February 7, 2017

Tax collection half its economic potential: IMF suggests myriad of additional and increased taxes

Tax collection is weak. It has been driving a drop in public revenues since 2010, and remains below the regional average, according to the International Monetary Fund’s recent report, ‘Article IV consultation for Lebanon.’ It said that tax collection is only 50 percent of estimated capacity.

A weakness in electronic tax declaration system and staff numbers, among others, was cited as reasons behind the deficiency in total tax revenues.

“Tax administration increased by 120 staff members in 2016, but the actual needs are estimated to be five times higher,” the IMF said.

The country’s ‘tax effort’ is lower than that in similar Middle East and Central Asian countries. The tax effort is the ratio of actual tax revenues to potential capacity, which is the maximum tax revenue a country can ideally achieve. The IMF cited VAT as one way to address the imbalance.

“The structure of the country’s economy is oriented towards private consumption and a high share of imports. The potential gains from mobilizing VAT revenues are significant,” it said.

Tax collections have dropped four percent of GDP over four years. The IMF in its report said that increased taxes on fuel, an increase to the value-added tax rate from ten to 11 percent, an increase in the tax rate on interest income from five percent to seven percent, an increase in capital gains tax on real estate transactions, and the introduction of a new stamp duty and fees would help keep tax revenues buoyant.

Reported by Derek Issacs