IMF suggests strict measures to fix economy

AMMAN — The International Monetary Fund (IMF) recommended Tuesday that Jordan eliminate the general sales tax zero rate and maintain exemptions for only a limited set of goods.

It also suggested increasing the special sales tax on oil derivatives from 6 to 20 per cent if other recommended measures are not implemented, according to a report listing these suggestions compiled by the IMF upon the government's request.

The report, a copy of which was made available to The Jordan Times, came after the IMF conducted its first economic review of the Jordanian economy following a $700 million extended fund facility.

The IMF advised Jordan to increase the special sales tax rate on soft drinks from 0 per cent to 20 per cent and on cigarettes to 0.52 per cent per packet as well.

The IMF mission recommended a slight increase to the tariff rate to raise revenues by 0.19 per cent of the gross domestic product.

It called for establishing a monthly tax period for the general sales tax and the special sales tax, saying it would yield 0.8 per cent of the gross domestic product.

In its technical assistance report, the IMF mission said Jordan has undertaken significant policy adjustments against a difficult external environment, rising socioeconomic tensions and high vulnerabilities. 

The economy continued to perform favourably with growth averaging 2.75 per cent between 2011 and 2015 despite a very difficult external environment. Nonetheless, significant challenges remain on the fiscal side with gross public debt representing about 94 per cent of the gross domestic product.

On the short-term recommendations for 2017, the mission called for imposing a moratorium on the introduction of new tax incentive provisions and the expansion of existing ones.

In one of the recommendations, the IMF recommended that all taxpayers, excluding those in free zones, be subject to general sales tax as defined in its law.

The mission called for considering introducing general sales tax payment delay mechanisms for some imported capital goods.

The mission called for removing the corporate income tax exemption for enterprises operating in free zones after a 10-year transition period.

It also announced a set of medium term recommendations for 2018-2020 that include reviewing customs duties exemptions provided in non-tax laws, with a view to reduce or eliminate them in all investment frameworks except in free zones.

The fund urged moving all tax incentive provisions into tax laws.

The mission also recommended eliminating or scaling back corporate income tax incentives for new investments/activities in any of the tax preference frameworks after conducting further revenue impact assessment.

The IMF also called for considering introducing a neutral investment incentive instrument in the income tax law.