x

Abu Dhabi, UAEFriday 21 September 2018

Jordan's new PM to withdraw controversial tax bill

But Omar Razzaz now has to find alternative ways to meet conditions of crucial IMF funding

Protesters shout slogans and illuminate their mobile phones during a demonstration against a draft income tax law near the prime minister's office in Amman, Jordan, on Wednesday, June 6, 2018. Annie Sakkab / Bloomberg
Protesters shout slogans and illuminate their mobile phones during a demonstration against a draft income tax law near the prime minister's office in Amman, Jordan, on Wednesday, June 6, 2018. Annie Sakkab / Bloomberg

Jordan's incoming prime minister Omar Razzaz promised on Thursday to withdraw a controversial income tax law that ignited nationwide protests and general strikes.

Mr Razzaz's announcement, which followed a meeting with MPs, was widely cheered by Jordanians on social media but did not address how his government would balance the demands of the street with rescuing the economy.

His promise to scrap the income tax law ended a week of late-night protests, which were also against recent taxes on goods and services, although a smaller group of people gathered near the prime minister's office late on Thursday night for a celebratory rally.

The law, which would have imposed an additional 5 per cent income tax on individuals and 20-40 per cent on companies, was among austerity measures drawn up by outgoing premier Hani Mulki to meet the conditions of a US$732 million (Dh2.66 billion) International Monetary Fund loan intended to stop Jordan from inching towards bankruptcy.

The loan was approved in 2016 with the condition that Jordan cut its public debt from 95 per cent of GDP to 77 per cent by 2021.

Economic analysts and former government officials say the next step for Mr Razzaz will be to ask the IMF for a grace period of one or two years during which Jordan would keep the budget deficit and debt ratio stable as it reviews its policies.

Mr Mulki's government was unwilling to cut a bloated public sector that controls nearly 50 per cent of the GDP and employs more than half of the Jordanian workforce, and turned to the other tested way to trim debt: boosting revenue through taxes.

But Mr Razzaz, a former World Bank economist, can find other ways to reduce public debt and create revenue, the experts and officials said. The key is to encourage economic growth.

“We have controlled the budget, we have increased revenues through taxes, but the GDP is still negative,” said Jawad Anani, deputy prime minister for economic affairs in the Mulki government.

Jordan’s GDP growth has hovered around 2 per cent for the past seven years, but observers say much of that was due to external aid and remittances from Jordanians abroad.

“We can’t keep doing the same thing and expect a different result. This new government must have a pro-growth approach to grow the GDP and decrease the debt ratio,” Mr Anani said.

The World Bank last year ranked Jordan 103 out 190 states for ease of doing business, with relatively low scores for ease of starting a business and taxes.

“We have to send messages both at home and abroad that we are pro-investment,” said Mr Anani.

___________

Read more:

Jordan protests will continue says union leaders

Few easy options for Jordan’s incoming prime minister

Jordan's prime minister resigns

__________

Despite lacking mineral wealth, fossil fuels and water, Jordan has many resources that can be maximised as fast-growth sectors, experts say. Tourism, which contributed 18.7 per cent of GDP in 2017, can be capitalised on with better promotion of religious sites revered in Islam, Judaism and Christianity, and natural attractions.

Mr Razzaz could also revise the “hidden fees” and unpublicised tax increases that analysts, former officials, business owners and citizens alike say hamper transactions, raise the cost of imports for Jordanian businesses, and shrink Jordanians’ purchasing power.

“You go to do a certain transaction with the government, and you find that they are suddenly higher. People were out there protesting a real cause as this hurts transactions and business in Jordan,” Mr Anani said.

Mr Razzaz could also review the fees for purchasing property which have led to a slowdown in Amman's real estate sector and left the capital littered with half-completed towers and abandoned apartment buildings.

A key step for his government to win back people's trust and improve the economy would be ending administrative mismanagement and corruption, analysts said.

There are few studies or statistics on the level of corruption in Jordan, which ranked 59 out of 180 states in Transparency International’s 2017 index, but inflated government contracts, misuse of public property and mismanagement of funds are believed to cost the kingdom millions each year.

“This was never about getting rid of the IMF in Jordan, it is about good governance,” said Hassan Barari, a Jordanian political analyst and author.

“We have limited resources, but we have enough resources if we utilise them correctly, maximise their potential and fight corruption. That should be the government’s priority.”

Experts also agree that Mr Razzaz must end Jordan's reliance on aid and bailouts to close its budget gaps. A five-year, $3.6bn aid package from GCC countries ended last year. Jordan received nearly $3bn in direct budget support and aid from the international community for hosting Syrians in 2017, but that assistance is drying up this year.

“We can’t rely on handouts forever," Mr Barari said. "We have to learn to maximise what we have and live within our means as a nation, which will take both the government and the public to make changes.”

RELATED ARTICLES
Recommended