Towards a New Taxation Philosophy in Jordan
06.03.2019
06.03.2019
On 6 March 2019, Al-Quds Center for Political Studies (AQC) organized a workshop entitled "Towards a New Taxation Philosophy in Jordan" in Amman, in which it presented findings and recommendations of a policy paper it prepared under the same title. The workshop was attended sixty participants including government officials, representatives of the tax department, deputies and heads of municipal councils, taxation experts and specialists, business men and women, and representatives of relevant community institutions.
Mr. Oraib Al Rantawi, Director General of AQC, opened the workshop by welcoming participants and introducing the speaker panel. Mr. Al Rantawi framed the workshop as strategic in nature, being focused on one of the fundamental components of the state. Mr. Al Rantawi urged that, for the sake of preserving Jordan’s social contract, the tax system must reflect national discourse and interest, given its direct impact on citizens’ lives.
Reflecting this need, Mr. Al Rantawi noted that the policy paper drew upon the nation’s foundational documents to develop its bases for a new taxation philosophy in Jordan. Article 111 of the Constitution, the speaker stated, stipulates three principles of taxation: namely, these include adopting a progressive income tax system, achieving social justice, and not exceeding the capacities of the taxpayer or the state’s need for funds. The Sixth Discussion Paper of King Abdullah II, Mr. Al Rantawi explained, stipulates a fourth principle in that taxation must be based on the rule of law in all its aspects.
Mr. Al Rantawi stressed that it is not enough for indicators of these principles to be present in the taxation system; rather, he said, the tax system must fully reflect its clear constitutional and royal mandates. Mr. Al Rantawi reminded the speakers and participants that citizens are not so much concerned with figures or statistics as with the real and observable impact of government in their lives; currently, Mr. Al Rantawi said, the reality experienced by citizens that taxes are increasing while services deteriorating and corruption and social injustice remain significant.
The Income and Sales Tax Department (ISTD), Mr. Al Rantawi noted, is the governmental institution that citizens directly interact with when it comes to taxation. As such, the speaker stated, it is of the highest priority for the ISTD to be characterized by greater integrity, professionality, and transparency. To that end, Mr. Al Rantawi laid out the paper’s detailed findings and recommendations for addressing the significant extant issues in taxation in Jordan (for a summary of these recommendations, see the end of this report).
Following the opening remarks, members of government, Parliament, and the private sector were invited respond to the paper’s themes and findings. Speakers at the workshop included Dr. Hossam Abu Ali, Director General of the Income and Sales Tax Department (ISTD); tax expert Mr. Khattab Al Banna, member of the Board of Directors of the Amman Chamber of Commerce; and MP Ahmad Al Safadi, member of the Finance Committee of the House of Representatives. The speakers discussed the tax system from their respective viewpoints and made observations on the paper’s findings and recommendations.
In his statement, Dr. Hossam Abu Ali thanked AQC for the detailed research and analysis, noting that the paper is one of the studies that ISTD will carefully study in developing ISTD policies and strategies. Dr. Abu Ali detailed the government's strategy to enhance confidence between ISTD and taxpayers. In this context, he said, the department’s tax collection paradigms are being changed. Dr. Abu Ali noted that former “tax assessors” have been replaced by “tax auditors,” who operate on the basis of documented evidence rather than informal and subjective techniques. Dr. Abu Ali stressed that the burden of proof for audits now rests with ISTD employees; following the submission of a tax return, ISTD employees accept the taxpayer’s statement unless the auditor has evidence to the contrary. Furthermore, Dr. Abu Ali stressed that rather than prioritizing re-assessment of submitted tax returns from law-abiding taxpayers, ISTD will now place a greater focus on pursuing tax evaders and companies that do not submit tax returns.
Tax administration and tax courts have been separated, Dr. Abu Ali added, arguing that as a result tax courts have become independent. The current approach ensures fairness in dealing with taxpayers, he said. The administration can now obtain information and data related to taxpayers from various parties and institutions, he said. The department is training and rehabilitating employees to utilize new technology and establishing a code of conduct for tax workers to keep taxpayer information confidential and prevent employees from exploiting their positions for personal benefit, Dr. Abu Ali added.
Dr. Abu Ali described ISTD efforts to develop regulations for the billing system in consultation with the private sector in order to set legal and technical rules of billing. The department is also working on tackling tax evasion, he added. In contradiction to AQC’s estimate of 30.6%, Dr. Abu Ali argued that the total tax burden in Jordan was 26.5% in 2017. Dr. Abu Ali noted further that in order to understand the sales tax, the volume of exemptions and special rates for many basic goods as well as production and agricultural inputs must be considered.
In his statement, Mr. Al Banna of the Amman Chamber of Commerce Board of Directors underscored the instability of tax legislation, which is continually amended and presents a significant disincentive for investment. Mr. Al Banna noted that investors, who seek a 10-year return on investment, have been discouraged from working in Jordan due to the frequency of legislation which increases taxes. Consultations between ISTD and businesses are minimal, Mr. Al Banna added. He criticized the high tax burden on businesses, arguing that restoring confidence between taxpayers and the department mitigates tax evasion and represents a top priority. Furthermore, Mr. Al Banna stressed that taxpayers should be able to utilize public services offered in exchange for taxes, a relationship between the government and the citizen which does not currently exist.
In his statement, MP Ahmad Al Safadi stressed that the recent amendment to the income tax law will have catastrophic consequences and that sales tax rates should be reduced immediately. The increase in taxes negatively affects all economic indicators, he stated. The reduction of sales tax will have direct positive impacts by increasing investment and economic growth, he argued. MP Al Safadi pointed out that participatory mechanisms between the government and the House of Representatives with regard to fiscal reform remain weak. In response, MP Al Safadi called for strengthening and enabling the role of the House of Representatives in the field of public policy development and stressed the need of legislative action to support and re-attract Jordanian investors.
Following the speakers’ presentations, workshop participants were given the opportunity to comment and contribute. Over 20 business men and women, representatives of fifteen Jordanian business organizations (including the two largest), tax experts, representatives of government and political parties, tax experts, and others were given the opportunity to share their remarks. Themes of discussion included the need to stimulate the economy and investment through reducing the tax burden, focus on pursuing tax evaders rather than harassing law-abiding tax payers, and stabilizing the environment of tax legislation. Participants thanked AQC for its extensive and careful research and for the opportunity to debate this topic of national urgency directly with ISTD and government representatives.
Paper Recommendations:
As noted above, Mr. Al Rantawi presented participants with the paper’s recommendation, which are summarized here as follows:
As noted above, Mr. Al Rantawi presented participants with the paper’s recommendation, which are summarized here as follows:
- First, government should develop a Three-Year Plan of Action to Strengthen the Efficiency and Rule of Law in the Taxation Administration. The paper suggested establishing new internal monitoring bodies and mechanisms, promoting accountability and evaluation practices, expanding the administration’s workforce, and developing the national billing system a) to boost collection efficiency, b) increase the number of taxpayers, and c) prevent tax evasion.
- Second, government should develop a Five-Year National Strategy for Transition to a Comprehensive Progressive Taxation System by increasing the income tax alongside commensurate reductions in the sales tax. This requires fiscal reform, revising tax legislation, and enhancing the tax administration’s efficiency. The government, parliament, business men and women, civil society organizations, and the media need to cooperate in accomplishing the objectives of this five-year plan, raising public awareness of the feasibility and seriousness of tax reforms, and developing a culture of "self-sufficiency" among taxpayers.
- Third, government should continue its efforts toward fiscal reform with an increased focus on policies to enhance transparency and disclosure, fight corruption, simplify the tax system, expand the tax base, absorb the informal sector and work on its "formalization," regulate e-commerce, sustain legislative stability in this domain, and carefully assess tax rates and the tax burden on citizens when designing new legislation.
- Fourth, government must take measures to rebuild confidence and trust between taxpayers and the Income and Sales Tax Department such as adopting good governance standards, fighting corruption, launching national awareness campaigns on the new tax philosophy and its implications starting with schools and universities, tying increases in tax rates to tangible improvements in public services and in socio-economic development, and encouraging citizens to voluntarily submit tax statements by streamlining submission procedures.
Key Participants
As noted above, The workshop was attended sixty participants including government officials, representatives of the tax department, deputies and heads of municipal councils, taxation experts and specialists, business men and women, and representatives of relevant community institutions. Notable speakers and participants included the following:
As noted above, The workshop was attended sixty participants including government officials, representatives of the tax department, deputies and heads of municipal councils, taxation experts and specialists, business men and women, and representatives of relevant community institutions. Notable speakers and participants included the following:
- Dr. Hossam Abu Ali, ISTD Director General
- MP Ahmad Al Safadi, Member of the Finance Committee of the House of Representatives;
- Mr. Khattab Al Banna, Member of the Board of Directors of the Amman Chamber of Commerce and Tax Expert;
- Mr. Musa Al Tarawneh, ISTD Spokesperson;
- MP Riyad Al Azzam, Finance Committee rapporteur;
- Mr. Mohammad Al Nabulssi, Secretary General of the Economic and Social Council;
- Representative from the Center for Strategic Studies at the University of Jordan;
- Leaders from eight political parties (Al-Hayat Jordanian Party, Civil Alliance Party, Islamic Action Front Party, Islamic Central Party, Jordanian People Democratic Party, National Current Party, National Union Party, Stronger Jordan Party);
- Fifteen business organizations, including the two largest in Jordan; the Business and Professional Women Association and the Federation of Business Associations, which includes 30 of Jordan’s 50 business associations.
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