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The futility of over-taxation

Jul 15,2019 - Last updated at Jul 15,2019

The government pronouncements over the rising public debt in the first five months of the year caused a backlash from the Jordanian public. It was announced that the public debt rose to almost JD29.0 billion, or $40.5 billion.

In order to soften the negative impact on the public, the government pointed to other positive indicators such as growth in exports, improvement in corporate net profits, enhanced income from tourism, comfortable monetary indicators, etc. Yet, GDP growth of 1.9 per cent was short of the predicted annualised rate of 2.0 per cent.

People in Jordan, as indicated by the media at large, especially social outlets, are weary of hearing positive news which do not reflect what they undergo on a daily basis. 

Is Jordan going through economic downturn, or are we witnessing a drastic change in business models as practised in Jordan? What is happening in the market place which is stifling economic growth?

I really feel that official data do not reflect reality. An example is women’s employment. Who would accept, prima facie, that the percentage of female employment is decreasing? The modalities of women’s jobs and female-owned businesses are changing. Many women are working in the non-official segment of the economy. They have started home-based industries, food preparation and catering, weaving, clothing, artful pursuits without the knowledge of the government. 

Telecom companies see their income from external and international calls withering because more clients are aware of the zero-cost facilities. 

Boutiques and small shops are enduring a big challenge as a result of shopping sales which are not boosted by hefty price decreases (sales). People are using e-commerce outlets making use of the JD100 tariff allowance by the Customs Department.

The acute cash crunch is countered by repayment delinquency and a large (unlawful) use of cheques instead of recognised IOU instruments.

The high and unjustified tax rates are encouraging people to use whatever means to skip tax-subject transactions. This tax avoidance came as a result of a mediocre income tax law and undeclared fees inserted here and there.

Ibn Khaldoun, Laffer and other enlightened scholars realised the reaction of people to exaggerated taxes. The case in Jordan is revealing the deep truth embedded in the bell-shaped tax curve.

Governments need to decrease expenditure. Jordan can no longer afford to over-tax and over-spend just to create jobs mostly for non-Jordanians. Such a state of affairs is not only dangerous, but also unsustainable even in the short term. 

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