Taxes as indicators

Benjamin Franklin once said: “Certainty! In this world nothing is certain but death and taxes.”

No, he was not living in Jordan, but even his inventive mind could not have come up with anything close to the 82 type of taxes and fees Jordan imposes. But this is not the topic of this week’s article.

Taking the types of taxes and their collections as a given, one can draw a picture of the economy last year (when growth happened or did not) through a simple comparison between collections in 2012 and 2013.

The basic idea behind taxation is: If it moves, tax it.

Looking at the central government (excluding the 62 independent organisations) tax collections in 2013, one finds that income and profit tax decreased by 0.9 per cent, from JD688.4 million to JD681.9 million.

In other words, in spite of the hikes/reforms, government collected less than in the previous year.

Assuming no increase in the tax rates, and given an inflationary effect of 5.6 per cent, which should have increased government income and profit tax revenues, the fact that the government revenues from this tax category dropped indicates a strong downturn in economic activity in 2013 relative to 2012.

Let us look at the general sales tax (which makes up almost 70 per cent of tax revenues) in 2012 and 2013: collections increased from JD2,274.9 million in 2012 to JD2,532.9 million in 2013, which means an increase of 11.3 per cent.

Given an inflationary effect of 5.6 per cent, the remainder must be due to increased consumption.

But where did the increase in consumption arise from if incomes fell?

The increase in population, which arose from two sources, the natural or normal population growth rate and the increase in population due to hosting refugees from Syria, led to the increase in government collections from the sales tax.

Taxes, fees and fines arising from customs and international trade increased from JD285.5 million to JD324.9 million, an increase of 13.8 per cent.

Again, since Jordan is an importer of energy and food, the increase in population means an increase in imports and, hence, more revenues to the government.

Real estate tax collections also increased by 9.7 per cent, from 102.7 million in 2012 to 112.7 million in 2013. The increase in demand for housing led to an increase in government revenues.

In summary, government revenues from taxes increased by 9 per cent in 2013 relative to 2012.

Tax revenues tell the story of an economy that is somewhat odd: the population/residents increased, incomes and profits of the private sector decreased, and the government revenues increased. 

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