IMF identifies policy reforms
to stop tax revenue drainage

The fund calls for a new income tax law

As tax revenues dropped to less than half their value in 2022 compared to 2019, the International Monetary Fund (IMF) urged the government to immediately adopt several reforms to avoid the continuation of the decline in 2023.

Immediate proposed reforms include using one exchange rate for all taxation purposes, resetting the excises and thresholds that are set in nominal values to the current inflation rates, ceasing the under-taxation of the affluent, and abolishing the exemption of vacant properties in order to reach the full potential of the built property tax.

Near term measures should focus on broadening the Value-Added Tax (VAT) base and removing the distortionary exemption of inputs into specified sectors. These measures must also include increasing excises on certain commodities such as diesel, which can generate environmental benefits and significant revenue with a modest impact on prices, in addition to abolishing wasteful corporate income tax incentives and the regimes of offshore and holding companies that no longer conform to international standards.

The IMF said that in the medium term, the government should introduce a new income tax law that ensures tax neutrality across income sources and legal forms. The new law must comprise up-to-date anti-tax avoidance rules as well as efficient and effective cost-based tax incentives. Simultaneously, the government should continue fine-tuning the VAT, removing the exemption on diesel and improving the design of the cross-border rules.

The IMF’s reform recommendations were given at the request of the government, after a team from the fund’s Fiscal Affairs Department and Legal Department conducted a mission in Beirut in September 2022, to assist the authorities in reviewing tax policy, according to a report published by the IMF in January 2023.