Two weeks ago, The Economist published the article “Arab governments are putting
more taxes on the poor”, in which Jordan was mentioned among other Arab
countries.
اضافة اعلان
Unlike other articles by The Economist (which was
established almost 180 years ago), as an economist, I found the piece
incomplete in regard to Jordan (and it mentioned it a lot), and that it may
have committed an error or two when analyzing taxes.
While one agrees with the conclusion that some Arab
countries may be taxing the poor to increase revenues, based on the fact that
the sales tax is regressive (it affects the poor more, proportionately, than
the rich), the first rule when assessing a type of tax is to relate it to all
other taxes and not look at it in isolation.
For example, it would be incorrect to state that
Jordan is better off than Finland because the general sales tax (GST) is 16
percent in Jordan and 24 percent in Finland. The reason is because unlike in
Jordan, in Finland there is zero income tax on individuals and the tax rate on
corporations is 20 percent. Both tax types are lower in Finland than in Jordan.
Besides, it is rumored that Jordanians pay over 130 types of taxes, for TV,
airport, border, asphalt, mobile, built space, university, etc. This was not
observed in the article.
The analysis is also lacking when it does not
compare the taxes paid to the benefits received in each country. After all,
taxation is the tool by which the government endeavors to become a Robin Hood,
taking from the rich to help the poor.
To compare the value received from the government, I
would refer to the World Happiness Report, published by the Sustainable
Development Solutions Network, which ranks 146 countries in terms of happiness.
In 2022, according to the report, Finland came 1st and Jordan came 124th, to
use the same country by way of comparison.
In Jordan, non-tax revenues (the vast majority of which are fees) are almost JD2 billion, or 25 percent of total domestic revenues.
Furthermore, article in The Economist referred to
income taxes in Gulf countries as if they were the same as countries in the
developed world. In the Gulf countries, the government owns the oil and
distributes some of its revenues among the people. In the US, for example, a
person can own their own oil well(s).
The article also failed to look into the size of
fees that are being charged without being tagged as taxes. In Jordan, non-tax
revenues (the vast majority of which are fees) are almost JD2 billion, or 25
percent of total domestic revenues. Had authors of The Economist article
bothered to look into the local story of the taxes and fees paid, I am sure
they would have written a different piece.
When analyzing taxation in Jordan, I simply divide
the government domestic revenues (less revenues from its shares in corporations
and interest it receives on loans) into the GDP. As it turns out, the ratio of
taxes and fees to GDP is around 30 percent, and it has hovered consistently
around this rate for some time now.
The main lessons to be gleaned from this article
are: whenever possible, when analyzing an economy, one should know the local
story; rules and standards should not be sacrificed to justify an end or prove
an argument; use simple tools, for, in spite of everything, good economics is
based on common sense. No common sense makes bad economics.
Yusuf Mansur is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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