By Suleiman Al-Khalidi
June 4, 2018 - Police clash (click here) with protesters near the prime minister's office in Amman.
Amman (Reuters) - Jordan’s cabinet announced (click here) on Monday a major package of IMF-guided tax hikes it says are crucial to gradually lower record public debt needed to get the economy hit by regional conflict growing again.
The package announced on state media includes removing exemptions on general sales tax and unifying low 4 to 8 percent rates on a large number of items at 10 percent while leaving it at 16 percent ceiling for others, alongside raising special taxes on tobacco, premium gasoline and streamlining customs duties.
Prime Minister Hani al-Mulki said the delay in implementing the much needed reforms to generate at least 540 million dinars ($761 million) in extra revenues would increase the already high financing needs and threatens to hit the country’s finances.
The International Monetary Fund (IMF) approved in 2016 a three-year extended ambitious program of long delayed structural reforms to cut public debt to 77 percent of GDP from a record 96 percent by 2021.
The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterized by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods....
...Debt service would peak in 2019-2020 at about 6.5 percent of GDP with Eurobonds that will be due.
The government has said it will mitigate the impact on the poor by exempting sales taxes on basic food products and medicines.
But economists reckon subsidy cuts are bound to worsen the plight of poorer Jordanians, a majority of the country’s population, and removing subsidies has triggered civil unrest in the past....
What is the proposed tax?
- The new law - which still must be approved by Parliament - will increase the percentage of citizens who will be taxed from 4.5 to 10 percent.
- It will lower the taxable income for a family from $34,000 to $22,500 and for an individual from $17,000 to $11,200.
- The law proposes raising tax rates for banks from 35 to 40 percent.
- It will increase government revenue to between $350m and $430m by 2020-2021, according to Mousa al-Tarawneh, spokesman for the income and sales tax department.
- The law will combat tax evasion across all sectors which, according to government figures, amounts to about $800m a year.
- The law will also reclassify tax evasion from a criminal misdemeanour to a felony.
- The government asserts that 90 percent of Jordanian citizens will not pay taxes because of their poverty rate and family exemptions.
- It also maintains the increase is needed for the annual interest of about $1.5bn it pays to service its nearly $40bn debt, according to economic journalist Salameh Derrawi Jordan.
- The government has been borrowing more expensive loans to pay for older loans.
- Because parliament is not in session, King Abdullah II must call Parliament to convene an exceptional session to discuss the law.
