Jordan: Boosting revenue

With Jordan’s economic outlook at best mixed for the time being, the kingdom’s government is exploring tax increases as one way to keep the budget solvent. However, officials are nevertheless keen to ensure these tax hikes do not hinder common daily economic activity for most of the population, especially now that Ramadan has begun.

While the kingdom did post better-than-expected economic figures for the first quarter of 2012, including a 3% expansion in GDP, officials are being cautious, relying on increased taxes and similar means to provide government revenue until the economy recovers.

“Although we have started to see some positive signs, the economic situation is still harsh,” Suleiman Hafez, the minister of finance, told a press conference in June. The government’s bill of subsidies, which grew after the onset of the Arab Spring, is expected to amount to more than JD2bn ($2.82bn) by the end of 2012.

The country has earmarked a number of areas for tax increases. The Telecommunications Regulatory Commission, for example, is said to be considering increasing the revenue-sharing tax (currently 10%), with some reports suggesting it may go as high as 20%, though this would happen gradually. Mobile phones are also set to receive an 8% tax at point of sale, which should net the government JD4m ($5.65m) in revenue.

The Aqaba Special Economic Zone Authority’s tax department is also asking transit companies using the port to retroactively pay income tax for the past five years, a move that is drawing protest from that area’s chamber of commerce.

A series of “luxury” items are receiving tax increases as well. Tax on alcoholic drinks, currently JD2.50 ($3.53) per litre will be raised to JD3.50 ($4.94). Cigars, currently subject to 15% tax, will see that increased to 100%. A new tax of JD40 ($56.50) will be levied on airline passengers travelling outside Jordan, if their planes take off from airports within the kingdom.

The government is hoping to use these taxes to support shifts in some sectors towards more sustainable models. For example, while vehicles with an operational age of over five years will be subject to a new 64% levy and conventional cars will see their tax increase from 81% of the vehicle’s value to 90%, the tax on small-engine hybrid vehicles, which are more fuel-efficient, is being reduced from 55% to 25%.

And it is not just the hybrid car sector that is benefitting from decreases. Officials are quick to stress that basic commodities, such as foodstuffs, will not be subject to price increases, especially with the observance of Ramadan having begun. Food consumption during the holy month increases substantially; meat consumption, for example, tends to increase by 20-30%.

“This Ramadan will be exceptional in terms of affordable prices and diversity of products,” Samer Jawabreh, the president of the Foodstuff Traders Association, told press at the beginning of July. Indeed, some foodstuffs are seeing special tax reductions. For example, the tax on cheese containing vegetable fats and oils, currently set at 16%, will drop to 4%.

While the kingdom is still planning to widen its revenue stream in the long term through continued economic expansion, its short-term revenue-gaining taxes are nonetheless being carefully applied in particular segments, such as luxury goods and mobile phones, in order to avoid drastically affecting the lives of ordinary citizens.

Meanwhile, the use of vehicle taxes to incentivise consumers to move from outdated, inefficient vehicles to more fuel-efficient ones could go some way toward putting domestic consumption patterns in better stead once economic expansion picks up.