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French Version

Government to unify automobile tax : Revised Car tax favors the affluent

Sami Makhlouf was planning to buy a modern small car, which he thought he could afford; still he now has to think twice before doing so. The government’s recent decision to unify the special Sales Tax on cars in Jordan as of May 1 has thrown the automobile market in turmoil this week as it entails a 30 percent special sales tax for cars manufactured since five years or less, and 50 percent on cars of more than five years.

The decision already perplexed auto merchants and citizens alike ever since it was published last week.

Director of the Sales and Income Tax Department, Iyad Al Qdah justified the government’s decision to simplify the tax system on cars. He said the unified sales tax on vehicles would be determined by the car’s value in the local market rather than its engine capacity, disproving earlier suggestions by auto traders that the decision would apply further cuts on custom duties paid on big modern cars. According to the decision, a car with engine capacity of 2500 cc will be subject to a 50 percent tax of its price, while a car with engine capacity of less than 1500 cc would be taxed by 30 percent of its price rather than the previous 9 percent. Prior to the decision, taxes on cars of 2500 cc and over used to vary between 25 and 70 percent. Cars between 1500 cc and 2500 cc capacity would also be taxed by 30 percent of the price.

Many car dealers in Amman said they would raise prices of their cars (1500 cc and less) by 25 percent and reduce those of larger cars (2500 and more) by 20 percent. “I budgeted JD5000 for the new car. But the government’s decision makes it hard for me to get the car I wish,” said Makhlouf. Makhlouf fears that the decision would impose further burden on him since the government stipulates 30 percent more in custom duties in addition to the already existing 16 percent ordinary Sales Tax. “It has nothing to do with the custom duties,” stressed Al Qdah, saying, “We divided the cars into two categories to stabilize the market and enhance competition among car dealers.” Al Qdah said the government gave the local market a “grace period” to streamline the administrative implementation of the new decision.

“We believe that most of the public demand focuses on cars between 1500 cc and 2000 cc, since these cars would not witness substantial changes on their prices due to the decision. However, cars with engine capacity of 1500 cc and less are less popular among Jordanians when these cars make about 10 percent of the overall auto sales.” Al Qdah’s remarks do not help Makhlouf, since the latter would have to hunt for a car that fits his budget. “The government’s decision would force many people, especially the low-income, to own older cars which causes extra financial and environmental burdens,” explained the 23-year-old employee.

Makhlouf stressed that the decision would sort out people into two categories: Those who own the big-size cars and those who don’t. “My budget could help me in obtaining a medium-size car, but this would add to the fuel and maintenance bill.” Another motorist, Mousa Abdeen believes the government’s decision was “ill-timed” since it comes “at a time when fuel prices are expected to soar in the near future.” Abdeen said that he would retain his 1200 cc car, modeled 1993. “It would be better to wait until the government endorses the projected fuel price hikes, either this year or the next year,” said Abdeen. As for dealers, the decision was received with mixed reactions.

They all agree the decision would not entail any positive indications on sales of the big-size cars. Yet, they want the government to apply the decision in retro, to help them balance their losses. “It would be more logical for low-income people going for small cars to buy them before May 1, when the decision comes into force,” said Salameh Al Jundi, president of the Auto Merchants Association. “The decision would present new realities on the ground, with the public’s attention shifting towards lower-priced cars regardless of model or engine capacity.” Hassan Beituni, president of the Free Trade Areas Investors Association, praised the government’s decision for its “encouraging steps” to enhance the sales of big-size cars in the Kingdom. He predicted that the local auto market would revitalize soon and that the public demand on big cars would witness gradual rise in the coming months.

Dealers do not share Beituni’s feelings. “We were shocked by the decision,” said Mamdouh Abu Ghadir, a dealer in Al Wihdat area in Amman. “I have paid large amounts of money in clearing cars at Customs Department, between JD 20,000 to JD 40,000 a car. My business already faces financial hardships and I believe the government’s decision would keep customers away from my showroom in the coming weeks.” Sharhabil Shurabi, another dealer, doubts the government has undertaken a feasibility study before making its decision. “I believe the decision was made without taking into consideration the losses borne by car merchants the last time the government cut its custom duties on cars in 1999,” said Shurabi. He demands that both the Sales and Income Tax Department and the Auto Merchants Association to form a special committee to discuss the government’s decision. Shurabi said the committee must be formed soon before the decision is applied. “The merchants have many things to say and we need the government to listen to us,” he added.

Economists, on their part, disputed the government for its “incompetence” to handle this issue properly, since it affects a wide spectrum. “Such sensitive decisions should be managed efficiently in terms of declaration and implementation,” said economist Ibrahim Seif. He said the government failed to justify the decision right after announcing it, a fact that left the public and dealers in complete chaos. “The government lacks harmony in its statements when it tackles economic issues relating to the well being of people. Once a decision, like the latest one, is made the government should present it clearly and soundly,” Seif said. Economist Fahd Fanek, meanwhile, sees the government’s decision from a different angle. “When the government previously taxed cars according to engine capacity, it wanted to: Economize in fuel consumption; help low-income people; and minimize the negative effects of fuel consumption on the environment. The latest decision might change those realities to the worse,” he said.

Amman,18April2005
Ghassan Joha
The Star


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