An IMF Mission, and based on the request of the caretaker Minister of Finance Dr. Youssef el Khalil, has visited Lebanon during the September 25 – October 6 2023 period and accordingly issued a technical assistance report titled “Tax and Customs Administration: An urgent need for intervention”. The report first shed light on the dire state of Lebanon’s tax and customs’ administrations, particularly on the staffing fronts, impeded by a freeze on recruitments and staff resignations, as the value of their salaries plummeted on the back of the depreciation of the local currency. Always on the staffing front, the report commented that the situation is most critical in the IT field, where only 1 regular IT member remains in the Lebanese Customs Administration and none in the remaining tax directorates. This situation has translated into a steep decline in tax collection capabilities, with tax revenues as a percentage of Gross Domestic Product (GDP) declining from 21% in 2018 to 6.3% in 2022. Accordingly, the report has called for an urgent need for reform, while citing that several international donors such as the World Bank, the European Union, the United Nations Development Programme, and the IMF have already expressed interest in a financial support that hinges on the presence of a decision to introduce change. The IMF then deployed a methodology to highlight reform priorities, depending on the impact of such a reform and the technical complexity required to implement it, and accordingly categorized reforms into three segments as follows:

-       Quick wins: Relatively easy initiatives that would assist in building momentum

-       Core initiatives: Primary initiatives that form the bulk of the reform program

-       Other priorities: Additional initiatives that must be carefully studied before being implemented

As far as tax administration is concerned, the report pinpointed three quick wins, namely the need to initiate a two-way data exchange with customs, address tax leakage from large tax payers and produce statistics that could be analyzed to enhance tax collection. Core initiatives include addressing the loss of staff and recruiting new people (on the IT and Audit & Collection fronts) at market rates, improving working conditions as offices are with limited power and supplies, revamping the organizational structure that currently divides tax directorates by establishing a semi-autonomous tax administration. Other core initiatives include relaunching the Large Taxpayers Office (LTO), as the current criteria has been eroded by inflation, and expending it to include VAT as well, establishing a Reform Management Office (RMO) to coordinate reforms across different departments and integrating compliance functions between the revenue and VAT departments. Always on the core initiatives front, the IMF called for establishing a compliance strategy for the crisis, addressing the backlog in the electronic filing of the Personal Income Tax (with a focus on recent years), stabilizing IT operations, and resuming the international exchange of information. Other priorities encompass eliminating the duplication of functions via a centralization process, and replacing SIGTAS by a new IT system that encompasses direct and indirect taxes.

As far as customs administration is concerned, quick wins were identified as stabilizing IT operations by addressing staffing issues and properly implementing the Automated System for Customs Data (ASYCUDA) to combat misrepresentation of values at customs. The report commented that the funds for stabilizing IT operations could be easily retrieved, pinpointing is this regard that the Higher Customs Council pays $340,000 in rent, while the newly established customs building in Port of Beirut remains vacant due to the lack of some $30,000 worth in office furniture and networking.  Core initiatives include, conducting a review of customs service fees as many fees are either free of charge or at a way lower cost than that required to cater them, updating the customs law to align with international standards, establishing a reform management office & a risk management unit, and strengthening the currently weak post clearance audit. Other core initiatives engulf resolving the staffing issues (as is the case with the tax administration as well), and updating the e-tariff implementation from the 2017 version to that of the year 2022. Other priorities include, a new organizational structure, transferring the ASYCUDA IT management (currently under the HCC) to the customs director general to improve efficiency and some reform on the human resources front.