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Rock Bottom: The Tax Reforms Lebanon Has to Have

The government’s inequitable revenue structures can no longer afford to keep burdening the poor while giving a free pass to those with the means to pay their share of taxes.
Alex Ray

Dec 23, 2022

Executive summary

For most people there are only two certainties in life: death and taxes. In Lebanon the wealthy really only need to worry about the former. The state’s exceptionally weak tax and revenue structures mean the tax burden largely falls upon middle and lower classes – while the wealthy have a multitude of options to avoid paying taxes.

Revenue generation through tax collection is a fundamental pillar of a state’s social contract, and it is no accident that Lebanon’s contract has been built around a free-pass for the wealthy, and poor execution of the contract for everyone else.

Lebanon’s tax structure has positioned national incomes as some of the most inequal in the world, where the top 1% richest adults receive around 25% of the total national income.[1] This must change, not only from a moral point of view, but also from an economic one. Over 80% of the population now live in poverty – there is no more that can be extracted from the Lebanese middle and lower classes. At the same time, Lebanon’s patchy and uneven tax regime misses huge opportunities to collect revenue from the wealthy, who are among the few who can still afford to pay taxes.

The entwined elite business and political classes of Lebanon of course see no incentive in changing this structure, yet for the country to ever get back on its feet, taxes must be collected from those who can afford to pay them. This is not only critical for the financial health of the country, but also for reconstructing the Lebanese social contract, at a time when citizen bonds to the state are at risk of total dissolution.

Triangle has compiled data on the breakdown of Lebanon’s tax structure and revenue trends which maps a path towards returning Lebanon to equitably collecting 20% of GDP in revenues. These measures focus on picking the low-hanging fruit of more efficient tax collection, clamping down on rampant tax evasion by individuals and corporations, and restructuring major taxes such as VAT (Value Added Taxes) and income tax to be more progressive and in line with OECD standards. At the same time tax incentives need to be tailored to Lebanon’s private sector context, which is dominated by micro and small enterprises, as well as a huge proportion of informal labour.

The system of ‘pay little – get almost nothing’ has already come apart. Yet, the establishment is already working on building a new structure whereby regressive indirect taxes coupled with weak enforcement continues to form the bulk of state revenue. Botched banking secrecy reform, the customs dollar, new income tax thresholds are just the latest measures. For those who seek true reform and replacement of the same establishment, tax reform can no longer be a fringe issue, ignored because of its wrongly perceived technical nature. It’s not that complicated.  Tax reforms need to be at the core of how Lebanon gets out of its predicament. If that means all Lebanese pay a little more for better services, while those who have the most bear most of the burden, then so be it.

Deliberately Poor

Prior to 2019, Lebanese government tax revenues only comprised 15-16% of GDP – lower than poorer countries such as Morocco and Tunisia.[2] The structure of tax collection has for decades been characterised by (among other things) a remarkably low top-tier income tax of 25% (which it only reached in 2019), weak tax collection systems, banking secrecy laws which protect tax evasion, and a heavy reliance on indirect regressive taxes such as VAT – which affect the poor more than the rich.

Lebanon has a much higher proportion of indirect taxation than OECD nations, and a remarkably low rate (11%) of revenue collected through progressive taxes. Low-income taxes and low corporate tax rates mean Lebanon collects two to three times less progressive taxes than, for instance, all of Africa on average.[3]

In practice, a low-income country means the state lacks (or chooses to lack) the resources to adequately fund essential social services, and instead leaves those fields open for the private sector to turn into profit-seeking opportunities. Often in Lebanon that means informal service providers with political protection, such as the infamous generator mafia which provides essential energy to most of the country. Whether officially, such as in education, or by de facto poor performance such as in electricity, the extremity of Lebanon’s social contract – pay little and get little in return – exposes lower and middle classes to paying a higher proportion of their income to access services from the informal, untaxed, and politically connected suppliers. By design, poor provision of public services also pushes poorer classes toward reliance on political patronage to access services at a more affordable rate.[4]

Weak revenue collection on its own is bad enough, yet in Lebanon the state has also been consistently spending beyond its means. The political class’s carrots and sticks game for popular support also means state resources – such as civil service employment – have become a common form of patronage endowment. For example, Lebanon has witnessed bloated teaching recruitments leading to a very low student-to-teacher ratio of 12:1 in 2017[5], despite continuing to have poorer than average learning outcomes.[6]

Salaries and other long-term bleeding holes in state expenditures such as Electricite Du Liban (EDL) transfers have meant expenditures have consistently been in excess of revenues. Instead of collecting adequate amounts of tax to cover these expenditures, the state chose to bet on a continuing supply of foreign currency flowing into bank coffers, combined with borrowing from banks and Banque du Liban (BDL). This scheme saw Lebanon accumulate one of the world’s highest debt-GDP ratio’s before 2019 and was a central factor in the 2019 financial collapse.[7]

Weak budgets getting weaker

Since 2019 the Lebanese Lira (LL) has devalued by over 90%, meaning that the value of state revenues has also plummeted. Triangle’s calculations show that after accounting for inflation, total tax revenues have declined by 86%. This has left state revenues at a measly 6% of GDP, and poses an even tougher challenge for the government to resurface from the current financial crisis. Government printing of the Lira to cover its deficits – and to “Lirafy” the value of US dollar deposits – in the banking system has so far only led to rapid inflation and the degradation of the value of savings.[8]

Deciphering the 2022 budget

The 2022 budget indicated that at a very minimum the government is aware it needs to collect more revenue. However, the state intends to do so via the same tax structure reliant on imposing indirect (regressive taxes) upon an impoverished population that cannot pay them. The new measures included:

  • Foreign currency salaries taxed at multiple exchange rates. Fresh dollar salaries earned through bank transfers are to be calculated at 8,000 LL while salaries paid in cash are to be calculated at the Sayrafa rate.
  • A 3% customs duty increase in VAT (on selected items to be determined by the Ministry of Finance).
  • An additional 10% tax on imported goods that are already produced locally.
  • Collection of other fees and taxes at the Sayrafa rate.
  • 2x-10x increase in official documents and stamp fees, and Ministry of Labour fees.
  • Increase in fee rates related to lands, properties and shares subjected to fees.
  • Tax on capital gains and interest, foreign and domestic, as well as commercial port fees, consular fees, and passenger airport fees to be paid in fresh dollars.
  • A 50% tax reduction on export profits for industry if the profits are placed in Lebanese banks to be invested locally, or if they will be used for the purpose of industrial activity in Lebanon.
  • Five-year 100% profits tax rebate for startup companies established before November 2027 – only with a minimum of 80% Lebanese employees.
  • Seven-year 100% tax deduction for profits of companies and industrial establishments established between 15/11/22 and 31/12/24 which operate their main activities in target areas (tbd by the Council of Ministers). Also, these companies benefit from a 50% tax deduction on vehicle registration and construction taxes over the same period. These companies must have a minimum US$1 million foreign investment, and a minimum of 50 Lebanese workers amounting to 60% of its workforce.
  • Income tax exemption for people who suffered physical damages after the Aug 4, 2022 explosion and became physically handicapped.
  • Increases in the fees on the transfer of property and taxes on empty built real estate.

At first glance, the 2022 budget’s measures to incentivise local industry and foreign investment in companies and start-ups seem to be intended to encourage investment and business activity. However setting the threshold for tax-free profits at $1 million in investment and a staff of over 50 excludes most Lebanese businesses. Only 7% of Lebanese companies have over 50 full time staff.[9] Further, given labour demographics being dominated by an overabundance of workers with specific academic qualifications and a lack of qualified labour it is likely that a large percentage of any industrial company’s labour would be foreign workers. This means that new large companies, ones that can afford to pay taxes, will now pay zero taxes in Lebanon for up to seven years after launching.

Mikati’s caretaker government has claimed that the rise in stamp duties and charging of some fees in dollars (See text box 1) are estimated to contribute to an increase of around 6-7 trillion LL in revenues. Much of this will go towards funding (mostly clientelist) ‘bonuses’ for civil servants of two-three times their current salaries. Yet, in addition to being all regressive taxes, these changes are expected to drive up the cost of living and worsen inflation and inequality.[10],[11] In addition, because the expected 11 trillion LL budget deficit will be financed by printing of Lira by BDL, inflation will rapidly dilute the value of any increased revenue and the benefits of salary bonuses for civil servants.[12]

Revenues Beyond Repair

While the face value of taxes collected in 2021 was three billion LL higher than 2018 (the baseline year for this analysis) the rapid devaluation of the Lira since 2019 has meant that the real value of those taxes dropped by a whopping 86%. Figure 1 shows the variation in the declines depending on tax type, ranging from 56% to 95% declines across all major categories. This means while nominally collecting 15.2 trillion LL (US$10.1 at 1500LL) in taxes, those revenues were only worth 1.7 trillion LL (US$1.13 billion at 1500LL) in real terms by the end of 2021 – equalling only 6% of Lebanon’s GDP for 2021.

As the structure of tax collection has not changed significantly since 2019, the majority of taxes are still collected through indirect regressive means. For example, in 2021 in real terms, the state collected 745 billion LL in VAT and customs, but only 352 billion in taxes on profits, wages and salaries. This trend is similar across all years. In 2018, VAT and customs combined were worth nearly double that (5,864 billion LL) of wages, salaries and profits combined (2,227 billion LL). In Tunisia for example, VAT and income taxes comprised a more balanced share of tax revenues at 31% and 26% respectively, while in the OECD as a whole income tax comprised 32% of revenues and VAT 27%.[13]

In 2018, the state’s 12.7 trillion LL in revenue still only equated to 15% of that year’s GDP, meaning that for Lebanon to rebuild to this level, and later reach 20% of GDP in revenue collection, the tax system needs more than return to pre-2019 levels, and instead needs a complete overhaul. Recovering 14% of 2018 GDP equates to $US7.6 billion[14] the majority of which will need to come from taxes targeted at the rich, and from cuts in government expenditure.

Contested Budget
In a confusing and un-announced move in November 2022, once the budget came into effect, the Ministry of Finance released a series of circulars. The circulars, which guide implementation of the new budget’s measures, throw into doubt the government’s calculations about the budget. Among other measures, the eight circulars implement a number of retroactive re-calculations of VAT and payroll taxes for 2022, levied at multiple exchange rates. These decisions are a further escalation of the government’s effort to force the private sector and individuals to pay far higher rates of tax to bolster the government’s revenues, instead of resolving the losses in the banking sector. The circulars also contain an exceptional provision to allow banks and other entities to revalue their assets, which poses a huge risk that banks will use this as an opportunity to further obscure the losses on their balance sheets. The budget law itself as well as the circulars will likely be subject to judicial appeals, meaning final clarity over the budget will not be achieved in 2022.

Root and Branch Reform

Instead of the inflationary and piecemeal measures included in the 2022 budget, Lebanon must begin reforming its tax structure by first picking the low-hanging fruit of revenue collection.

The first step is to create a better balance of progressive and regressive taxes. This is because it is one of the few areas where extra taxes can be levied on wealthy citizens. As of 2018 Lebanon’s tax revenues were dominated by regressive taxes (78.6%). These were primarily comprised of VAT (30%), customs (15.8%), and tax on interest (14.1%). Personal income tax was one of the only real progressive measures, but even so was taxed at such a low rate (20% for the top tax bracket in 2018) it comprised only 21.1% of tax revenues.[15] The majority of OECD countries have top-tier personal income tax rates of at least 30%, with some ranging up to 55% in the case of Japan, Austria, and France.[16]

The top tier income tax bracket for 2022 has now been set at 675,000,000 LL. At a rate of 40,000 to the dollar this sets a ridiculously low USD threshold and means wage earners earning over US$16,875 will now also pay the top tier tax bracket – it was previously those earning over US$150,000. This indicates there is ample room for an additional bracket for those earning over $65,000 per year at 35% as a minimum. A comparison to French and UK tax income distributions also shows how those countries’ tax structures place a larger tax burden on higher income earners.

Raising income taxes on the wealthy is one of Lebanon’s few remaining options for returning state finances to sustainable levels. Not only has the decline in salaries for the majority of the population resulted in an inability to pay more taxes, the decline in purchasing power means the state will earn less from its regressive VAT and customs taxes – hence the 2022 budget’s attempt to increase revenues in these areas. Losses in VAT and customs taxes alone are estimated at about 3% of GDP per year.[17]

A further simple measure to drastically increase revenues would be to overhaul the tax collection system. The current method of collection is both inefficient – with losses of 3-4% of GDP at border tax collection points alone – and is full of loopholes that enable wealthier citizens to avoid taxes. For example taxing different types of incomes at different rates enables individuals with multiple sources of income to avoid entering higher tax brackets. Different rates apply to incomes which largely accrue to the richest, such as rental of property and capital incomes, and interest and dividends which are taxed at lower rates than income from salaries. There are also loopholes for avoiding taxes on capital gains in property through concealment of ownership.[18]

Banking secrecy has also historically been central to tax evasion for the wealthy. In 2015 it was estimated the government lost up to US$5 billion in uncollected taxes (49% of annual revenue) due to domestic tax evasion.[19],[20] While still needing further reform to be effective – particularly in retroactive application – the latest amendments to the banking secrecy indicate the clear possibility for tax authorities to access banking information and better detect tax evasion and fraud if given the powers to do so.[21]

Global inequality is rising and the concept of a wealth tax on the super-rich is being becoming mainstream among economic policy makers.[22] Lebanon has one of the highest levels of inequality in the world, listing six billionaires in a country of only 5 million in 2020.[23] Even a one-time tax on extreme wealth could make major contributions to important revenue collection, especially if it was extended to those who profited massively from financial engineering that contributed to the financial crisis.

Another worrying development is Lebanon’s further shift towards a cash-based and informal economy due to the breakdown of trust in banks and their informal capital controls. Prior to 2019 the informal economy accounted for at least 50% of the labour force and 36.4% of GDP.[24] Since then, BDL’s desperate money printing and Lebanon’s already paltry digital transfer infrastructure has increased cash in circulation and pushed the economy much further into informal, untraceable activity. Between October 2019 and September 2022, cash in circulation in Lebanon rose from 7,305 billion LL to 58,943 billion LL as value of the currency has dropped against the dollar.[25] The employment regulations which can be leveraged by formalisation – such as minimum wage and allowance provisions – exist to counterbalance the inequality-exacerbating effects of businesses seeking to maximise profits through labour exploitation and avoiding their contribution to the social contract. Further, workforce formalisation strengthens the reliability of agreements between firms and individuals, provides clear legal frameworks for investment, and expands the number of wage earners paying tax, among other downstream effects.[26]

Lebanon’s ability to restart economic growth is limited by the fact that the government cannot continue to spend at the rates it had previously, and over the short-medium term must focus on reducing its primary deficit (which is the deficit excluding interest payments on loans) by reducing spending. In many countries, similar budgetary ‘austerity’ would imply spending cuts on subsidies and socials services, which disproportionately impact the poor. However in Lebanon, the two largest and most inefficient state expenditures (excluding interest payments) were personnel and transfers – the latter primarily comprised of transfers to EDL between US$1-$2 billion per year depending on the oil price.

For its part, the public service salary bill had blown out to 19% of GDP according to some estimates[27] – more than all tax revenues combined could cover. This is due to inefficient public service hiring, including for political patronage. Independent studies of public service management and efficiency indicate that tens of thousands of jobs could be cut from the public service with no detrimental impact at all.[28] Addressing these (and other) significant inefficiencies in state spending would go a long way to rebalancing state expenditures when combined with taxes on the wealthy.


Raising the top-tier tax rate: With the current top tier at 675,000,000 LL (U$16,875) there is ample room to introduce a new top tier tax rate of 35% for those earning now-significant incomes of over US$65,000. Raising the existing Lira thresholds should also take place to give more breathing space to lower- and middle-class income earners as their purchasing power will be needed to boost local consumption and, in turn, economic activity.

Simplifying tax collection: Water-tight tax collection could increase tax revenues instantly by about 50% (6-8% GDP).[29] Tax collection needs to be uniform and trackable across all Lebanese citizens and residents. This can first be done by linking a unified tax number to an individual’s national ID. Further, a simplified comprehensive declaration process for both domestic and foreign-earned income for tax residents should be created. This would include a system of flat rate calculation for income tax which replaces the current multiple taxes on different categories of income. At the minimum, taxes on different forms of income should be equivalent, so as to discourage rent-seeking.

Further, as has been demonstrated with the roll-out of the 2022 budget and its circulars, the Lebanese government has so far been doing its best to make interpretation of the tax system more and more difficult. Removing ambiguity in such texts would help simplify tax compliance, reduce administrative costs, and tax avoidance through discretionary interpretation. This would also increase trust among the general public toward the buying into a stronger democratic social contract.

Reforming VAT: The government’s targeting of extra taxes at imported goods for which there is an adequate local substitute is a good start in reforming import duties and VAT, however it can go much further. VAT can also be made progressive, and rates should be increased for items considered to be non-essential or luxury. Strategic exemptions should also be created to spur key industries as Lebanon will remain import dependent in the short term.

Reform Corporate Tax Incentives:  The new business tax exemptions implemented by the government only apply to large corporations and industry, which excludes 90% of Lebanese enterprises. All corporations in Lebanon already benefit from a low 17% corporate tax rate, and larger corporations are more likely to have had the flexibility to navigate the financial crisis better than micro, small and medium enterprises. Instead, tax incentives for local employment and local consumption should be directed towards enterprises with less than 20 employees.

Digitalisation: New data tracking technologies can make both tax declaration and tax collection much more efficient by allowing the aggregation of taxpayers’ data from a variety of sources. Some efforts within the Ministry of Finance have progressed in this area, especially in collecting taxes at the border. Other digital tools can monitor potential tax avoidance activities in areas such as unregistered properties and tracking of shell companies.[30]

Re-allocating exemptions towards productive sectors: Certain sectors of the Lebanese economy currently enjoy significant but unwarranted tax breaks. This even includes the massively extractive and profitable investment banks which have been totally exempt from corporate taxation during the first seven financial years of operation and pay a maximum of 4% of the bank’s paid-up capital afterwards. Offshore companies, and their shareholders are also exempted from both the corporate income tax and from taxes on capital gains, on distributed dividends as well as on inheritance of shares. On the other hand, agricultural tax incentives to boost food security, resource-efficient agrotechnology, and rural employment have been neglected, and industrial free-zone activity has not been conducted strategically.[31]  Similarly, tax incentives to stimulate the public good have been neglected, such as those that aim to reduce pollution or protect environmental heritage and services.

Taxing the whales: Lebanon has joined many other countries in information exchange agreements established by the OECD-G20 Global Forum. Although it is hard to estimate what can be collected given, for years, many foreign assets are not included in tax returns but are technically subject to 10% tax on movable capital income.[32] In addition there are numerous areas where the government can collect taxes from those that stand to profit hugely from the state:

  • Retrospective profits from financial engineering (which could be taxed as part of the financial recovery plan)
  • Gains from oil and gas importation (where companies already hold unfair advantage through cartel-like behaviour)
  • Taxes on illegally encroached-upon maritime property[33]
  • A wealth tax on the super-rich.

Incentivise Formalisation: In 2015 the informal sector accounted for around 36% of Lebanon’s GDP. This represents a huge lost potential tax base and a black hole of labour exploitation. Such a predominance of informal labour also undermines wage standards for formal labour. Amnesties for past and future taxes (and potential fines) should be offered to informal businesses who would like to formalise their workforce and operations.

Data availability: Like many aspects of state administration, Lebanon lacks clear and accessible data on tax collection. The digitisation and publication of more specific data on taxes, particularly income taxes will enable policy makers to create more precise cost-benefit analyses of how fiscal tax policy can help state revenues. Yet stringent reporting requirements for the finance ministry and the BDL also need to be put in place to allow the public to finally see where its money has gone.



Editor’s Note: Badil would like to extend a special thanks to the prior research and work on tax reform of Ishac Diwan and his associates who contributed to this paper. Badil would also like to thank Minerva Sadek and Charbel Korkomaz for their contribution in research and data collection.


[1] Assouad L, (2019), “Twitter”,

 [2] Diwan, I. et. al. (2021) “Which Tax Policies for Lebanon? Lessons from the Past for a Challenging Future”, Arab Reform Initiative,

[3] Ibid

[4] Ray, A. (2022) ‘No More Fun And Games: Saving Lebanon’s Education Before It’s Too Late’ Think Triangle,

[5] World Bank (2022) ‘World Bank Open Data – Pupil Teacher Ratio Lebanon’,

[6] Ray, A. (2022) ‘No More Fun And Games: Saving Lebanon’s Education Before It’s Too Late’ Think Triangle,

[7] Halabi S. And Boswall J. (2019) ‘Extend and Pretend: Lebanon’s Financial House of Cards’ Think Triangle,

[8] Tamo O (202) ‘Money printing, Inflation & Devaluation of the Lira’ August 29, 2020,

[9] GIZ (2019) Employment and Labour Market Analysis, Lebanon, German Development Corporation, online at

[10] BLOMINVEST Bank (2022) ‘Lebanese Parliament Approves 2022 Budget with an Estimated Deficit of 11 T LBP’,

[11] Chehayeb, K. (2022) ‘Lebanon’s draft budget heaps even more pain on the poor’, Al Jazeera English, 21 Jan 2022, BLOMINVEST Bank (2022) ‘Lebanese Parliament Approves 2022 Budget with an Estimated Deficit of 11 T LBP’,

[12] Diwan, I. et. al. (2021) “Which Tax Policies for Lebanon? Lessons from the Past for a Challenging Future”, Arab Reform Initiative,

[13] Ibid.

[14] World Bank (2022) ‘World Bank Open Data GDP Current USD$ Lebanon’,

[15] Boswell, J., Halabi, S. And  Wood D. (202) Shake On It: A Fair IMF Package For Lebanon, Think Triangle,

[16]  OECD (2022) ‘Tax Database, Key Economic Indicators’, Organisation for Economic Cooperation and Development ,

[17] Diwan, I. et. al. (2021) “Which Tax Policies for Lebanon? Lessons from the Past for a Challenging Future”, Arab Reform Initiative,

[18]  Ibid.

[19] Mahmalat M.  and Atallah S. (2018) Why Does Lebanon Need CEDRE? How Fiscal Mismanagement and Low Taxation on Wealth Necessitate International Assistance,’ Lebanese Centre for Policy Studies, Policy Brief 34 ,

[20]  Wood D. And Abdullah O. (2020) “ Coming Clean: Time to Open Lebanon’s Banking Chamber of Secrets,’ Think Triangle,

[21] .

[22] Iaruccci G. (2021) Elizabeth Warren, Bernie Sanders propose 3% wealth tax on billionaires, CNBC,

[23] Financial Times (2021) ‘Billionaires and bankrupts: Lebanon’s second city highlights inequality’ Financial Times,

[24] GIZ (2019) Employment and Labour Market Analysis, Lebanon, German Development Corporation, online at

[25] BDL (2022) ‘Currency in Circulation Outside BDL’, Banque Du Liban,

[26] 26 OECD (2007), “Removing Barriers to Formalisation”, in Promoting Pro-Poor Growth: Policy Guidance for Donors, OECD Publishing,

[27] Salame R. (2022) ‘Lebanon’s civil servants are leaving in droves. They won’t be replaced soon’, L’Orient Today,

[28] Ibid.

[29] Diwan, I. et. al. (2021).

[30] Ibid.

[31] Ibid.