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IMF Country Report No. 23/8
LEBANON
TECHNICAL ASSISTANCE REPORT ON PUTTING TAX POLICY BACK ON TRACK
January 2023
This technical assistance report on Lebanon was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in November 2022.
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Title page
FISCAL AFFAIRS DEPARTMENT
Lebanon
Putting Tax Policy Back on Track
Shafik Hebous, Svetlana Cerovic, Michael Keen, Lydia Sofrona, Nate Vernon, and Christophe Waerzeggers
Technical Report
November 2022
The contents of this report constitute technical advice provided by the staff of the International Monetary Fund (IMF) to the authorities of Lebanon (the “TA recipient”) in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Technical Assistance Information— http://www.imf.org/external/np/pp/eng/2013/061013.pdf). Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest shall require the explicit consent of the TA recipient and the IMF’s Fiscal Affairs Department.
Contents
GLOSSARY
PREFACE
EXECUTIVE SUMMARY
I. INTRODUCTION
II. LEBANON’S CRISIS AND TAXATION
A. Framing the Problem of Mis-Valuation at the Border
B. Framing the Problem of High Inflation
C. Correction of Mis-Valuation and for High Inflation
III. VAT
A. Current Situation
B. Improving the VAT
C. The VAT Threshold and Inflation
IV. EXCISES
A Current Situation
B. Dealing with Inflation
C. Petroleum Products
D. Tobacco products
V. INCOME TAXES
A Key features of the Income Tax System
B. A New Better Income Tax Law is Needed
C. Improving Employment Income Taxation
D. Improving Capital Income Taxation at the Individual Level
E. Taxation of Business Income (other than under the CIT)
F. Corporate Income Taxation
G. Protecting against Erosion of the Income Tax Base
H. The Global Minimum Tax
VI. PROPERTY TAXES
REFERENCES
BOXES
1. Lebanon’s Climate Commitments and Policies
2. Distortions and Inequities under the Lump Sum Regime
3. Improving Tax Transparency of Incentives
FIGURES
1. Tax Revenue and Structure in Lebanon
2. Revenue Impact of Mis-Valuation
3. VAT Revenue
4. VAT Standard Rates and C-Efficiency
5. Import and Total VAT, 2013–2021
6. VAT Registration Threshold
7. Excise Revenue (% of GDP)
8. Fuel Imports and Prices
9. Revenue Raised by, and Impact on Prices of, a Diesel Excise
10. Revenue from Employment Income
11. CIT Rate and Revenue to GDP, Selected Countries
12. Revenues from Telecom Surpluses
TABLES
1. Revenue Foregone Due to Mis-Valuation of the Tax Base of Imports (% of GDP)
2. VAT by Range of Turnover, 2020/21
3. The Erosion of the Excises
4. Lump-sum Regime – Net Profit Determination Rates for Select Sectors
5. Selected International Presumptive Tax Rates
6. Entities in Lebanon In-Scope of Pillar 2—An Overview
APPENDICES
1. Calculation of the Revenue Impact from Mis
2. Telecommunications Sector
3. Excise Rates by Product
4. Tax Rates on Employment and Business
5. Key Features of the Income Tax
6. Main Tax Incentives Regimes
Glossary
| AEOI | Automatic Exchange of Information |
| BDL | Banque du Liban |
| CIT | Corporate Income Tax |
| CoCG | Code of Conduct Group |
| CoM | Council of Ministers |
| EDL | Électricité du Liban |
| EFF | Extended Fund Facility |
| ESSN | Emergency Social Safety Net |
| ETR | Effective Tax Rate |
| EU | European Union |
| FAD | Fiscal Affairs Department (of the IMF) |
| GDP | Gross Domestic Product |
| IDAL | Investment Development Authority of Lebanon |
| IPZ | Investment Project by Zone |
| IMF | International Monetary Fund |
| IPZ | Investment Project by Zone |
| LBP | Lebanese Pound (or Lira, the currency of Lebanon); the official rate is USD1 = LBP 1,510. The market rate is about USD1 = LBP 38,000 as of September 2022. |
| LEG | Legal Department (of the IMF) |
| MoF | Ministry of Finance |
| MoE | Ministry of Energy |
| OECD | Organisation for Economic Cooperation and Development |
| PDC | Package Deal Contract |
| PIT | Personal Income Tax |
| QDMTT | Qualified Domestic Minimum Top up Tax |
| R&D | Research and Development |
| TSEZ | Tripoli Special Economic Zone (TSEZ) |
| USD | U.S. Dollar |
| VAT | Value-Added Tax |
| WHT | Withholding Tax |
| WTO | World Trade Organization |
Preface
At the request of the Deputy Prime Minister Mr. Saadeh Al Shami, a team from the IMF Fiscal Affairs Department and Legal Department conducted a mission in Beirut during September 12–23, 2022, to assist the authorities in reviewing tax policy. The mission comprised Shafik Hebous (mission head), Svetlana Cerovic (MCD), Michael Keen (FAD expert), Lydia Sofrona (LEG expert), Christophe Waerzeggers (LEG), and Nate Vernon (FAD).
The mission held discussions with Deputy Prime Minister Mr. Saadeh Al Shami and the Ministry of Finance (MoF) led by the Minister of Finance Mr. Youssef Khalil, including Mr. Georges Maarrawi (Director General), and Mr. Louay el Hajj Chehade (Commissioner General). The mission also held discussions with the Minister of Economy Mr. Amin Salam, the Minister of Industry Mr. Georges Boujikian, the Minister of Energy and Water Mr. Walid Fayad, and the Governor of the Banque Du Liban Mr. Riad Salameh. The mission also met with officials from the Lebanese Customs Administration.
The mission team held meetings with representatives of the private sector (including banks and law firms); the Association of Bank s in Lebanon (ABL); the Chamber of Commerce, Industry, and Agriculture; the Regie Libanaise des Tabacs et Tombacs; the Investment Development Authority of Lebanon (IDAL); and civil society organizations. The mission also met with representatives of the World Bank.
The mission team would like to express its sincere thanks to the authorities for the constructive discussions and to Ms. Sabine El Corm and Ms. Claudine Karaki for the excellent organization throughout the mission, facilitating access to data, and the informative discussions.
