Which Tax Policies for Lebanon? Lessons from the Past for a Challenging Future
The tax system in Lebanon is unfair and inefficient. As part of rethinking Lebanon’s policies in light of the current crisis, this paper proposes key reforms to make tax incidence more progressive; strengthen tax compliance; and broaden the tax base. It also calls for considering a one-off wealth tax to help resolve the current crisis in a socially fair manner. It posits that the fight for fiscal justice and effectiveness needs to become more central in political debates as a just fiscal system is a requisite of any vision for a “new Lebanon”.
Introduction
The goal of this paper is to evaluate the Lebanese tax system, and to make considerate proposals to make it more inclusive and efficient. That a topic of this level of technicality has come to command interest is a testimony of the intellectual impact of the October 17 uprising, which has initiated a search for just and effective solutions to the current crisis, as well as a rethink of how to organize the economy to put it onto a path of sustainable and inclusive economic growth.
The discussion about the needed reforms is grounded in the deficiencies of the existing tax system. There are two related challenges. First, reducing the fiscal deficit and stabilizing the macro-economy is a precondition for future growth. We cannot emphasize enough that the fiscal dimension needs to be part of a broader and credible adjustment program, and it needs to be accompanied with political reforms that generate sufficient trust in government before taxation can be increased. But equally, a more effective and just fiscal system is also at the heart of any vision for a « new Lebanon », in which public spending needs to be reorganized to allow the state to be able to deliver the type of social and infrastructure services that can allow for more social mobility and higher labor productivity.
The paper is organized as follows. Section 2 takes a bird’s eye view at the tax system in Lebanon. Section 3 focuses on the adjustments needed in the short term, in support of a stabilization plan. Section 4 looks into medium term changes needed to increase the size and fairness of revenues. Section 5 focuses on the exemption regime, and section 6 on tax administration. Section 7 concludes.
Authors :
- Alain Bifani, Former Director General of Finance, Ministry of Finance (Lebanon)
- Karim Daher, President, ALDIC
- Lydia Assouad, Research fellow, World Inequality Lab
- Ishac Diwan Professor of Economics at Paris Sciences et Lettres
