Gov’t finalising new tax plan, to include in policy statement

AMMAN – The government will include in its policy statement, to be presented to Parliament next month, procedures related to tax incentives to stimulate economic growth and production, Deputy Prime Minister for Economic Affairs and Minister of State for Investment Affairs Jawad Anani said Sunday. 

Anani told The Jordan Times over the phone that the government is working on creating an investment friendly environment in the Kingdom, mulling a set of proposed taxation measures, which he said would send positive signals to potential investors. 

On Sunday, the Cabinet slashed fines on overdue tax payments to encourage settlements. 

The official was responding to questions on the recent recommendations by the Economic Policy Council (EPC), particularly those related to taxation. 

Last month, the EPC, which is chaired by His Majesty King Abdullah, issued 38 recommendations to stimulate the economy, nearly a dozen of which addressed taxation. 

Among these was a proposal to create a flat, low rate for customs duties as well as goods and services tax,while reconsidering exemptions.

Asked if the government has yet decided on a lower tax  rate on goods and services, Anani said the ministerial team is studying the issue, but a decision would be taken before the policy statement to Parliament.

He added that the new rates should boost investment, stimulate production and manufacturing, create jobs and encourage consumption. 

Economists and businessmen believe the recent package of tax-related proposals by the EPC would be healthy for the economy and consumers. 

Former finance minister Mohammad Abu Hammour said that overall, EPC’s economic proposals would contribute to higher economic growth and better living conditions.

Citing a study, Abu Hammour said cancelling the tax exemptions granted to some sectors and products, as well as unifying and reducing the sales tax, could have a positive impact on the Treasury and increase revenues.  

The former minister said the government is considering lowering the sales tax, but it is not yet clear if the reduction would apply to the general sales tax, which currently stands at 16 per cent, or to the special sales tax, which varies for different products, adding that the value of tax exemptions is estimated at around JD1 billion-JD1.5 billion annually.

However, Abu Hammour warned that lowering the sales tax may cause a drop in tax revenues as he explained that every 1 per cent drop in the sales tax costs the Treasury JD300 million in lost revenues.

“It is easy to reduce the general sales tax from 16 to 12 per cent, or any other percentage, but eliminating exemptions and deductions would not be easy,” he said, adding that medicine, agricultural products and some 240 food items are subject to a 4 per cent sales tax.

Unifying the sales tax or cancelling the exemptions on these products would lead to higher prices and might fire back. 

For Issam Qadamani, an analyst and columnist at Al Rai daily, reducing the sales tax would revive the market, but would also widen trade balance deficit, promote consumerism and encourage imports.

For a more productive local economy, he said the government should consider eliminating customs fees and trimming the income tax, explaining that the positive impact of cancelling customs fees, particularly on the trade sector, would be greater than their annual contribution of JD300 million to the Treasury.

Qadamani said that cancelling customs fees on inputs of industry would boost production for exporting purposes. 

While banks’ customer deposits are growing (they have recently exceeded JD33 billion), cuts in income tax would steer the savings away from the banks towards local investments, said Qadamani 

“Lower income tax would lead capital turnover towards investments, even in small projects, and enhances investments in productive sectors,” he told The Jordan Times in a recent interview.

Ghassan Kherfan, vice chairman of the Amman Chamber of Commerce, agreed. 

But before reducing the sales tax, the government should “fix the current taxation irregularities” by unifying taxes and customs fees across all sectors and implementing one fixed tariff on all goods, regardless of their country of origin, according to Kherfan.

He noted that the products exempted from income tax, which include sugar, rice and some beans, constitute only 15 to 17 per cent of Jordanians’ consumption.