Lebanon: Technical Assistance Report on Putting Tax Policy Back on Track

IMF Staff Country Reports, January 13, 2023

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This Technical Assistance report identifies tax policy reform options to stop the drain on Lebanon’s tax revenue in the immediate and near terms and to move toward a more efficient, effective, and inclusive tax system in the medium term.
Lebanon entered the economic crisis already with one of the world’s most skewed income and wealth distributions toward the affluent.
The analysis emphasizes the need for a holistic view of the tax system to guide reforms and balance the trade-offs, rather than a piecemeal approach with ad hoc uncoordinated measures.
The report calls for a strategic, sequenced approach to developing a rapid and powerful emergence from current difficulties.

Reversing the downward trend in tax revenue and improving the entire tax policy design are critical elements of the overall needed reforms for Lebanon to steer its way out of the crisis and modernize its economy.
Excises are an efficient way to reduce pollution, generating marked environmental benefits and significant revenue, with a modest impact on prices.
In line with international best practices, professionals should be taxed in the real profits’ regime and with the use of withholding taxes on payments to professionals for services.

Adopt a holistic, system-wide approach to tax policy reform to balance trade-offs and avoid ad hoc, uncoordinated measures.
Sequence reforms strategically to achieve rapid and sustainable improvements in revenue and equity.
Expand the use of excise taxes as a tool that simultaneously generates revenue and reduces pollution, with modest price impact.
Tax professionals under the real profits’ regime and employ withholding taxes on payments to professionals for services, consistent with international best practices.

Subjects: Corporate income tax, Excises, Income and capital gains taxes, Income tax systems, International organization, Monetary policy, Taxes, Value-added tax
Keywords: authorities of Lebanon, climate commitment, Corporate income tax, excise revenue, Excises, Global, Income and capital gains taxes, Income tax systems, market rate, Tax Reform Crisis and Taxation VAT Efficiency Inequality, Value-added tax, VAT revenue, VAT threshold