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French Version

Income Tax draft under the hammer: Deputies and experts express fears over changes in law

THE HEATED debate between the government and Parliament this week over the new income tax draft law is today under the spotlight.

THE HEATED debate between the government and Parliament this week over the new income tax draft law is today under the spotlight. The debate has become more of a headache that refuses to go away. People from different economic sectors in the Kingdom are looking aghast at the new changes currently going through Parliament. Economic experts are divided. Although many believe the government’s willingness to ratify the new draft could create tantrums in the different economic sectors in the long run, others think if ratified, the draft will set the taxation system back on the right track. Last Sunday, the debate intensified as many Lower House deputies rejected some of the clauses, calling them unjust. Prime Minister Ali Abul Ragheb defended the draft and said the new law aims to “reactivate the economic sectors” in the Kingdom by achieving sustainable growth in the economy. “Business’ profits deal proportionally with taxes,” Abul Ragheb told deputies. “If there are no substantial profits there will be no taxes, and vice versa.” The premier, meanwhile, thinks the amendments to the current law will pave the way for more revenues in the coffers of the Treasury.

Deputies, however, reject this and point out it could be dangerous. “It looks as if the government has nothing to do but direct its attention to hitting the pockets of Jordanians, making the rich more prosperous and the poor more miserable,” a deputy, who preferred anonymity, told The Star. He was talking in reference to lottery winnings and prizes that would be subject to the new draft. One of the clauses in dispute calls for a 10 percent decrease in the Income Tax on banks and financial institutions lowering it to 25 percent.

Those who are opposed believe it will harden the recession in the economy.

“The Jordanian Constitution doesn’t allow for the government to reduce taxes on companies that make constant growth in profits, including banks,” said deputy Nash’at Hamarneh. “Tax increases when profits increase. What the government plans to do is entirely against the Constitution.” Hamarneh told The Star most banks today employ their profits, after paying income tax, in private investments rather than for the benefit of their clients.
Economist Abdallah Al Malki has a different point of view. “I feel the current debate among businesspeople and deputies over the new Income Tax law is meaningless,” Al Malki said. “I believe the government’s new formula for the law is more impressive and good for the economy.” As for the banking sector, the economist noted reducing taxes on banks means reducing obstacles and paving the way for boosting local investments.
Bankers, meanwhile, denounced the Lower House’s rejection to reduce the Income Tax. Ziad Al Basha, an expert in banking services, said deputies have misunderstood the main objectives of the new amendments to the current law. “The burden of taxes limit banks from achieving better results and prevent them from expansion,” Al Basha said.
“It is ridiculous to reduce interest rates while taxes remain high. The banking sector still suffers from shortcomings that can’t be resolved overnight. Too many taxes means less opportunity for economic development,” he added.
Income tax on banks was cut twice in the past, the last time was in 1990 when it was reduced to 35 percent. Hamarneh believes one of the reasons behind the five-year recession in the economy is the banks’ insufficient behavior in pursuing more active financial policies. “The banks reduced interest rates on deposits last year but kept them on banking facilities, including loans, which impeded potential investments from coming to Jordan.

”Al Malki, furthermore, strongly believes the new draft law is creating a strong basis for local industries to grow and expand. Income tax on the industrial sector is earmarked at 15 percent. “We expect a better future for local industry to develop and achieve more growth both locally and abroad.” Al Malki believes the new draft is more comprehensive and transparent. He considers it part of the government’s plan to implement an extensive taxation reform program in the Kingdom. The economist also pointed to the commercial sector, which is expected to endure an Income Tax at 25 percent. Both Al Malki and Hamarneh agree the commercial sector should pay the full tax bill.

“The commercial sector is the one to be blamed for the big gap in the local trade deficit. Our imports increase at the expense of our exports, a reality that is against local industries in the long run,” Al Malki explained. “What is left for local merchants is to be honest and deal with the issue from a national perspective and give local products a greater opportunity to grow.”

Ghassan Joha
The Star

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