December 9 2022 5:18 AM E-paper Subscribe Sign in My Account Sign out

Budgetary arithmetic and Jordan’s tax system

Jawad Anani
Jawad Anani (Photo: Jordan News)
I was not surprised at all by Jordan’s 2021 revised GDP growth rate, which was set at 2 percent by the International Monetary Fund (IMF).اضافة اعلان

However, I am pleasantly surprised over the fact that government revenues exceeded annual budget projections in the first half of 2021.

The revenue estimates in the 2021 Public Budget Law were based on the assumption that real growth would be 2.5 percent and nominal growth was set at 6 percent. If real growth is down by 0.5 percent, and inflation remained at 3.5 percent, then the nominal growth rate would be 5.5 percent. Thus, the question arises: Why would government revenues exceed the expected figures? 

Not only that, but the government submitted a Budget Annex Law, increasing government expenditures by more than JD263 million in order to continue aiding businesses and supporting efforts to curb the effects of COVID-19.

Not only was the government successful in achieving higher revenues, but found the courage to be more magnanimous towards the private sector.

Where did the extra cash come from? Well, it was borrowed from past, and not from future streams of revenue. In other words, the tax authorities mounted aggressive audit campaigns in order to collect previously unpaid taxes.

Many companies that ceased operations without clearing taxes had their ledgers reviewed and were taxed retroactively.

The same exercises were done with individuals who had failed to file their respective tax forms.

The audits went back 10 years, and the taxes were in many cases paid in installments through checks payable to the Income and Sales Tax Department

I really do not have the exact figures of how much extra revenue was levied through these tax audits.

But the exercise, although hated and resented by many Jordanians, has proved beyond a doubt that we can improve income and sales tax collection through better management, more effective scrutiny, and the reorganization of tax departments.

 The government can also take a bigger step.

The amount collected annually from customs barely reached JD300 million. If a tax of only 5 percent is levied on all of our imports, the tally would add up to JD500 million. 

If we can affectively stop the smuggling of cigarettes, alcohol, smart phones, clothes and shoes, and other highly taxed goods, we could double the levy on customs and excise taxes.   

The management of revenue collection could go a long way to improving our tax system, narrow our public debt, and redirect our expenditures to where they can be most effective.

The 17th and 18th century economists called economics “political arithmetic.” They were referring to the relation between the government and the people through budget revenues and expenditures, i.e, the distribution of gains and pains. 

Administrative reform is the flip side of political reform. In a country where there are ardent attempts to reform, issues like the social distribution of pains and gains should be of paramount importance.

The path to reform is not merely a reflection of good intensions, it is the fruit of hard, detailed work and meticulously planned road maps.

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