A Gradual but Sustainable Shift

Jumana Ghunaimat
Jumana Ghunaimat

اضافة اعلان

Discussion about a new Income Tax Law bill has been ongoing for over a year now, but the government has been postponing it, for some reason.

Finally, the government has decided to go through with it.

A little less than a year ago, I wrote an article entitled “Tax Amendments: This Shall Not Pass.”

In it, I highlighted the implications of the suggested amendments to the income tax law on the middle class.

Spectators and stakeholders are dying to know what the government has in store for us, especially when it comes to taxation. This particular aspect of legislation directly affects the lives of Jordanians, as more income excisions will make their life even more difficult than it already is for taxpayers.

Still, the government insists that the income tax is payable as a result of citizenship, which is true, at least for so many countries around the world.

In many parts of the world, states impose income taxes on citizens, not foreigners, to generate income, domestically. However, these taxes, which are consequential to citizenship, entail a variety of rights and responsibilities; Legal, political and economic for taxpayers.

That said, the government’s new bill of amendments has two main highlights.

The first, which is what everybody has been expecting for a while, has to do with household and individual income. It expands the taxable demographic. The government says that 95 per cent of Jordanians do not pay income taxes. As a result, the bill will cut exemptions to households and individuals with annual incomes of JOD24,000 and JOD12,000 and higher, respectively, in addition to the JOD4,000 allowance on invoice exemptions.

Instead, the government will lower the exemption ceiling to JOD16,000 and JOD8,000 per household and individual, respectively.

According to the government, this will shrink the exempt demographic from 95 per cent to 87 per cent.

Meanwhile, all other exemptions will be thrown out.

That’s not all. The amendments also entail tweaks to the segments of income, to further enforce the principle of progressive taxation. In light of that, there will be five income segments, instead of three. The tax rate will increase respectively.

In principle, this all sounds good.

In practice, however, this places tremendous pressures on both the middle and upper classes.

According to the suggested bill, the upper class, whose annual incomes exceed JOD36,000, will pay 25 per cent of it in taxes. Meanwhile, the middle class, whose monthly incomes range between JOD1,330 and 2,000, will also now pay income tax.

This is outrageous. A 25-per-cent tax on annual incomes above JOD36,000 is too high. Just as much as it is for middle-income classes to even pay income tax to begin with.

On another note, there is the fact that the upper class chooses not to benefit from the government’s services whatsoever; not the schools or hospitals.

If anything, a balance must be maintained between the taxes payable and the public services individuals benefit of in return.

The truth is, it is difficult to tell whether the suggested amendments are “good” or “bad” per se.

Expanding the taxable base is generally a good thing, though it is exaggerated in this case.

Nonetheless, to return the discussion to taxing the middle-income segment; if this is to go smoothly, then it has to be processed with a special degree of care.

The government can’t, for instance, impose a 5 per cent income tax all at once. Instead, maybe make the excisions as small and bearable as possible.

Also, instead of dropping the exemption ceiling for households to JOD16,000 suddenly, the ministry should consider gradually lowering the ceiling.

Otherwise the shock will probably result in retraction of the amendments.

In other words, the government could gradually go over the whole thing, instead of shoving it down the public’s throats all at once.

One year at a time, the government should lower the exemption ceiling a level.

First, for example, in 2019, maybe the government taxes households whose incomes exceed JOD20,000. In 2020, the government lowers the ceiling to include households with annual incomes over JOD18,000.

One level at a time until the government arrives at the target ceiling for exemptions, which is JOD16,000, per annum for households.

This way, taxpayer segmentation in Jordan would be more consistent with the international indices, reflecting an economically sound society.

Sudden changes of this sort will likely not work.

A gradual but sustainable shift is needed to ensure a feasible and smooth transition in the taxation system.

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