Jordan seeking ways to improve revenue stream

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Vegetable vendors express their support to King Abdullah II at a market in Amman, Jordan. Photo – cdn17/Flickr

The Jordanian government is exploring ways to increase taxes as one way to reduce budget deficit but taking utmost care not to upset common daily economic activity for most of the population, especially now that Ramadan has begun, an international business think tank report said.

The study conducted by the Oxford Business Group suggested that the kingdom posted better-than-expected economic figures for the first quarter of 2012 and noted a 3% expansion in GDP. However, the Oxford-based publisher noted that the government is cautiously leaning on tax hikes and arbitrary measures to boost government revenue until the economy rebounds.

“Although we have started to see some positive signs, the economic situation is still harsh,” Suleiman Hafez, the minister of finance, told a press conference in last month. The Jordanian government steadily increased subsidies after uprisings broke out across the Middle East last year, and the bill is set to reach around JD2bn ($2.82bn) by the end of 2012.

The government is determined to increase its tax net and is considering a number of areas for tax hikes. Reports coming from Amman suggest the Telecommunications Regulatory Commission is said to be considering increasing the revenue-sharing tax, which currently stands at 10%, to gradually increase it as high as 20%. The authorities are eyeing a revenue of JD4m ($5.65m) thanks to the 8% point of sale tax on mobile phones.

Some of the government’s moves are coming under fire as rigorous tax collection regime is proving to be not so popular with some traders and businessmen amid harsh economic conditions. The OBG report cited the example of Aqaba Special Economic Zone Authority’s tax department, which is also asking transit companies to retroactively pay income tax for the past five years that are using the port. The area’s chamber of commerce has protested the move.

The Hashemite Kingdom has also hiked taxes on a series of “luxury” items including alcoholic drinks. The levy, which currently stands at JD2.50 ($3.53) per litre, will be raised to JD3.50 ($4.94). Cigars, currently subject to 15% tax, will see that increased to 100%. Despite troubles in its aviation sector, the Tarawneh administration has announced imposing a new tax of JD40 ($56.50) on airline passengers travelling outside Jordan, if their planes take off from airports within the kingdom.

Cars are also set to witness an increase in their government taxes as Amman adopts sustainable policies for some sectors, especially the transport and automobile sector. Under the new plans, vehicles with an operational age of over five years will be subject to a new 64% levy and conventional cars will see their tax increase from 81% of the vehicle’s value to 90%. Environmentally-friendly and more fuel-efficient small-engine hybrid vehicles are likely to see taxes reduced from current 55% to 25%.

The report quoted Jordanian officials as saying that prices of basic commodities, including foodstuffs, will not be increased, especially during Ramadan. Food consumption during the holy month increases substantially; meat consumption, for example, tends to increase by 20-30%.

“This Ramadan will be exceptional in terms of affordable prices and diversity of products,” Samer Jawabreh, the president of the Foodstuff Traders Association, told at a press conference earlier this month. Many consumers have welcomed the reduction of tax on cheese containing vegetable fats and oils, dropping to 4% from 16%.

The government is targeting particular segments of the economy, such as luxury goods and mobile phones, to widen its revenue stream in the long term but is carefully monitoring the inflation and other economic factors so that the lives of ordinary citizens are not drastically affected, OBG highlighted in its report.

Amman is under tremendous pressure to reduce energy imports, which imports 96% of its fuel from neighbouring Saudi Arabia, Egypt and other countries. The government’s new vehicles tax regime is seen as a green incentive to consumers to move them from outdated, inefficient vehicles to more fuel-efficient ones, the study noted.

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