risk management unit, framework, and procedures mandating use of ASYCUDA’s “Inspection Act” form.
  - Implement ASYCUDA’s Valuation Control module with international expertise.
  - Transfer ASYCUDA administration from the HCC to the DG Customs.

### Quantitative snapshot of revenue collapse (Article IV Reform Scenario)
- Total Revenues (Percent of GDP): 2018 Act. 21.0; 2019 Act. 20.8; 2020 Act. 16.0; 2021 Est. 9.8; 2022 Est. 6.3; 2023 Proj. 8.6.
- Tax Revenue (Percent of GDP): 2018 Act. 15.4; 2019 Act. 15.6; 2020 Act. 10.9; 2021 Est. 7.3; 2022 Est. 4.7; 2023 Proj. 6.5.
  - Taxes on income and profits: 5.4; 6.8; 5.1; 2.8; 1.1; 1.2.
  - Taxes on property: 1.4; 1.1; 1.5; 1.0; 0.6; 0.7.
  - Taxes on domestic goods and services: 5.4; 4.9; 2.5; 2.6; 2.4; 3.3.
    - VAT revenues: 4.6; 4.1; 1.9; 2.3; 2.1; 2.9.
  - Taxes on international trade: 2.4; 2.2; 1.3; 0.7; 0.6; 1.2.
  - Other taxes: 0.7; 0.7; 0.5; 0.3; 0.1; 0.1.
- Nontax Revenue (Percent of GDP): 4.1; 4.2; 3.4; 1.7; 1.4; 1.8.
- Other Treasury Revenue (Percent of GDP): 1.5; 1.0; 1.7; 0.7; 0.2; 0.3.
- Source of table: IMF Article IV Consultation Staff Report (Reform Scenario), June 2023.

### Overarching imperative
- Inaction and underinvestment will forego substantial revenues and prolong the crisis. Urgent national dialogue and decisive intervention are required to protect core revenue operations, retain critical staff, stabilize IT systems, and implement prioritized reforms.

---

### Determining current priorities — methodology
- Subjective methodology assessed each reform or revenue‑generating activity for:
  - (1) likely impact to revenue; and
  - (2) technical complexity.
- Activities classified into: Quick Wins; Core Initiatives; Other Priorities.
- Activities requiring immediate attention are designated by a .
- Annex I provides mission rationale for prioritization.

### Tax administration — current situation (key facts)
- Core revenue operations face high and immediate risk; basic functions such as tax registration, filing, and payment are barely ensured.
- Critical compliance operations (analytics, third-party data use, fraud prosecution, enforced collection) have largely ceased.
- Staffing shortages and exact staff figures:
  - Filled positions fell from around 50 percent in 2020 to around 40 percent currently.
  - Revenue Directorate: approved staffing 2032 and actual staffing 974.
  - VAT Directorate: approved staffing 331 and actual staffing 148.
  - MOF IT Center: Normal staffing 35, current staffing 19.
- Wage collapse and loss of purchasing power driving absenteeism; limited impact of bonus payments tied to 14-day presence.
- IT degradation and expired support agreements; no anti‑virus or proper firewall; backups exist but retrieval of all current tax data cannot be guaranteed.
- No IT staff for SIGTAS maintenance; repeated declaration deadline deferrals for PIT, CIT, VAT, and PAYE.
- Paper-based yearly PIT returns remain unprocessed; expansion of electronic filing not feasible in current conditions.
- External distortions: disparity between market and official exchange rates; high inflation undermines payment compliance and renders nominal thresholds meaningless.
- Joint strategic plan 2022 to 2026 exists but implementation suspended.

### Tax administration — reform and CD priorities (next 36 months) — Institutional arrangements
- Semi‑Autonomous Administration
  - Priority: Semi‑Autonomous Administration.
  - Type: Core Initiative.
  - Timing: As Circumstances Allow.
  - Objective: Establish a semi‑autonomous tax administration covering all taxes with business-like operations and flexibility to secure budget and resources.
- Integrated LTO Re‑Launch: Largest Cases Only
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.
- Reform Management Office
  - Type: Core Initiative.
  - Timing: As Circumstances Allow.
- Centralization of Back‑Office Functions
  - Type: Other Priority.
  - Timing: 12 – 18 Months.
- Integrated Compliance Departments
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.

### Tax administration — strategy and operations priorities
- Reform Strategy
  - Type: Core Initiative.
  - Timing: Next 6 – 18 Months.
- Compliance Strategy: Large Taxpayers
  - Type: Quick Win.
  - Timing: Next 6 Months.
- Compliance Strategy: Crisis Operations
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.
- Data Matching and Risk Analysis: Customs
  - Type: Quick Win.
  - Timing: Next 6 Months.
- Core Processing Backlog (PIT returns)
  - Type: Core Initiative.
  - Timing: Immediate for current year returns; remaining backlog as circumstances allow.

### Tax administration — human resources priorities
- Living Wage for Staff
  - Type: Core Initiative.
  - Timing: Next 6 Months.
- Offices and Equipment
  - Type: Core Initiative.
  - Timing: Next 6 Months.
- Data Analytics and Compliance Risk Analysis
  - Type: Quick Win.
  - Timing: Next 6 Months.
- Recruitment: Technical Specialists (Market Rates)
  - Type: Core Initiative.
  - Timing: Immediate.
- Training: Audit and Collection
  - Type: Core Initiative.
  - Timing: 6 – 24 Months.

### Tax administration — IT priorities
- Stabilization: IT Operations (Incl. SIGTAS Administration)
  - Type: Core Initiative.
  - Timing: Immediate.
  - Objective: Relocate back-office resources into an appropriate facility (or the cloud), retain existing technical staff, and recruit new staff to support SIGTAS operations.
- Electronic Filing (PIT)
  - Type: Core Initiative.
  - Timing: December 2024 (End of Tax Year).
- SIGTAS Replacement
  - Type: Other Priority.
  - Timing: As Circumstances Allow.
- AEOI Infrastructure
  - Type: Core Initiative.
  - Timing: 6 – 24 Months.
  - Note: Lebanon previously reported data to 67 tax administrations.

### Tax administration — recommendations (timing-based)
- Immediately:
  - Seek urgent intervention to ensure continuity of mission critical functions, emphasizing IT stabilization, a living wage for staff, and essential office improvements.
- Next 6 – 12 Months:
  - Integrate reform priorities into the joint strategic plan (2022 – 2026).
  - Identify a small team to receive CD support for data analytics, risk analysis, large taxpayer operations, and compliance strategy.
  - Produce and implement two compliance strategies (large taxpayers; all others).
  - Re‑launch an integrated LTO with criteria including only the very largest taxpayers.

### Semi‑autonomous tax administration — rationale and governance
- Finding: Tax administrations organized by type of tax are more costly, burdensome, and less effective.
- Recommendation: Merge the two directorates into a single semi‑autonomous tax administration.
- Governance implications include budget flexibility, HRM flexibility (including staff salaries), performance management, strategic planning, and operational autonomy.
- Implementation prerequisites: Build stakeholder consensus; specify degree of autonomy, legal powers of the head, governance framework, relationships with other agencies, information frameworks, accountability, and initial staffing.
- Box 1 — Features listed: establishment by separate legislation; general supervision of the Minister of Finance; funded by parliamentary appropriation; non‑political appointment with fixed term; ability to move funds between budget categories; authority over recruitment/promotions/compensation; responsibility for integrity, performance measures, training, strategic planning, reporting, and discipline; not subject to general civil service laws; subject to accountability/transparency regime; seek to expedite introduction.

---

### Customs administration — current situation (key facts)
- LCA on the brink of collapse due to national crisis and lack of decision making caused by complicated organizational structure and a “double‑headed” management arrangement.
- Operational constraints:
  - Customs personnel working reduced time: public administration workers required to work for 14 days a month, hindering 24‑hour presence at ports.
  - Limitations on vehicles and fuel; customs IT system requires investment and staff.
  - High vacancy rates: only 310 actual civil LCA staff compared to 680 authorized; Brigade has 1,670 actual staff out of an authorized 2,365.
  - LCA has not moved into reconstructed Port of Beirut offices because HCC has not allocated funding for office furniture.
  - Interim rent for the Customs IT Centre (CITC) is USD $340,000 per year.
  - Reconstructed customs building unutilized due to lack of some $30,000 to purchase furniture and set up networking.

### Customs administration — reform and CD priorities (next 36 months)
- Strategic orientation: Crisis management and better use of existing tools, notably ASYCUDA deployment and supporting organizational arrangements. Establishment of a risk management unit is key.
- Selected institutional priorities, type, and timing:
  - Customs Service Fee Review
    - Type: Core Initiative.
    - Timing: Immediate.
    - Issue: Fees limited to overtime based on declared value; most services free or undercosted. Review fees to align with WTO and WCO cost recovery and retain for reinvestment.
  - New Customs Law
    - Type: Core Initiative.
    - Timing: 12 – 24 Months.
  - New Organizational Design
    - Type: Other Priority.
    - Timing: As Circumstances Allow.
  - Reform Management Office
    - Type: Core Initiative.
    - Timing: 6 – 12 Months.
  - Post‑Clearance Audit (PCA) Unit
    - Type: Core Initiative.
    - Timing: 6 Months.
  - Risk Management (RM) Unit
    - Type: Core Initiative.
    - Timing: Immediate.
  - Transfer of ASYCUDA IT Management to Customs Director General
    - Type: Other Priority.
    - Timing: Immediate.

### Customs — IT selected priorities and timing
- Stabilization: IT Operations (IT Staff Training)
  - Type: Quick Win.
  - Timing: Immediate.
  - Issue: Only one officer can maintain ASYCUDA; server shortage; many officers lack PCs/tablets.
- ASYCUDA: Inspection Act Enforcement
  - Type: Core Initiative.
  - Timing: Next 6 Months.
- ASYCUDA: Airway Manifest Control Modules
  - Type: Other Priority.
  - Timing: Next 6 Months.
- ASYCUDA: Integrated E‑Tariff Implementation
  - Type: Core Initiative.
  - Timing: Next 6 – 12 Months.
- ASYCUDA: Valuation Control Modules
  - Type: Quick Win.
  - Timing: Next 4 – 6 Months (Maximum).

### Consolidated recommendations (timing-based) — customs highlights
- Immediately:
  - Seek urgent intervention to ensure continuity of mission critical functions, emphasizing IT stabilization.
  - Ensure a living wage for staff.
  - Request international support to review potential increase and use of customs service fees to support modernization.
- Next 6 – 12 Months:
  - Revise draft strategic plan into an actionable strategy.
  - Implement a risk management unit, framework, and procedures that mandate use of ASYCUDA’s “Inspection Act” form.
  - Implement ASYCUDA’s Valuation Control module with required international expertise.
- Next 6 – 12 Months (governance):
  - Transfer administration of ASYCUDA from the HCC to the DG Customs as a step toward restoring legislated mandates and single‑head executive authority.

### Higher Customs Council (HCC) — governance failures and examples of overreach
- Structural problem: Law requires consensus between DG Customs and HCC; HCC operates beyond its legal mandate and exerts operational control.
- Examples:
  - Administration of CITC and ASYCUDA World: HCC assumed responsibility for IT operations and denied auditors access to ASYCUDA data.
  - Management of Risk Selectivity Criteria: HCC directly manages selectivity criteria, contravening norms.
  - Conduct of Field Audits: HCC control department acts as internal audit then conducts on‑site field audits; recommended practice is to refer cases to investigations and PCA unit.

### Governance and immediate reform recommendation
- Finding: HCC creates many inefficiencies and dysfunctions; negative influence extends into border security.
- Urgent need: Create a single customs administration led by a single individual with full executive authority.
- Recommendation (Next 6 – 12 Months): Transfer administration of ASYCUDA from the HCC to the DG Customs.

---

### Capacity Development (CD) support — Tax Administration (2023 – 2026) — activity plan excerpt
- Immediate Needs
  - Stabilization: IT Operations — 2024 — Technical advice, as required.
- Quick Wins (selected)
  - Data Analytics and Compliance Risk Analysis — 2023 – 2024 — Analytics support with SIGTAS data.
  - Data Matching and Risk Analysis: Customs — 2024 — Analytics support with customs data.
  - Compliance Strategy: Large Taxpayers — 2024 — Collaborative development of strategy.
- Core Initiatives (selected)
  - Compliance Strategy: Crisis Operations — 2024.
  - Integrated LTO Re‑Launch: Largest Cases Only — 2024 – 2025.
  - Integrated Compliance Departments — 2024 – 2025.
  - Reform Strategy — 2024 – 2025 — TADAT assessment and strategy.
  - Training: Audit and Collection — 2024 – 2026.
  - Semi‑Autonomous Administration — 2024 – 2026.
  - Reform Management Office — 2025 – 2026.
- Other Priorities
  - SIGTAS Replacement — 2025 – 2026 — Strategy, procurement requirements.
- Immediate recommendation: Review and confirm support for the proposed CD activity plan for tax administration (Section V).

### Capacity Development (CD) support — Customs Administration (2023 – 2026) — activity plan excerpt
- Immediate Needs
  - Stabilization: IT Operations — 2023 – 2024 — ASYCUDA technology training.
- Quick Wins
  - * ASYCUDA: Valuation Control Modules — 2023 – 2024.
  - ASYCUDA: Manifest Control Modules — 2023 – 2024.
- Core Initiatives and Other Priorities
  - Risk Management Unit — 2024 – 2025.
  - ASYCUDA: Inspection Act Enforcement — 2024 – 2025.
  - New Customs Law — 2024 – 2025.
  - * Customs Service Fee Review — 2023 – 2024.
  - * Reform Strategy — 2023 – 2024.
  - * Post‑Clearance Audit Unit — 2025 – 2026.
- Immediate recommendation: Review the proposed CD activity plan for customs administration and provide a confirming letter by email.

### Rationale for prioritization (Annex I) — summary points
- Quick Wins (Tax): Data analytics and customs data matching are essential and urgent to identify unregistered traders and inform compliance strategies.
- Core Initiatives (Tax): IT stabilization (SIGTAS), semi‑autonomous administration, living wage for staff, integrated LTO and compliance departments, recruitment of technical specialists, and reform strategy are essential to restore revenue functionality.
- Quick Wins (Customs): IT stabilization and ASYCUDA Valuation Control Module are essential to prevent collapse of customs IT systems and improve import value controls.
- Core Initiatives (Customs): New customs law, PCA unit, recruitment of technical specialists, RM unit, living wage for staff, customs service fee review, reform management office, ASYCUDA airway manifest and e‑tariff implementations, and inspection act enforcement are core to restoring standards of service and revenue protection.
- Other Priorities: SIGTAS replacement and organizational redesign require funding and time but are important medium‑term goals.

### Status of prior recommendations — Tax Administration (Annex II) — selected statuses
- Focus revenue collection on less impacted sectors: In‑Progress.
- Launch new instalment scheme for VAT, PAYE, and other taxes: In‑Progress.
- Identify large debtors owing more than LBP 5 Billion: In‑Progress.
- Re‑launch the LTO under new eligibility criteria and merge VAT administration for large taxpayers into LTO: In‑Progress.
- Secure short‑term injection of emergency financing for ICT expert recruitment and system maintenance: Not Started.
- Establish Program Management Office (PMO): In‑Progress (Strategic Plan 2022–26 approved by Minister in 2022; PMO not yet actioned).
- Request IMF support for revenue modernization strategy: Complete (covered during current FAD mission).

### Status of prior recommendations — Customs Administration (Annex II) — selected statuses
- Restore essential infrastructure in port of Beirut: In‑Progress (building refurbished but staff has not moved in due to lack of funding for furniture and IT networking).
- Reinforce PCA programs for large and at‑risk traders: Not Started.
- Develop system of risk analysis for arriving cargo and container scanning selection: Not Started.
- Fully utilize ASYCUDA and add needed modules: Not Started.
- Develop and implement Authorized Economic Operator (AEO) Program: Not Started.
- Develop Single Window Program under Customs leadership: In‑Progress (started with Ministry of Health then suspended).
- Refocus mandate of HCC to delegate operational decision making to customs administration: Not Started.
- Develop automated valuation reference database: In‑Progress (needs ASYCUDA support).
- Introduce electronic (pre)-arrival declarations: Not Started.
- Introduce automated register of all goods off‑loaded to discharge manifests: In‑Progress for seaports; not airports and land borders.

---

*IMF Technical Assistance Report — Excerpts from 1lbnea2023003.*

### Preface ________________________________________________________________________ 5

### Preface

### Mission and Purpose
- An IMF Fiscal Affairs Department (FAD) mission visited Beirut during the period September 25 – October 6, 2023 to confirm reform and capacity development (CD) priorities for the next 36 months and to evaluate potential expansion of the CD project.
- Mission leader: Mr. Joshua Aslett (FAD).
- Mission team: Messrs. Robert Kokoli (FAD), John Middleton and Mohammed Al‑Said (both FAD external experts).
- Joined by: Mr. Frank Van Driessche (Long‑Term Tax Administration Advisor).
- Supported by: Mr. Rosen Bachvarov (METAC Regional Tax Administration Advisor), Mr. Andrew Allan (METAC Regional Customs Administration Advisor), and Ms. Rita Achkar (Local IMF Economist).
- High‑level meetings held with H.E. Saade Chami (Deputy Prime Minister); H.E. Youssef El Khalil (Minister of Finance); Mr. Georges Maarawi (Interim General Director, MOF); Mr. Louay Haijj Chehade (Director VAT and Revenue Directorates); Ms. Rima Makki (President of the Higher Customs Council); Mr. Raymond el Khoury (Acting Director General of Customs); other senior MOF, Customs, VAT and Revenue Directorate officials; and Ms. Lamia Moubayed Bissat (President, MOF’s Institute of Finance) and the IOF team.
- Report structure: Executive Summary; (I) Context for Reform; (II) Determining Current Priorities; (III) Tax Administration; (IV) Customs Administration; (V) Capacity Development Support.

### Key Observations on Capacity Needs and Risks
- Four years into the economic crisis, there is a real and immediate concern that operations in Lebanon’s tax and customs administrations could collapse.
- Staffing levels in the VAT Directorate, Revenue Directorate, and Lebanese Customs Administration (LCA) are dangerously low.
- IT is in a dire state:
  - One member of regular IT staff remains in the LCA; none remain in the tax directorates.
  - The MOF’s IT Center has lost nearly half of its staff.
  - Without qualified IT workers, loss of core IT systems or data is likely, risking halt of operations and further economic/fiscal damage.
- Working conditions: remaining public servants face high workloads and, particularly in tax administration, unsuitable, poorly maintained facilities.
- Organizational models and digital tools are antiquated; customs makes poor use of existing tools.

### Immediate Operational Priorities (as identified by the mission)
- Organize a project to protect continuity of critical functions, prioritizing:
  - Retaining existing experienced staff and recruiting a small number of key technical specialists at market salary rates (examples: IT staff, data analysts, risk analysts, large taxpayer specialists including auditors).
  - Acquiring essential resources for critical functions (e.g., key IT hardware and software).
  - Securing training for specialists from development partners if required.
- Stabilize IT operations in the VAT and Revenue Directorates (including administration of SIGTAS and MOF collection gateway dependencies).
- For LCA, seek external expert support to provide technological training specifically on ASYCUDA to Brigade staff assigned to IT duties.
- Deploy ASYCUDA modules (e.g., Valuation Control, Airway Manifest Control) and implement a centralized risk management group and procedures, including mandatory use of ASYCUDA’s “Inspection Act” form.
- Cease HCC overreach into operations; implement organizational model and governance concept of “one‑head, one‑body,” transferring administration of ASYCUDA from the HCC to the DG Customs as part of restoring legislated mandates.

### Strategic Options and Reform Mechanisms
- Prioritize tax and customs administration in the existing budget.
- Consider expediting introduction of a semi‑autonomous tax administration to provide increased flexibility to improve staff salaries.
- Review potential to increase and use customs service charges to support modernization (tax and customs), noting successful regional examples.

### Short‑term and Medium‑term CD Sequencing
- Immediate actions:
  - Urgent intervention to ensure continuity of mission critical functions (emphasizing IT stabilization), a living wage for staff, and essential office improvements.
  - Expedite introduction of a semi‑autonomous tax administration.
  - Review and confirm support for the proposed CD activity plan for tax administration (Section V) or provide input for adjustments.
- Next 6 – 12 months (Tax):
  - Integrate reform priorities into the joint strategic plan (2022 – 2026).
  - Identify a small team to receive CD support for data analytics, risk analysis, large taxpayer operations, and compliance strategy.
  - Produce and implement two compliance strategies: one for large taxpayers and one for all others.
  - Re‑launch an integrated Large Taxpayer Office (LTO) including only the very largest taxpayers.
- Next 6 – 12 months (Customs):
  - Revise the draft strategic plan from a “wish list” to a strategy accounting for priorities in Section IV.
  - Implement a risk management unit, framework, and procedures mandating use of ASYCUDA’s “Inspection Act” form.
  - Implement ASYCUDA’s Valuation Control module with international expertise.
  - Transfer ASYCUDA administration from the HCC to the DG Customs.

### Quantitative Snapshot of Revenue Collapse (Article IV Reform Scenario)
- Total Revenues (Percent of GDP): 2018 Act. 21.0; 2019 Act. 20.8; 2020 Act. 16.0; 2021 Est. 9.8; 2022 Est. 6.3; 2023 Proj. 8.6.
- Tax Revenue (Percent of GDP): 2018 Act. 15.4; 2019 Act. 15.6; 2020 Act. 10.9; 2021 Est. 7.3; 2022 Est. 4.7; 2023 Proj. 6.5.
  - Taxes on income and profits: 5.4; 6.8; 5.1; 2.8; 1.1; 1.2 (2018–2023).
  - Taxes on property: 1.4; 1.1; 1.5; 1.0; 0.6; 0.7.
  - Taxes on domestic goods and services: 5.4; 4.9; 2.5; 2.6; 2.4; 3.3.
    - VAT revenues: 4.6; 4.1; 1.9; 2.3; 2.1; 2.9.
  - Taxes on international trade: 2.4; 2.2; 1.3; 0.7; 0.6; 1.2.
  - Other taxes: 0.7; 0.7; 0.5; 0.3; 0.1; 0.1.
- Nontax Revenue (Percent of GDP): 4.1; 4.2; 3.4; 1.7; 1.4; 1.8.
- Other Treasury Revenue (Percent of GDP): 1.5; 1.0; 1.7; 0.7; 0.2; 0.3.
- Source of table: IMF Article IV Consultation Staff Report (Reform Scenario), June 2023.

### Overarching Imperative
- Inaction and underinvestment will forego substantial revenues and prolong the crisis. There is an urgent need for national dialogue and decisive intervention to protect core revenue operations, retain critical staff, stabilize IT systems, and implement prioritized reforms.

*IMF Technical Assistance Report*

### 5.          Within these circumstances, a unique window for international support exists, the value of

### 1lbnea2023003 - 5.          Within these circumstances, a unique window for international support exists, the value of

### Determining Current Priorities
- A subjective methodology was applied to identify and classify reform and CD priorities in Lebanon’s tax and customs administrations.
- Each reform or revenue-generating activity was assessed for:
  - (1) likely impact to revenue, positive or negative; and
  - (2) technical complexity.
- Activities were plotted and classified into three categories:
  - Quick Wins – Relatively easy initiatives helpful in building and maintaining momentum.
  - Core Initiatives – The primary initiatives that typically comprise the bulk of a reform program.
  - Other Priorities – Additional reform initiatives to be carefully analyzed before implementing.
- Note: Activities requiring immediate attention are designated by a .
- Annex I contains the mission’s rationale for prioritizing each activity; authorities are encouraged to follow up on any disagreements.

### Tax Administration — Current Situation
- Core revenue operations face high and immediate risk due to a detrimental decline in available resources; basic functions such as tax registration, filing, and payment are barely ensured.
- Critical compliance operations (analytics, third-party data use, fraud prosecution, enforced collection) have largely ceased.
- Staffing shortages:
  - Filled positions fell from around 50 percent in 2020 to around 40 percent currently.
  - Revenue Directorate: approved staffing 2032 and actual staffing 974.
  - VAT Directorate: approved staffing 331 and actual staffing 148.
  - MOF IT Center: Normal staffing 35, current staffing 19.
- Wage collapse and loss of purchasing power are driving pervasive absenteeism; bonus payments for a 14-day presence a month had limited impact.
- IT systems are degraded and obsolete:
  - Many essential IT support agreements and software licenses have expired (e.g., for database, infrastructure support).
  - No anti-virus software or a proper firewall.
  - Backups exist but retrieval of all current tax data cannot be guaranteed due to lack of effective testing environment and limited staff capacity.
  - Two further MOF IT specialists indicated intention to resign by the end of the current month (during the mission).
- There are no IT staff for maintenance of SIGTAS; regular failures have prompted repeated deadline deferrals for PIT, CIT, VAT, and PAYE declarations.
- Paper-based returns (e.g., yearly PIT returns) remain unprocessed; expansion of electronic filing is not feasible.
- Working conditions are extremely degraded: shortage of computing equipment (printers, ink, paper), unreliable electricity, and no expenditures for field work and audit.
- External distortions and systemic challenges:
  - Disparity between market exchange rate and predetermined “official” exchange rate causing collection problems and new fraud patterns.
  - High inflation undermines payment compliance and renders nominal thresholds (e.g., VAT registration threshold) meaningless.
  - Socioeconomic crisis has likely expanded tax evasion and informality; taxpayer behavior has substantially changed.
  - Outdated organizational model of tax administration impedes compliance improvement.
- Major reforms are effectively unimplementable until some return to normality; short-term actions should focus on urgent issues.
- A joint strategic plan 2022 to 2026 exists and has ministerial approval but implementation is suspended due to current circumstances.

### Tax Administration — Reform and CD Priorities (Next 36 Months) — Institutional Arrangements
- Antiquated Organizational Design
  - Priority: Semi-Autonomous Administration.
  - Type: Core Initiative.
  - Timing: As Circumstances Allow.
  - Objective: Establish a semi-autonomous tax administration covering all taxes with business-like operations and flexibility to secure budget and resources.
- Limited and Inefficient LTO Operations
  - Priority: Integrated LTO Re-Launch: Largest Cases Only.
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.
  - Note: LTO currently deals only with direct taxes; VAT is not included. Large taxpayer criteria eroded by inflation and time.
- Limited Capacity to Support Reforms
  - Priority: Reform Management Office.
  - Type: Core Initiative.
  - Timing: As Circumstances Allow.
  - Objective: Dedicated office to coordinate reform projects, planning, risk management, and benefits realization.
- Duplication of Functions
  - Priority: Centralization of Back-Office Functions.
  - Type: Other Priority.
  - Timing: 12 – 18 Months.
  - Objective: Centralized functions for improved effectiveness and specialization.
- Limited and Inefficient Compliance Operations
  - Priority: Integrated Compliance Departments.
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.
  - Objective: Integrate compliance operations across Revenue and VAT Directorates to focus on compliance strategies.

### Tax Administration — Reform and CD Priorities — Strategy and Operations
- Integrated Strategy Exists (2022 – 2026)
  - Priority: Reform Strategy.
  - Type: Core Initiative.
  - Timing: Next 6 – 18 Months.
  - Objective: Enhance current strategy to reflect identified priorities including semi-autonomous administration concepts.
- Inefficient Large Taxpayer Compliance Management
  - Priority: Compliance Strategy: Large Taxpayers.
  - Type: Quick Win.
  - Timing: Next 6 Months.
  - Objective: Adopt an integrated compliance strategy based on research and risk analysis to prevent tax leakage.
- Ad-Hoc Crisis Response to Compliance
  - Priority: Compliance Strategy: Crisis Operations.
  - Type: Core Initiative.
  - Timing: 6 – 12 Months.
  - Objective: Implement a compliance strategy explicitly for the crisis, focusing limited resources on vital non-compliance areas capable of generating revenue.
- Limited use of Customs Data
  - Priority: Data Matching and Risk Analysis: Customs.
  - Type: Quick Win.
  - Timing: Next 6 Months.
  - Objective: Establish regular two-way exchange of import/export data to facilitate risk assessment and prevent evasion (supply of LCA data believed to have stopped since 2021).
- No Electronic Filing for PIT Returns
  - Priority: Core Processing Backlog.
  - Type: Core Initiative.
  - Timing: Immediate for Current Year Returns; Remaining Backlog as Circumstances Allow.
  - Objective: Promptly process current returns and prioritize most current years.

### Tax Administration — Reform and CD Priorities — Human Resources
- Sustained Loss of Staff
  - Priority: Living Wage for Staff.
  - Type: Core Initiative.
  - Timing: Next 6 Months.
  - Objective: Pay salaries at the level of a basic living wage to stem staff drain and enable recruitment.
- Poor Working Conditions
  - Priority: Offices and Equipment.
  - Type: Core Initiative.
  - Timing: Next 6 Months.
  - Objective: Provide properly equipped and serviced office accommodation to modern standards.
- Difficulty Producing Statistics
  - Priority: Data Analytics and Compliance Risk Analysis.
  - Type: Quick Win.
  - Timing: Next 6 Months.
  - Objective: Use internal and external data with analyst input to support revenue collection and administrative efficiency.
- Absence of Adequate IT Staff
  - Priority: Recruitment: Technical Specialists (Market Rates).
  - Type: Core Initiative.
  - Timing: Immediate.
  - Objective: Recruit technical specialists from the private sector at market rates to support emergency IT operations.
- Loss of Audit and Collection Staff
  - Priority: Training: Audit and Collection.
  - Type: Core Initiative.
  - Timing: 6 – 24 Months.
  - Objective: Train a small number of audit and collection officers via international CD to implement key compliance strategies.

### Tax Administration — Reform and CD Priorities — Information Technology (IT)
- IT Systems and Key Services are Failing
  - Priority: Stabilization: IT Operations (Incl. SIGTAS Administration).
  - Type: Core Initiative.
  - Timing: Immediate.
  - Objective: Relocate back-office resources into an appropriate facility (or the cloud), retain and protect existing technical staff, and recruit new staff to support SIGTAS operations.
- Electronic Filing for PIT is Not Available
  - Priority: Electronic Filing (PIT).
  - Type: Core Initiative.
  - Timing: December 2024 (End of Tax Year).
  - Objective: Enable taxpayers to file all tax returns electronically, including PIT.
- Antiquated Digital Tools (SIGTAS-based systems)
  - Priority: SIGTAS Replacement.
  - Type: Other Priority.
  - Timing: As Circumstances Allow.
  - Objective: Introduce a new integrated IT system covering all direct and indirect taxes with native integration for case and risk management and performance reporting.
- International Exchange of Information Has Ceased
  - Priority: AEOI Infrastructure.
  - Type: Core Initiative.
  - Timing: 6 – 24 Months.
  - Objective: Implement IT infrastructure and procedures to pass a Global Forum peer review and begin receiving data for compliance work (Lebanon previously reported data to 67 tax administrations).

### Recommendations
- Immediately:
  - Seek urgent intervention to ensure continuity of mission critical functions, emphasizing stabilization of IT operations, a living wage for staff, and essential office improvements.
- Next 6 – 12 Months:
  - Integrate the reform priorities identified in this report (Section III) into the existing joint strategic plan (2022 – 2026).
  - Identify a small team to receive CD support for data analytics, risk analysis, large taxpayer operations, and compliance strategy.
  - Produce and implement two compliance strategies that account for unique aspects of the crisis — one for large taxpayers and one for all others.
  - As a step towards full integration of tax directorates, re-launch an integrated Large Taxpayer Office (LTO) with criteria that includes only the very largest taxpayers.

*IMF Technical Assistance Report — Excerpt from sections II and III (Tax Administration) and Recommendations.*

### 18.        In Lebanon, the creation of a semi-autonomous tax administration covering all taxes could

### 1lbnea2023003 - 18.        In Lebanon, the creation of a semi-autonomous tax administration covering all taxes could

### Semi-autonomous tax administration: rationale and governance
- Finding: Tax administrations organized by type of tax (e.g., VAT, direct taxes) rather than by type of work are more costly for government, more burdensome for taxpayers, and less effective for managing and administering the broader tax system.
- Recommendation: Merge the two directorates in Lebanon into a single semi-autonomous tax administration to increase efficiency and promote more rapid implementation of major reforms.
- Governance implications:
  - Merger would require a new governance model and administrative autonomies to enable modernization and capacity building.
  - Administrative autonomies could include: budget flexibility; organizational flexibility; flexibility for human resources management (HRM) including staff salaries; performance management; strategic planning; and autonomy for operational decisions to administer tax law.
- Implementation prerequisites:
  - Build consensus among main political stakeholders on degree and model of autonomy.
  - Policy decisions must specify: degree of autonomy, legal powers of the head of the tax administration, governance framework, relationship with other agencies, framework for receipt and use of information, accountability, and initial staffing.

### Box 1 — Features of Semi-Autonomous Tax Administration (as provided)
- Definition:
  - A separate and dedicated body with responsibility for all tax administration functions.
- Key features:
  - Establishment by separate legislation.
  - Organized under the general supervision of the Minister of Finance.
  - Funded by payment from a parliamentary appropriation authorized for the Minister of Finance.
  - Non-political appointment of the head of the administration, with a fixed term of office and legally empowered to administer and enforce revenue laws.
  - Ability to move funds between different budget categories, within defined limits, to provide operational flexibility.
  - Authority to design and change organizational structure, make the majority of its recruitment, promotions and appointments, and determine grading structure and compensation level.
  - Responsibility for integrity, performance measures, training, strategic planning, reporting, and discipline including dismissal.
  - Not subject to general civil service laws and regulations with respect to employment.
  - Subject to a suitable regime for accountability and transparency (including public reporting requirements, and possibly a management board including private sector representatives).
- Immediate tax administration action:
  - Seek to expedite the introduction of a semi-autonomous tax administration.

### Customs Administration — current situation
- Overall assessment:
  - The LCA is on the brink of collapse due to the national crisis and lack of decision making caused by a complicated organizational structure and a “double-headed” customs management arrangement.
- Operational constraints and resourcing:
  - Customs personnel are working reduced time: public administration workers are only required to work for 14 days a month, hindering 24-hour presence at ports and normal clearance services.
  - Limitations on vehicles and fuel; customs IT system requires considerable investments in infrastructure and professional staff.
  - High vacancy rates: only 310 actual civil LCA staff compared to 680 authorized; the Brigade has 1,670 actual staff out of an authorized 2,365.
  - The LCA has not moved into newly reconstructed offices in the Port of Beirut because the HCC has not allocated funding for office furniture. Interim rent for the Customs IT Centre (CITC) is USD $340,000 per year.
  - The reconstructed customs building remains unutilized because of lack of some $30,000 to purchase office furniture and set up the office networking.

### Customs Administration — reform and capacity development (next 36 months)
- Strategic orientation:
  - Priorities largely entail crisis management and better use of existing tools, notably ASYCUDA deployment and supporting organizational arrangements.
  - Establishment of a risk management unit is key institutional support.
- Institutional arrangements — selected priorities, types, and timing:
  - Customs Service Fee Review
    - Issue: Fees currently limited to overtime based on declared value; most services free or undercosted.
    - Priority: Review fees, charge based on cost recovery in line with WTO and WCO, with retention for reinvestment in modernization.
    - Type: Core Initiative
    - Timing: Immediate
  - New Customs Law
    - Issue: Existing legal framework (Customs Law 1984, amended 2001) not implemented; modern features provided but not applied.
    - Priority: Draft a short consolidated modern customs law with implementing regulations.
    - Type: Core Initiative
    - Timing: 12 – 24 Months
  - New Organizational Design
    - Issue: Governance deeply problematic; four DGs effectively in place, HCC exceeding legal mandate.
    - Priority: Modern organizational structure covering PCA, RM, intelligence, Single Window, compliance.
    - Type: Other Priority
    - Timing: As Circumstances Allow
  - Reform Management Office
    - Issue: No single unit for coordination, monitoring, and implementation of strategic interventions and donor programs.
    - Priority: Establish a Reform Management Office reporting to DG Customs.
    - Type: Core Initiative
    - Timing: 6 – 12 Months
  - Post-Clearance Audit (PCA) Unit
    - Issue: PCA weak, audits ad-hoc, duplicated by HCC and customs, results not integrated with RM or ASYCUDA.
    - Priority: Establish PCA function in accordance with WCO recommendations and consolidate audit activities.
    - Type: Core Initiative
    - Timing: 6 Months
  - Risk Management (RM) Unit
    - Issue: No dedicated RM function or governance arrangements.
    - Priority: Establish RM unit and document RM framework and procedures; maintain selectivity in ASYCUDA using a structured process.
    - Type: Core Initiative
    - Timing: Immediate
  - Transfer of ASYCUDA IT Management to Customs Director General
    - Issue: ASYCUDA managed under HCC (a policy body) causing operational delays.
    - Priority: Transfer IT management to DG Customs so system updates and daily IT issues are resolved promptly.
    - Type: Other Priority
    - Timing: Immediate

- Strategy and operations:
  - Reform Strategy
    - Issue: Draft strategic plan is a “wish list” and needs revision.
    - Priority: Develop a well-structured medium-term strategic plan to stabilize service and guide donor input.
    - Type: Core Initiative
    - Timing: Next 12 Months

- Human resources — selected priorities:
  - HR policy and alignment
    - Issue: Two types of officers (civil customs under civil service law and paramilitary Brigade under Customs Brigade Law) limit flexibility.
    - Priority: Reform HRM policy and align status of Brigade with civil customs, ideally based on EU customs competency framework.
    - Type: Other Priority
    - Timing: Next 12 Months
  - Living wage for staff
    - Issue: Inflation reduced real wages; staff, especially IT experts, are leaving. HCC could use fees to compensate but has not activated this.
    - Priority: Review fees for service mechanism to assess potential for staff remuneration adjustments; IMF can support review if political will exists and funds are transparently retained for revenue administration.
    - Type: Core Initiative
    - Timing: Next 6 Months
  - Recruitment of technical specialists
    - Issue: Near absence of IT experts; CITC has only one old server and no qualified staff for ASYCUDA.
    - Priority: Allocate service fee funding to pay market rate salaries to IT experts; IMF support for training permanent CITC staff.
    - Type: Core Initiative
    - Timing: Next 6 Months

- Information Technology — selected priorities and timing:
  - Stabilization: IT Operations (IT Staff Training)
    - Issue: Critical lack of staff and equipment; only one officer with capacity to maintain ASYCUDA; server shortage; many officers lack PCs or tablets.
    - Priority: Perform basic IT administration tasks; move CITC to new customs building to release rent funds for hiring, stabilization, and equipment.
    - Type: Quick Win
    - Timing: Immediate
  - ASYCUDA: Inspection Act Enforcement
    - Issue: Examination results captured on paper rather than ASYCUDA “Inspection Act” form, limiting monitoring and intelligence.
    - Priority: Activate and mandate ASYCUDA Inspection Act form; equip staff with PCs/tablets.
    - Type: Core Initiative
    - Timing: Next 6 Months
  - ASYCUDA: Airway Manifest Control Modules
    - Issue: Manifest module implemented for seaports only; airports and land borders lack functionality.
    - Priority: Develop and deploy aircraft Manifest Control Modules to enable monitoring of arriving shipments against declared shipments.
    - Type: Other Priority
    - Timing: Next 6 Months
  - ASYCUDA: Integrated E-Tariff Implementation
    - Issue: Tariff reference tables in ASYCUDA are dated (HS 2017 edition at 8-digit classification). HCC completed conversion to WCO 2022 HS in MS Excel but needs support to upload to ASYCUDA.
    - Priority: Upload and activate WCO HS 2022 tariff schedule in ASYCUDA to meet WCO HS convention obligations.
    - Type: Core Initiative
    - Timing: Next 6 – 12 Months
  - ASYCUDA: Valuation Control Modules
    - Issue: Only basic value limits used for selectivity; HCC uses an automated simple average of declared value that is easily manipulated.
    - Priority: Customize ASYCUDA valuation module to implement risk-based selection for valuation verification based on multiple parameters (not replacing need for full PCA and RM programs).
    - Type: Quick Win
    - Timing: Next 4 – 6 Months (Maximum)

### Consolidated recommendations (timing-based)
- Immediately:
  - Seek urgent intervention to ensure continuity of mission critical functions, emphasizing stabilization of IT operations.
  - Ensure a living wage for staff.
  - Request international support to review potential increase and use of customs service fees to support modernization (tax and customs).
- Next 6 – 12 Months:
  - Revise draft strategic plan into an actionable strategy reflecting reform priorities in Section IV.
  - Implement a risk management unit, framework, and procedures that mandate use of ASYCUDA’s “Inspection Act” form.
  - Implement ASYCUDA’s Valuation Control module with required international expertise.

### Higher Customs Council (HCC) — governance failures and examples of overreach
- Structural problem:
  - Reforms persistently stalled because the law requires consensus between DG Customs and HCC; HCC operates beyond its legal mandate. All three HCC members plus the Customs DG must agree for decisions.
  - According to law, HCC is to act as an administrative policy and strategy body; current practice shows clear overreach contravening international good practice.
- Examples of HCC overreach:
  - Administration of CITC and ASYCUDA World:
    - HCC has assumed responsibility for IT operations; auditors historically refused access to ASYCUDA and its data, preventing audits of the system.
  - Management of Risk Selectivity Criteria:
    - HCC directly manages selectivity criteria, contravening norms where a risk management committee and operational unit should perform this function.
  - Conduct of Field Audits:
    - HCC control department acts as internal audit and then conducts on-site field audits; recommended practice is to refer cases to investigations and the PCA unit instead.

*Source: 1lbnea2023003 - 18.*

### 27.        Many inefficiencies and dysfunctions in the LCA are created by existence of the HCC and

### 1lbnea2023003 - 27.        Many inefficiencies and dysfunctions in the LCA are created by existence of the HCC and

### Governance and Immediate Reform Recommendation
- Finding: Many inefficiencies and dysfunctions in the LCA are created by existence of the HCC and are widely acknowledged, including by the council itself.
- Ramification: Negative influence on reforms extends beyond revenue and into serious matters of border security.
- Urgent need: Create a single customs administration (“single body”) led by a single individual with full executive authority (“single head”).
- Recommendation (Next 6 – 12 Months):
  - Transfer administration of ASYCUDA from the HCC to the DG Customs as a step towards returning to the HCC’s legislated mandate and authority.

### Capacity Development (CD) Support — Tax Administration (Section V; Table 2)
- Overall: Full launch of dedicated IMF CD project for tax administration; intensive program of support with a long-term resident advisor and specialized expertise; flexibility to pivot from immediate quick wins to substantial reforms.
- Proposed CD Activity Plan (2023 – 2026) — Immediate Needs, Quick Wins, Core Initiatives, Other Priorities:
  - Immediate Needs
    - Stabilization: IT Operations — 2024 — Technical advice, as required
  - Quick Wins
    - Data Analytics and Compliance Risk Analysis — 2023 – 2024 — Analytics support with SIGTAS data
    - Data Matching and Risk Analysis: Customs — 2024 — Analytics support with customs data
    - Compliance Strategy: Large Taxpayers — 2024 — Collaborative development of strategy
  - Core Initiatives
    - Compliance Strategy: Crisis Operations — 2024 — Collaborative development of strategy
    - Integrated LTO Re-Launch: Largest Cases Only — 2024 – 2025 — Within existing structures, if required
    - Integrated Compliance Departments — 2024 – 2025 — Within existing structures, if required
    - Reform Strategy — 2024 – 2025 — TADAT assessment and strategy
    - Training: Audit and Collection — 2024 – 2026 — In support of compliance strategies
    - Semi-Autonomous Administration — 2024 – 2026 — Technical advice, as required
    - Reform Management Office — 2025 – 2026 — Support to establish reform office
  - Other Priorities
    - SIGTAS Replacement — 2025 – 2026 — Strategy, procurement requirements
- Immediate recommendations:
  - Review and confirm support for the proposed CD activity plan for tax administration (Section V) or provide input for any desired adjustments.

### Capacity Development (CD) Support — Customs Administration (Table 3)
- Expansion: Possibility to expand customs administration CD support; authorities encouraged to explore proposed activities; METAC-committed activities marked with an asterisk (‘*’).
- Proposed CD Activity Plan (2023 – 2026) — Immediate Needs, Quick Wins, Core Initiatives and Other Priorities:
  - Immediate Needs
    - Stabilization: IT Operations — 2023 – 2024 — ASYCUDA technology training
  - Quick Wins
    - * ASYCUDA: Valuation Control Modules — 2023 – 2024 — Implementation of the module
    - ASYCUDA: Manifest Control Modules — 2023 – 2024 — Implementation of airway manifests
  - Core Initiatives and Other Priorities
    - Risk Management Unit — 2024 – 2025 — Implementation of risk management unit
    - ASYCUDA: Inspection Act Enforcement — 2024 –2025 — Support for implementation
    - New Customs Law — 2024 – 2025 — Implementation of new customs law
    - * Customs Service Fee Review — 2023 – 2024 — Review and advice on current fees
    - * Reform Strategy — 2023 – 2024 — Support to finalize current strategy
    - * Post-Clearance Audit Unit — 2025 – 2026 — Support to improve capabilities
    - SIGTAS Replacement (listed under tax but noted as other priority)
- Immediate recommendations:
  - Review the proposed CD activity plan for customs administration (Section V) and provide over email a letter confirming agreement to the support.

### Rationale for Prioritizing Tax Administration Activities (Annex I)
- Quick Wins
  - Data Analytics and Compliance Risk Analysis: Essential and urgent to extract vital performance and risk data and inform compliance improvement strategies and action plans.
  - Data Matching and Risk Analysis: Customs: A source of data that has remained untapped for several years; offers significant potential to uncover unregistered traders and other businesses that are under-declaring income tax and VAT liabilities.
  - Compliance Strategy: Large Taxpayers: Provides a multi-faceted and targeted response to the risks to revenue collection posed by the businesses contributing most to the national budget.
- Core Initiatives
  - Stabilization: IT Operations (Incl. SIGTAS Administration): Essential and urgent to avoid an almost inevitable collapse of obsolete IT systems, and related loss of data and impairment of revenue collection.
  - Semi-Autonomous Administration: Current inefficient organization structure impedes effective compliance risk management and imposes burdens on business through duplication of tax interactions; proposed structure operates in a business-like manner free from political influence and has budget flexibility, but requires input from multiple stakeholders.
  - Living Wage for Staff: Essential and urgent to stem the constant stream of staff departures, restore resource deployment levels and enhance revenue mobilization.
  - Integrated LTO Re-Launch: Largest Cases Only: Integrating oversight of all taxes due from large businesses enhances compliance risk management, supports stronger revenue collections, and reduces burdens on large taxpayers.
  - Integrated Compliance Departments: Will greatly improve effectiveness of compliance strategies, reduce duplication of work, and reduce burdens on taxpayers.
  - Recruitment: Technical Specialists (Market Rates): Needed to fill gaps in critical business areas caused by loss of key specialist staff to better-paid private sector jobs or by emigration.
  - Offices and Equipment: Basic serviced accommodation and equipment facilitate better taxpayer services and compliance risk management.
  - Reform Strategy: Aligns individual projects to overall strategic plan; ensures prioritization, sequencing, timelines, and delivery budgets.
  - Reform Management Office: Critical for coordination and delivery of multiple related reform projects on time, within budget, and of acceptable quality.
  - Audit and Collection Training: Industry expertise (e.g., telecommunications) may be required; benefits from training and international experts.
  - Compliance Strategy: Crisis Operations: Focuses limited resource capacity on the most intense risks to collections where early action can generate additional revenue.
  - Electronic Filing (PIT): Improves operational efficiency and compliance management and reduces burdens on taxpayers.
  - Core Processing Backlog: Resource-intensive with uncertain direct return, but important to reinforce structural stability of the PIT system.
  - AEOI Infrastructure: Ability to receive data on taxpayer accounts held abroad could have substantial revenue impact in Lebanon’s specific circumstances.
- Other Priorities
  - SIGTAS Replacement: Deployment of a new Commercial Off the Shelf IT system for integrated administration of VAT and income taxes is essential; challenges include budget funding and acquisition time.
  - Centralization of Back-Office Functions: Centralizing enterprise-wide functions (IT, analytics, tax debt management, risk assessment) offers enhanced flexibility and operational efficiencies.

### Rationale for Prioritizing Customs Administration Activities (Annex I)
- Quick Wins
  - Stabilization: IT Operations (IT Staff Training): Essential and urgent to avoid an almost inevitable collapse of Customs IT systems, and related loss of data and impairment of revenue collection.
  - ASYCUDA: Valuation Control Module: Essential for better control of value of imported goods based on risk-based automated selectivity.
- Core Initiatives
  - New Customs Law: Enables LCA to implement recognized international standards in customs and trade (Safe framework, Authorized Economic Operations, etc.), improving integration in the global supply chain.
  - Post Clearance Audit Unit: Acts as trade performance review and improved compliance mechanism, extends controls beyond clearance, streamlines controls and clearance times, speeds up trade while providing protection and recovery of lost revenues.
  - Recruitment: Technical Specialists (Market Rates): Essential for stabilization, maintenance, and development of customs IT systems.
  - Risk Management Unit: Core customs function enabling concentration of efforts to mitigate risks to revenue, improve security and social protections.
  - Living Wage for Staff: Essential and urgent to stem staff departures and enhance revenue mobilization.
  - Customs Service Fee Review: Revisions may raise funding required for modernization (particularly IT) and provide a living wage through performance-based allocations.
  - Reform Management Office: Essential for project management, reporting, monitoring of implementation, and coordination of foreign donor input.
  - ASYCUDA: Airway Manifest Control Modules: Essential for automated cargo management to ensure unloaded goods are cleared through declaration processing.
  - ASYCUDA: Integrated E-Tariff Implementation: Essential to ensure tariff and non-tariff measures are properly implemented during clearance.
  - ASYCUDA: Inspection Act Enforcement: Essential for capturing feedback from customs controls; necessary for risk profiling and selectivity; provides critical information to understand and mitigate border and national security threats.
  - Reform Strategy: Enables LCA to focus scarce resources to recover standards of service being provided before the blast.
- Other Priorities
  - New Organizational Design: Essential to align organization to implement a modernized customs law and modern customs techniques.
  - HR Reform: Policy, Alignment of Civil Officers and Brigade: Essential to align status of all customs personnel for flexible allocation and specialization.
  - Transfer of ASYCUDA IT Management to Customs Director General: ASYCUDA must be administered at the operational level (not via the HCC); operational staff, risk management, investigation, intelligence and PCA need controlled access to system and underlying database(s); HCC should have access to standard pre-packaged and tailored reports to track overall customs performance and inform policy and strategic decisions.

### Status of Prior Recommendations — Tax Administration (Annex II)
- Short-Term Activities (Status and Remarks):
  - Focus revenue collection on sectors less impacted by crisis and new businesses: In-Progress — Initial focus on healthcare, subsidized sectors (fuel, food), and tourism.
  - Launch new instalment scheme for VAT, PAYE, and other taxes: In-Progress — Articles prepared for all types of taxes; articles not approved by parliament due in part to currency devaluation.
  - Identify large debtors owing more than LBP 5 Billion and manage under a dedicated team: In-Progress — Cases identified; approximately 40% of large debts were settled after calls.
  - Re-launch the LTO under new eligibility criteria and merge VAT administration for large taxpayers into LTO: In-Progress — Plan prepared but not implemented due to lack of up-to-date turnover data.
  - Secure additional VPN access points for remote work: Not started — Not considered necessary as staff attend office more regularly.
  - Secure short-term injection of emergency financing for ICT expert recruitment and system maintenance: Not Started — Budget funds not available.
  - Finalize revenue-critical positions and workforce plan; transfer staff as temporary transfers/secondments: In-Progress — Positions identified; regional offices not yet started due to staff shortages.
  - Establish a Program Management Office (PMO): In-Progress — Strategic Plan 2022–26 approved by Minister in 2022; PMO not yet actioned.
  - Introduce reforms for taxation of digital goods and services: In-Progress — VAT ‘place of supply’ rules included in draft Budget Law; article to tax income generated in Lebanon by foreign platforms included.
  - Establish cross-agency Shadow Economy Standing Taskforce: In-Progress — UNDP-funded street searches identified unregistered tourism and hospitality businesses; ~80 businesses reviewed; 35 percent not registered for Income tax and 65 percent not registered for VAT; unregistered businesses are in process of being registered.
  - Request IMF support for revenue modernization strategy: Complete — Covered during current FAD mission.
- Medium-Term Activities:
  - Implement multi-tax COTS system: In-Progress — Included in Strategic Plan 2022-26; no further progress.
  - Develop road map for integrated tax administration commencing with HQ and LTO: In-Progress — Included in Strategic Plan 2022-26; awaiting Cabinet decision; planning for operational integration starting January 2024.
  - Consider semi-autonomous tax agency: In-Progress — Included in Strategic Plan 2022-26; awaiting Cabinet decision.
  - Ensure tax administration operational autonomy and freedom from political interference: In-Progress — Included in Strategic Plan 2022-26; awaiting Cabinet decision.
  - Conduct pilot industry compliance strategy targeting highest risk industry: In-Progress — Commenced (tourism/hospitality); yet to be extended.
  - Launch whole-of-government shadow economy initiative: In-Progress — Early stages; exploratory meetings held.

### Status of Prior Recommendations — Customs Administration (Annex II)
- Short-Term Activities (Status and Remarks):
  - Restore essential infrastructure in port of Beirut: In-Progress — Building refurbished but staff has not moved in due to lack of funding for furniture and IT networking.
  - Reinforce post-clearance audit (PCA) programs for large and at-risk traders: Not Started — PCA lacks staff and understanding of the role.
  - Develop a system of risk analysis for arriving cargo and container scanning selection: Not Started — RM framework developed by development partners but not yet approved by HCC; no staff assigned.
  - Fully utilize ASYCUDA and add needed extra modules to make it a real import system: Not Started — Lack of staff, capacity and funding.
- Medium-Term Activities (Status and Remarks):
  - Develop and implement Authorized Economic Operator (AEO) Program: Not Started — Cannot start as risk management and PCA functions are not in place.
  - Develop and implement Single Window Program under Customs leadership: In-Progress — Started with Ministry of Health and subsequently suspended; political will and IT stabilization needed.
  - Refocus mandate of the High Customs Council to ensure higher-level policy role and delegate operational decision making to customs administration: Not Started — HCC has exceeded their legal mandate.
  - Develop automated valuation reference database: In-Progress — Needs support with ASYCUDA.
  - Develop risk management and compliance management strategies: Not Started.
  - Introduce electronic (pre)-arrival declarations via summary declaration: Not Started.
  - Introduce automated register of all goods off-loaded to discharge manifests: In-Progress — Completed for seaports, not airports and land borders.

*Source: IMF Technical Assistance Report (excerpts provided).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1lbnea2023003.pdf_