“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.