Addressing discrepancies: Bridging gaps in bank executives’ salaries

In the realm of fiscal policy, the imposition of income tax stands as a pillar of justice and financial prudence. Through this levy, governments enact wealth redistribution, bolster social justice and ensure an equitable burden-sharing for the greater good. Income tax, a tool often wielded to promote fairness, operates on the tenets of social economic principles, employing progressive tax brackets where higher earners contribute a greater share of their income compared to those with lower incomes.

Central to this discourse is the concept of social equity, encapsulating notions of fairness and justice in resource, opportunity and privilege allocation. It champions equal access to these facets, regardless of one’s background or economic standing, aiming to provide all members of society a fair platform for success and societal engagement. Achieving social equity mandates policies that dismantle systemic inequalities, fostering inclusivity, diversity and justice across the societal spectrum.

In Jordan, the above-mentioned law enacted by the government have aimed to broaden the tax base by reducing individual exemptions to JD9,000 Jordanian dinars from the previous JD12,000. Concurrently, deductions for education and housing loans have been capped at a maximum of JD1,000 each. However, scrutiny of Income Tax Law No. 34 of 2014 reveals a paradox within this expansion, particularly concerning indirect support for executive salaries. The law allows for up to 10 per cent of annual banks executive salaries where subsidised indirectly by the government.

Article 11 of the aforementioned law delineates the taxation of natural persons’ income, setting forth progressive ratios. Notably, it imposes a 25 per cent tax on income up to 1 million dinars and a 30 per cent tax for income exceeding 1 million Jordanian dinars.

Recent analysis of income tax brackets in Jordan has revealed discrepancies that raise questions about fairness and equity in the country’s tax system, particularly regarding bank executives’ incomes. According to Income Tax Law No. 34 of 2014, banks are subject to a tax bracket of 35 per cent. However, personal income ranging from JD200,000 to JD999,000 is only subject to a 25 per cent tax bracket, creating a disparity in taxation rates. Hence, each CEO receives approximately more than JD70,000 annually as an indirectly support.

A comparison with global practices further highlights these inconsistencies. In countries such as the United States, Sweden, Australia, England and Germany, tax rates for high-income individuals often exceed 45 per cent, significantly higher than Jordan’s 25 per cent bracket for similar income levels. For example, in the United States, salaries above $578,125 are subject to a 37 per cent tax rate. In Sweden, income from salaries exceeding 615,300 SEK is subject to a 50 per cent bracket. In Australia, salaries above $180,000 is subject to a 45 per cent rate. In England, salaries exceeding £150,000 after deducting permissible deductions are subject to a 45 per cent bracket. Finally, in Germany, salaries exceeding $277,825 are subject to a 45 per cent bracket.

This disparity becomes even more pronounced when considering the salaries of bank executives in Jordan. The government’s tax policy results in approximately JD6,000 of undeserved support for each executive monthly, equivalent to the support provided to about 24 families receiving JD250 each from the National Aid Fund. 

This situation underscores the need for Jordanian law to align with international standards for income tax, ensuring that high-income individuals, including bank executives, contribute their fair share. By doing so, the government can fulfill the primary goal of income tax: redistributing wealth and enhancing social justice for all members of society.

In conclusion, income taxation serves as a cornerstone for advancing social equity and financial prudence. Governments must ensure tax policies are equitable, fostering a just and inclusive society for all.

Hamza Alakaleek is a corporate lawyer and tax attorney