As part of Paris III, the Lebanese government has promisedto embark on a number of fiscal reforms addressing primarilythe revenue side “in view of the relatively limited scopefor further cuts in public spending.” The objective of these reforms is set in paragraph 92 of theParis III reform agenda. It aims at minimizing distortionsand enhancing equity and fairness in the distribution of thetax system. Can these reforms achieve their objective? Lebanon’s revenue structure relies heavily on indirecttaxes. Taxes on income and profits constitute only 14.5% oftotal revenues and 3.3% of GDP; while indirect taxes (mostlyVAT and customs) contribute 46% of the total. In spite ofexemptions, indirect taxes are, as generally recognized,regressive. To recall, the most important tax measure taken recently wasthe introduction of a one rate and one stage value added tax(VAT) in 2002 that resembles more a sales tax. This isregressive tax in spite of exempting basic items andservices. It
