Wednesday, August 09, 2006

“90% of Jordanians will be exempt of income tax”

This is what the prime minister told the heads of the professional syndicates yesterday. According to the PM, the proposed new income tax law will allow up to 14000 dinars per year in exemptions for single income families and 20000 dinars for double income families. The first 5000 dinars above the exemption will be taxed at 5%, the second 5000 will be taxed at 10%, 15% for the third 5000 dinars and 20% of income above that. Retirement incomes will be totally exempt.

The current income tax law has much lower exemption levels (6000 for the head of the household, 1000 for the spouse and 500 for each dependent), and the brackets start at 5% and increase at 5% intervals for every 2000 dinar increase in income up to a top bracket of 25%. Earlier this year, a proposed change in the income tax law was rejected after a large public outcry. The proposed law only had an 8000 dinar exemption, and two tax brackets thereafter (10 and 20%), with anybody making over 14000 dinars a year paying at the top level.

So, the new law is clearly designed to appease the middle class, which mobilized well to get the previous draft law rejected. It is noteworthy that the PM chose to talk to the professional syndicates about the proposed new law, as they were active in the campaign to reject the previous proposal. The political parties did not get involved, and it is clear that the PM doesn’t think they are important in this context.

The prime minister pointed out that only 11% of income tax collected comes from individuals, with the rest from corporations. There has been intense debate as to whether all companies from various sectors should pay at the same rate, or should the more profitable insurance and banking industries pay at higher levels than industries. It seems that the current thinking is to abandon the idea of the unified rates advocated in the rejected law and maintain different tax levels for different types of corporations.

Given the general political climate and the rises in the costs of living driven by rising fuel prices, it seems that the government made the prudent decision not to provoke the middle class with a heavy new tax burden. Good choice.

8 Comments:

At 12:05 AM, Anonymous Batir Wardam said...

This is a very good draft. I just hope now the elite rich will not stop it or even get Bakhit out of the government as a punishment for his mistake in touching the benefits of the super Jordanians.
Khalf for God sake your verification word this time is 9 words, I am fed up with this.

 
At 7:11 AM, Blogger Khalaf said...

Batir: We will see how the influential will react. Hopefully, the need for social stability will be the overriding guide to the final decision.

I will remove the word verification as a test. If I keep getting spam comments I will have to put it back.

 
At 7:32 AM, Blogger Hamzeh N. said...

I don't think this is the right solution. I think it might be better in the short term for a lot of people, but in the long term this is just not going to scale well.

Think of it this way. This seems like a solution using a simpler formula for calculating tax, when in fact the right answer is probably a more sophisticated formula. Income tax is the most complicated thing in most developed countries, and that's where we should be headed.

Also, I don't understand why you would believe that the rich will object to this new tax law. They will end up paying less taxes. They will benefit from the new bigger exemptions, and they will pay lower rates on the rest of their money than they used to. So I really don't get how the rich will object to this.

And that's part of why I think this might not work out very well. Having 20% being the tax rate at the highest tax bracket I think is a mistake; it needs to be much higher, I would say over 30%. There are people in Jordan who make well in the 6 digits in a year, and they're only gonna pay 20% on their income? I think the government can tap into more income by adding at least two more high brackets in the top. The US has 6 brackets with the highest being taxed at 35%!

That is what the government needs to do in addition of course to open the door for itemized deductions.

Another way of looking at this I think is that the government is trying to reduce the income tax, when I think most people will care more about reducing the sales tax, and maybe tapping into money from two or three new higher brackets can fill in the gap for the government.

 
At 10:33 AM, Anonymous Khalidah said...

I think this is a step in the right direction but let's see how it goes first ...

I see the point in what hamzeh said; maybe it needs to be calculated differently or make a reasonable balance between income and sales taxes ..

 
At 12:35 PM, Blogger Khalaf said...

Hamazeh: You are right that higher tax brackets might be appropriate. I am more concerned about tax evasion. As things are, only salaried workers are taxed correctly, with private business men and professionals avoid paying their fair share. The first step should be bringing them into the system.

I am happy that deductions will not be based on the number of children. We don't need the government to give incentives to have more children.

I agree that less emphasis should be placed on the sales tax.

Khalidah: I agree. We won't know until the law is passed.

 
At 10:06 PM, Blogger Habchawi said...

I agree with Khalf we need to implement an effective measures to bring the unsalaried workers (e.g. Investors) to the system before proposing a new tax law. Additionally, I have not seen or heard any thing about adjusting the exemption levels with inflation and cost-of-living and if unchanged, the 90% exempted will drop to less than 10% in matter of years.
Also, Jordanians working outside the country should be taxed as well. Probably not the same rate but they need to pay their share of the tax burden.

 
At 9:33 AM, Blogger Hamzeh N. said...

"Also, Jordanians working outside the country should be taxed as well. Probably not the same rate but they need to pay their share of the tax burden."

lol, I'm working outside the country and already paying taxes in the US. Why should I pay income tax to Jordan? I'm only physically present in Jordan at most 3 weeks a year, so I don't see the justification for paying taxes.

Now, I think countries can enter tax treaties with each other so that if a country requires its citizens who are working abroad to pay taxes, the countries that those citizens work in have them pay less taxes. If Jordan enters a tax treaty with the US and manages to get the US to deduct the Jordanian tax from the US income tax, then I'm all for it.

 
At 2:48 AM, Blogger OmAbd said...

I am hoping you know this answer: does a Jordanian citizen living abroad have to declare income earned abroad and pay taxes on it? If so, is there any way they will know if they earned money abroad? You seem to be 'in the know', so I hope you don't mind the question. Thanks so much

 

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