Beyond the “Muddle-Through” Option: The Case for a New Tax Deal in Lebanon


Lebanon stands today at the crossroads of a more strenuous and challenging muddle-through phase on one hand, and progressive recovery on the other.

The road it will end up taking will ultimately depend on a series of sound and rational decisions, chief among which is the reform of the country’s taxation system. A new tax deal could ensure the country greater fiscal stability, allow for the funding of social programs, and rebuild trust between citizens and the government.
These policy objectives are fundamental if the country is to exit one of the worst financial crises of modern times and alleviate the despair of a sizable part of its population that has been plunged into poverty.
Inevitably, such a system needs to reconcile growth with equity, particularly given the extensive financial damage that has been wrought upon individuals and households.
In the report “How can a new tax system restore growth and equity”, The teams of the Institute of Finance Basil Fuleihan and Financially Wise-Lebanon, make the case for a new tax deal that would be designed to address the current system’s inefficiencies and weaknesses. The full report is available here.

A Decade of Contradictions
The decade that preceded the crisis can indisputably be considered one that was marred by contradictions. Broadly speaking, the current tax system continues to be an amalgamation of tax policies implemented in an ad-hoc manner without a medium-term plan or strategic foresight.
Quick-fixes can’t replace a long-term vision. Piecemeal tax measures eventually created a dysfunctional tax regime that was neither sustainable nor conducive to greater economic growth. Despite constituting the largest share of total State revenues, the picture is much grimmer when benchmarked to the country’s GDP. In that regard, tax revenue has dropped from 15.1 percent to no more than 6.6 percent between 2019 and 2023.
Nearly deprived of its main source of revenue, the State’s functions have greatly slowed down or in many cases come to a halt. Tax collection, already limping prior to the crisis, has been unable to offset this collapse in tax revenues.
Consequently, current spikes in VAT collection are no reason to celebrate. They need to be viewed as circumstantial and unsustainable. Low tax revenue aggregates and low tax revenue predictability are symptoms of the system’s overall inefficiencies

Human Capital: On Depletion Mode
Decades of constant weaving to build talents and skills within the tax administration, a great deal of them the work of the Institute of Finance Basil Fuleihan, have been dealt a critical blow by the economic crisis….

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