Introducing tax morality

“The new billing system violates the Constitution… it is doomed to failure… It will enhance tax evasion and fiscal and administrative corruption.”

Well, this is how the president of the Jordan Bar Association described the billing system that was enacted on July 1 to enhance tax enforcement. In the same press conference, he announced that lawyers would not comply with the system.

Other professional associations were equally critical of the system. So how do we explain these virulent attacks against the government’s perceived attempt to raise taxes?

Emphasis here is on the word “perceived” because the director of the Income and Sales Tax Department stated that the billing system would improve enforcement, not raise the tax burden on Jordanians. This statement, remarkably, failed to convince anyone, which reflects sadly on the credibility of the whole government.

But interestingly, this behavioural pattern fits with studies conducted during the past five years on factors that shape public attitudes towards paying taxes in multicultural European countries, including some with sizeable Arab communities.

There is considerable evidence that, in European countries with high tax rates, e.g. France, Scandinavian countries and Switzerland, there is a high level of tax compliance, which is not explained entirely by enforcement. Researchers seek to explain this high level of tax acceptance and compliance by studying what they call tax morality.

Studies on tax morality indicate that trust in and satisfaction with the government in general, and specifically with the health and education services it provides, help raise people's compliance with taxes. By contrast, real or perceived inequality and government corruption drags tax morality down.

Moreover, according to a report released by the Organisation for Economic Co-operation and Development, tax morality tends to be higher among women, the educated, the religious, older people and full-time employees.

The government of Jordan may be well advised to take note of these studies. The tax burden in Jordan is already high and rising; but by the government’s admission, compliance is low and dropping. To change this, perhaps the government needs to work on changing mindsets, starting with its own.

Jordanians are largely responsible people. They understand that the International Monetary Fund urges the government to reduce the budget deficit and they accept the need for taxation to pay for the services that only the government can provide.

In return, Jordanians expect, not unreasonably, to be told where their tax money goes. The problem is that they believe, rightly or wrongly, that the government’s published accounts do not reflect accurately its income or its expenditure.

This is a dangerous situation because it creates a rift between the government and the people, which is approaching confrontational levels. To heal this rift, government needs to persuade the public that it works to serve their interests. If it succeeds, this would relieve it of the need for much of its enforcement efforts because then the people discipline themselves.

What Jordan needs is transparency and accountability, not tighter enforcement mechanisms and harsher penalties.

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