Much ado about income tax

During Eid Al Adha, the Jordanian public scene witnessed a heated debate over the leaked proposed new Income Tax Law.

Government Spokesman Mohammad Momani said, after a long, deliberate, silence, that the leaked proposal was merely a scenario among many others and the law will have to go through government scrutiny before it is taken to the Lower House and the Senate.

Yet, he failed to mention that regardless of the various scenarios, a certain target amount should be collected through extra income tax as per the agreement with the IMF. Until that condition is met, Jordan will not get a $1 billion soft loan from the IMF.

Upon reading the bad news, hundreds of angry and loud comments and articles surfaced in the media. Most of them concentrated on the social implications of this new law, with accusations that it will shrink the middle class and add uncalled new burdens on the poor families.

Both the lexicon and the arguments were ad hominem, directed specially at ministers.

A look at the government’s tax revenues over the period 2012-2016 and the estimates for 2017, will show that they have been increasing at an annual average of 5 per cent.

Income tax collection increased from JD688 million in 2014 to JD945 million in 2016. It is expected to drop to about JD900 million in 2017.

Taxes paid by individuals constituted only 25 per cent or less of the income tax revenues. However, they dropped from 1.8 per cent of disposable private income in 2012 to 1.3 per cent in 2016. This is a very low percentage compared to other countries; it is mostly paid by private sector employees.

The minister of finance takes this public debate as a natural phenomenon on the assumption that people eventually must absorb the hard facts.

His job is to ensure that the Treasury collects adequate revenues to cope with its obligations.

Any Jordan government’s worst nightmare is failure to pay the JD400 million monthly bill of salaries and pensions.

Other ministers should study the impact of any hikes in taxes and their incidence on their respective sectors. Leaving taxes low on their sectors would serve employment, income distribution and overall growth rates. The ensuing debate would produce optimal results.

At every stage of legislation, a solid information base and well-founded research would help all parties agree or come as close as possible to consensus. In the absence of these, the debate would be, as Shakespeare said, “much ado about nothing”.

The debate may have been deliberately elicited by the government, to gauge the intensity of public reaction. If that is the case, the government got more than it bargained for. Jordanians were almost unanimously against it. Yet, no official stepped forward to explain the government’s position.

If this inaction was by design, then the government should deal with its aftermath.

A sombre campaign should be mounted as an antidote to the toxicity that infiltrated the Jordanian society. Facts are harsh, taxes are hated, but we should act as a sophisticated state in dealing with our demons, including extra taxes.

The writer is a former Royal Court chief, deputy prime minister and member of Senate. He contributed this article to The Jordan Times.