Lebanonwire.com | Lebanese Finance Minister, Fouad Siniora


Interview, Oxford Business Group, April 30, 2002

Lebanese Finance Minister, Fouad Siniora The following interview is taken from the Oxford Business Group's latest publication, Emerging Lebanon 2002. For more information on how to order a copy of the most comprehensive review of the Lebanese economy to date, please write at mail@oxfordbusinessgroup.com. OBG: Has the reduction of customs duties, brought in at the end of 2000, had the desired effect? SINIORA: Well, you must remember that the decision to reduce customs duties was part of a package of reforms that included the introduction of VAT - we were basically replacing one revenue stream with another. The policy was part of our plan to kick start the economy that had been stagnant for almost two years, by improving incentives for the private sector. It would have been preferable to bring in the reforms simultaneously, but it took time to get ready. That said, we have probably introduced the tax faster than any other country. It is now in its third month and it is already shaping up to be more successful than we had expected. In February and March alone, we raised around LL106bn. This compares to annual total tax revenues in the budget of LL800bn - so it looks as though these taxes alone will fulfil the government targets. This is no coincidence. We prepared ourselves well for the launch, which included the establishment of a new department in the ministry that deals exclusively with VAT. This is part of a wider process to modernise our tax collection that will ultimately culminate in the introduction of a comprehensive income tax. OBG: To what extent will the VAT help the government to reduce tax evasion? SINIORA: Every country suffers from tax evasion and Lebanon is no exception. Like elsewhere, we have to work on improving our revenues - and we have a whole series of measures to tackle this problem. VAT is really helpful for us in getting to know our clients - taxpayers. We deliberately started VAT implementation at the level of customs, so that all importers are subject to the tax. This system works because it addresses the two main areas of tax evasion - namely businesses either concealing their revenues or exaggerating their costs. But VAT makes this much harder, as, if you do not record your sales, you cannot claim rebates. Furthermore, later in the year, the information will be cross checked with the income tax department, making it harder for firms that claim VAT to avoid corporate taxes. Of course, there will always be some evasion, but these reforms should make it harder for firms to avoid taxes. OBG: Is the government debt too large to control? SINIORA: Well, first, we must understand how we got here. Our debt has developed over 27 years, during which time the country was torn about by a prolonged war that saw one third of the population displaced. Before the war, we never had deficits, but after such a long time, it was always going to be difficult for the government to rebuild the country and keep it stable without having to borrow. In addition, there has been a historic tradition of tax evasion. Now, hopefully this is beginning to change - people are beginning to understand the need to increase revenues and, at the same time, to decrease expenditure. Frankly, when we first mentioned these taxes a few years ago there was strong political resistance. Now you will find that most people accept it. In the past, all ministries were asking for increases in their budgets. This year, we have pushed through a budget that reduces expenditure. And you can see progress - in 1997 income tax accounted for 10% of total revenues, last year it rose to 15%. At the same time, we are working on increasing revenues through privatisation. Three years ago, privatisation was being strongly resisted politically. Now it is viewed as something that must be done and I think that during the coming six months we will see the first privatisation in Lebanon. This is in line with our policy of reducing public sector involvement in the economy. OBG: How can growth be stimulated to help improve revenue flows? SINIORA: I think first we must start to focus on taking advantage of the benefits that we have - a small but innovative country that has an expatriate population that covers the globe. So the more we open up the economy the more we will benefit. That is why we have been signing a number of agreements with neighbouring Arab countries such as Egypt, Syria and now with Iraq. We also signed an agreement with other Arab nations with a view to creating an Arab common market. We will also be signing a trade agreement with the EU. Of course, some industries may be negatively affected but in the long run we stand to gain more than our neighbours. There are a lot of countries that will benefit from the re-emergence of Lebanon as an economic player. We are a country that offers a model of moderation and one that can help contribute to stability in the region. The economic environment is tough and the future is not going be easy. But our population has overcome difficulties before and I feel that with the foundations we are building it is only a question of time before confidence returns to the country.