A Gradual but Sustainable Shift, Part 2

Jordanians are accused of not paying taxes. Theoretically speaking, that is true. Some 95 per cent of the national demographic does not pay income tax. They do however pay an abundance of their salaries to fees and other indirect taxes that, on a monthly basis, drain their incomes.

Where else does the government make JOD7.8 billion per annum in local revenues?!

The fact is that the tax system does require tweaking to expand the taxable base, but the government cherry picking tax reforms can be quite counterproductive. It would serve the government and the taxpayer better if the suggested reforms were to be comprehensive.

The truth is that the entire tax system needs to be thoroughly reviewed.

Partial solutions to the imbalances of the tax system will only further these imbalances, as opposed to resolving them.

The new income tax law bill no longer a secret.

AlGhad, last Sunday, ran the entire details of the bill, both online and in print.

Naturally, the public reaction to the bill is worrying.

Speaker of the House of Representatives also rejected the very premise of the bill, stating it is harmful to Jordanians on fixed income. He also objected to the manner of publication.

Various other objections were raised on the new income segmentation for individuals and households, as well as how its affect the middle class. Some of these question the validity and effectiveness of raising the income tax rate for individuals and households on high but fixed incomes. Those argue that the government does not provide decent basic services to the vast majority of Jordanians. This alone challenges the concept of income taxation in and of itself.

Opponents of the bill describe it as economically and socially inconsiderate of the slowdown or the multitude of problems facing the Jordanian economy and society.

Their argument is that it will further alienate Jordanians and surely impede growth.

Jordanians have no faith in the fiscal and financial reforms programme, nor in the soundness of the government’s decision. Most feel these measures will not contribute to containing the problems facing our economy, chief of which are public debt and the budget deficit.

Contrarily, a ranking official with the government guarantees that the general budget deficit will shrink to ZERO by the end of 2020, if the new bill is enacted.

However, nothing guarantees such an outcome for Jordanian taxpayers, whose history with the government has been full of disappointment and failure.

To most Jordanians, the government’s promises and guarantees mean next to nothing, and rightly so, after all the broken promises.

Who knows? Perhaps another government will follow Dr Hani Mulqi’s Cabinet and cast the same old doubts on the these amendments and Mulqi’s entire economic agendas. Who is to say this won’t happen? It has; once, twice and thrice happened.

Every government comes along and questions the decisions of the former government, blaming them for the weight of their inheritance. And every government justifies its harsh decisions accordingly.

The bill also promises to counter tax evasion, which is also another cornerstone in the effort to reform the financial system and enforce the rule of law. If anything, this is perhaps the most important and promising aspect of the bill.

To attain the goal, the government has decided to enact effective mechanisms to ensure the collection of some JOD150 million per annum, out of the re-estimated JOD250-300 million lost annually to tax evasion.

Notably, the re-estimates of tax evasion are suspiciously lower than previous assessments, placing evasion costs between one billion and 700 million a year.

This inconsistency needs to be explained. Because to the public, it sounds like the government is trying to cover up so much tax evasion.

In the absence of confidence, this is all but expected.

How on Earth is the government going to guarantee such outcomes when the very infrastructure and foundation of it is not even ready for it? Not to mention the countless obstacles that may render the very effort useless.

Perhaps the government should postpone the tax hikes until it proves it is indeed capable of countering tax evasion and attain the goals of this particular aspect of the bill.

This is far more useful for the government than promoting possibly unattainable illusions.

The government claims that postponing the bill is not an option.

Donor states, like the United States and Japan, are pressing for the amendments, they say. As if this is the only thing wrong with our economic and fiscal policies.

Nonetheless, some middle ground can be found, to pave the way for a gradual but sustainable shift —again— that meets the requirements of everybody involved in our economic affairs; Jordanians above all, then the International Monetary Fund (IMF) and all the other donors.

This article is an edited translation of the Arabic version, published by AlGhad.

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