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Moody’s says new tax law vital for Jordan’s credit rating

By Mohammad Ghazal - Jun 04,2018 - Last updated at Jun 06,2018

AMMAN — Jordan’s income tax draft law will enable the Kingdom achieve a “positive credit rating” and enhance ongoing fiscal reforms in Jordan, according to a report by credit ratings agency Moody’s.

The report, a copy of which was obtained by the Jordan Times on Sunday, indicated that the bill would help reduce public debt, as it would increase revenues by JD300 million, or about 4 per cent of 2017 revenues and around 1 per cent of the gross domestic product.

“The bill would help enhance fiscal stability and reduce the financial deficit to 1.9 per cent of the total GDP by 2019,” the report indicated.

The draft law, the agency indicated, would help contain tax evasion, which reaches around 80 per cent in some sectors.

According to the agency, Jordan’s current credit rating is B1 (stable). It commended the establishment of a financial investigations unit as stipulated by the law, and the stiffening of penalties that will help curb tax evasion by both individuals and corporations.

The credit agency highlighted that Jordan is home to 1.4 million Syrian refugees, representing some 20 per cent of the population of Jordan, and that the rise in population resulted in increased government expenditure on social services amidst a decline in foreign grants.

 

The bill, it said, would help reduce the ratio of public debt to GDP to 82.2 per cent by 2021, from 95.3 per cent at the end of 2017.

“Credit positive means that Jordan is on track with the fiscal adjustment and structural reform programme. This is very important for creditors, and reflects the commitment to reduce deficit and debt as a per cent of GDP,” Minister of Finance Omar Malhas told The Jordan Times on Sunday, adding that the report could also signal that Jordan’s credit rating would improve.

Referring to the bill, the minister said: “This is an important reform that will broaden the tax base in an efficient and more equitable manner. The proposed reform would also help shift the balance of fiscal adjustment away from taxing consumption [which tends to hurt the poor and most vulnerable] towards taxing income, especially from those with greater capacity to pay.” 

“It also removes distortions and loopholes, and broadens the tax base for corporations, while simultaneously protecting some specific sectors that have been most affected by adverse regional conditions and by the removal of a non-WTO-compliant export subsidy,” said Malhas.

“Critical to the success of the proposed reform will be the strict implementation of measures to enhance tax administration, as well as measures to lessen incentives and increase penalties for tax evasion,” he added.

The current draft law, which triggered nationwide protests across the Kingdom involving thousands of Jordanians, exempts families whose yearly income does not exceed JD16,000 and removes an additional exemption of JD4,000 that was given to families in case they provided bills for medical treatment or education.

The country’s professional associations will hold another strike on Wednesday, despite an announced deal with the government on Saturday that dialogue would continue.  

The bill mainly focuses on three aspects: improving tax collection, curbing tax evasion and boosting tax revenues, which are expected to increase by JD300 million annually.

The proposed law seeks to increase the number of income tax payers from 5 per cent to 10 per cent.

It re-labels tax evasion from a misdemeanour to a felony with harshened penalties of imprisonment and financial fines.

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@Hatem Abunimeh: interest bearing loans are haram, did you not get the memo from Allah and His Messenger (saws). Build infrastructure on cash & muamalaat and leave the evil IMF alone.

Moody’s can go to hell !

The snafu over the proposed amendment to the income tax draft law was caused by both miscommunications by the government officials and misunderstanding by the general public. For instance article 17 section A specifically states that it is incumbent upon every Jordanian that completed eighteen years of his age to obtain a tax identification number, concurrently, and after the outcry by many social media mascots the Tax department clarified it-- by retracting the original draft or better yet explaining the exact meaning which is the eighteen years old aren't obligated to file unless they cross the threshold of JD 8000 for individuals or JD 16000 for families. By then it was too late because of the social media clowns have already stirred the hornet's nest and the people started getting all kinds of misleading ideas about the proposed law assuming that it will be damaging to their income and additional fees would be required to file and penalties would be imposed for not filing even some thought that they would be going to jail in the event that they ignore the filing deadline set annually. The people then took their grievances to the streets and demanded a withdrawal of the law altogether. Had the proposed law been properly explained --it would ostensibly manifest that the biggest tax burden has been shifted to the big corporations and financial institutions and not individual although it could have been a little fairer to the individuals by keeping the JD 4000 exemptions for miscellaneous expenses. Now the powder keg is already broken and the government needs to go back to the basics and start revising on the drawing board and deliberately explaining in a conspicuous manner what it means to the country and to the individual to have a modern, civil, fair, and transparent income tax law. It will definitely improve Jordan's credit ratings and puts in a better position to negotiate future loans with low-interest rate because a good credit rating reflects the ability of the government to meet its scheduled repayment plan in addition to being creditworthy and risk-free.

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