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Jordan Urged To Further Expand Taxpayer Base

by Lorys Charalambous,, Cyprus

13 November 2014

The International Monetary Fund (IMF) has welcomed Jordan's progress on fiscal consolidation, but said that further reforms are necessary, including the removal of tax exemptions.

Following the conclusion of the IMF's fifth review of Jordan's performance under its three-year economic program supported by a Stand-By Arrangement (SBA), Naoyuki Shinohara, Deputy Managing Director of the Fund, said that fiscal measures planned for next year "provide assurances that public debt will move onto a downward path, starting in 2016."

He welcomed the income tax law currently under discussion in Parliament. This is intended to reverse a fall in tax revenues, which the Fund attributed to policy decisions, and follows on from the offering of a tax amnesty. The change is intended to increase the number of income tax payers, by lowering the income tax-exempt threshold in particular. The law is expected to raise revenue by 0.7 percent of gross domestic product (GDP), but the IMF said there was scope to go much further, as the income tax threshold is by far the highest in the region, with only about three percent of the population currently paying income taxes.

Shinohara said that "further tax reforms are paramount and should focus on making the tax system more progressive and on removing tax exemptions," which could collectively generate up to 2.5 percent of GDP, the Fund has estimated.

Shinohara's comments are in line with the IMF's 2014 Article IV consultation report for the country, which encouraged the Jordanian authorities to streamline tax incentives, "including by eliminating in particular the exemptions on services and curbing incentives provided to economic zones," which were said to complicate tax administration. The report noted that the cost of the country's tax incentives was about two percent of gross domestic product (GDP) in foregone general sales tax revenue in 2012.

TAGS: tax | sales tax | tax incentives | law | gross domestic product (GDP) | International Monetary Fund (IMF) | Jordan | tax reform | services

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