Experts say proposed tax law entails more harm than it appears

AMMAN — The government’s delegation touring Jordan’s main cities to discuss the new income tax law with citizens has been poorly welcomed. 

For economists, this is expected as citizens need deeds, not words, to ensure them a decent living and they are exasperated with repeated and unfulfilled pledges by governments.

The economists said the proposed tax law is almost identical to the previous draft that was received with nationwide protests, which resulted in the resignation of the government of former prime minister Hani Mulki. 

The lack of tangible socioeconomic and political reforms, poor quality of public services and citizens’ declining trust in governments are among the key reasons behind the rejection of the new draft bill, the pundits said.

By increasing income tax on individuals, households and economic sectors, the government is not expected to generate the desired amounts of revenues as consumers will resort to rationing their expenditures and businesses will not increase their investments, they added.

“People are frustrated, not only because of the income tax draft bill, but also because they want more actions against corruption,” Zayyan Zawaneh, an expert in political economy, told The Jordan Times on Tuesday.

“People pay taxes yet there is no decent public transportation service. There is bureaucracy in public agencies and the tax burden on citizens is around 26 per cent, which is very high,” Zawaneh added.

“I believe that bill is the last straw that provoked Jordanians…why for example, increase taxes on many sectors but not the banking sector?” he said, adding that the International Monetary Fund (IMF), with which Jordan has reached an extended fund facility, has warned on several occasions that any measures to increase revenues should refrain from imposing taxes on the poor and increasing their burden.

The bill, which is part of reforms under a deal with the IMF, seeks to generate JD280 million in additional revenues in 2019, JD180 million of which will be collected as a result of expanding the taxpayers’ base, while the rest will be generated as an outcome of the effective combating of tax evasion.

The latest draft law exempts families whose yearly income does not exceed JD18,000 and removes an additional exemption of JD4,000 for households that present bills of medical treatment or education. It also exempts individuals whose yearly income does not exceed JD9,000.

Economist Mazen Marji said restoring citizens’ confidence at this stage is essential. “The current government started a dialogue with many stakeholders and came up with a law that has very small changes when compared to the previous ones…The current draft has some articles that will affect a large number of citizens,” he said.

 “The new bill makes the end of service benefits subject to income tax, which is unacceptable…Pensions that are more than JD3,500 are also subject to income tax and this is unconstitutional and contradictory to international laws. The government cannot deduct an income tax from pensions,” said Marji.

Disparity in the percentages in income taxes on different sectors is “illogical” and unfair, he protested. “There is a dire need to apply the principle of progressive tax, which is fair to all sectors…the tax is progressive on individuals and households but not on economic sectors,” he said.

“People want to feel that there is a difference when they pay taxes whether in the public debt or in the quality of services they are getting or in the budget deficit,” Marji added.

President of the Jordan Chamber of Commerce Nael Kabariti said the law will not enable the government to generate the expected revenues as economic growth is slow and profits and revenues of various economic sectors did not increase at all. “To be able to generate more revenues, the government should focus on stimulating economic growth and increasing the tax does not help in this regard,” Kabariti said.

“It is also not accurate to say that 90 per cent of citizens will not be affected as they will be affected indirectly,” he said. 

“Let us be honest here; when taxes on companies increase, they resort to hiking the prices of their products and fees on services, and eventually end customers will take the burden,” Kabariti added.

Jordan’s public debt reached JD26.6 billion during the first seven months of this year compared to JD25.4 billion at the end of 2017. And while the country’s economy is expected to grow by 1.8 per cent at the end of the year, economists believe it is insufficient to create more jobs or affect the rising unemployment rate, which was 18.7 per cent during the second quarter of 2018, according to the  Department of Statistics (DoS) quarterly report on the unemployment rate in the Kingdom.

On Sunday, Prime Minister Omar Razzaz said that the government will announce new measures to solve all the issues affecting the daily lives of citizens within a few weeks.

In an announcement aired on local radios, the prime minister expressed the government’s commitment to satisfy citizens’ “legitimate demands”, including the fight against tax evasion and corruption, as well as improving the quality of government services and providing jobs.