IMF calls to boost
revenues from VAT

Four percent of GDP in

additional receipts can be achieved

Stronger VAT yields could be generated via higher rates, a broader base, and improved collections. Although Lebanon’s VAT rate is among the lowest in the region, the authorities have in the past expressed a strong preference for not increasing it on political and social grounds.

A ‘Special Issues’ paper on Lebanon published by the International Monetary Fund (IMF) shows that there is significant potential – under the current VAT rate – to boost VAT collections by leveraging the tax base, strengthening tax administration, and improving tax compliance. Other reforms with respect to limiting or removing exemptions, deduction, and refunds could also help increase yields.

By regional and international standards, the country’s tax performance is significantly below its potential. Tax revenues have weakened by four percentage points of GDP since 2010 – largely attributable to softer economic performance reflecting the spillovers of the Syrian crisis.

“Policy changes have also played a role, including new tax exemptions and reduced rates,” the IMF report said.

There is significant potential to strengthen tax collections by leveraging tax bases, strengthening tax administration, and improving tax compliance. IMF called for reforms of the complex VAT regime, which was one of the most promising avenues going forward.

Under the current VAT rate, removing exemptions, streamlining deductions and refunds, and gradually improving tax compliance could improve VAT revenues by about four percentage points of GDP and significantly contribute to debt sustainability.