2021 / 2 / 16
Taxation Myopia in Jordan!
Two year ago, after aggressive public resistance, Jordan parliament approved the new income tax act on Nov. 2018, which had been offered by Al-Razzaz government.
Government taxation plan was to collect about JOD 250 million as a result of the new taxation burdens as a way to reduce annual budget deficit which was covered by more public debt that reached JOD 29 billion in 2018, today it reached USD 42 billion!
During last 5 years, Jordan was facing salient stagflation, in like these circumstances it was crucial to work carefully with both fiscal and monetary policies, since any tax increase would exaggerate the recession, where less money will move in economic cycle in term of demand, also it will increase inflation when price index goes up.
Government hopes gone with the wind after realizing that its taxation policy worked improperly--;-- instead of collecting more public revenues from new higher taxation rate, what actually taken placed is that tax reinforced recession! How? Because of more taxes actually reduced the disposable income, reduced demand, less trading, and less profit, which means less tax collection at the end.
In 2019 government addressed that tax collection reduced by 9% In the same period comparing with 2018, the reason behind that was the failure of its taxation intended plan, in the other words "taxation myopia".
It is well known that when a country faces "stagflation" it works to reduce both taxes, and interest rate to activate economic activities. Less taxation means more disposable income and more demand to solve recession problem. The rest of the story is how to tackle with inflation, traditional monetary policy easily can work on it.