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Why did tax proceeds decline?

Aug 27,2017 - Last updated at Aug 27,2017

According to the economic reform programme supervised by the IMF, the government is committed to raise the proceeds from taxes as one way of reducing budget deficit.

The government also undertook to do that without imposing new taxes or raising the existing taxes. The idea was to remove exceptions and exemptions that proved to be unnecessary and failed to achieve something other than disturbing market activities and interaction between supply and demand.

The end result was a loss of not less than $1 billion for the Treasury.

However, the government did not take one step in that direction; on the contrary, the policy of granting exceptions and exemptions is going on in response to pressure exerted by special interest groups.

The prime minister said recently that 70 per cent of food and basic commodities will not be touched. 

But what about exemptions and exceptions? The remaining 30 per cent of basic goods has to be dealt with.

If that is not enough, the prime minister went on to cause more of market distortion. He ordered both the civil and the military consumption establishments to maintain selling prices at last year’s level, without taking into account the fact that the cost of some local or imported products may have risen.

Subsidies, direct and indirect, are always used to gain favour with the public opinion.

Such policy does not take the interest of the Treasury into consideration. It stands always ready to appease loud voices and gain popularity or avoid criticism of the government.

Exemptions and exception did not only hurt the sales tax, they also denied the market free activity in accordance with the supply and demand mechanism.

This way, prices will not be determined in the market or influenced by cost reduction, but will be decided by orders from the prime minister.

Ours is supposed to be a free economy, active in a market that is open to the interaction of supply and demand.

Jordan is not a socialist country where quantities and prices are determined by the authorities for popular purposes, even though taxpayers will sooner or later pay for.

No wonder that the proceeds from taxes during the first half of this year were down at various rates instead of rising, as was expected. A good budget cannot be based on rising expenditures and declining revenues.

At the end of the day, the Treasury reflected tax proceeds during the first half of this year that are 2.6 per cent lower than in the same period of last year. They would have risen by at least 2.2 per cent had the tax proceeds responded to the positive growth of the economy in general.

In order words, the total cost of appeasing the public and yielding to pressure groups cost the Treasury 4.8 per cent of its revenues from this source.

 

If such policy continues, it will fail the economic reform programme, which aims at reducing deficit and bringing debt under control.

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