Did Jordan’s poor save Jordan’s rich from income tax?

Experts argue that withdrawing the new tax bill will benefit businesses more than it will do individuals.
Tuesday 19/06/2018
Jordanians buy and sell second-hand clothes and shoes from a street market in central Amman, on June 8. (AFP)
Jordanians buy and sell second-hand clothes and shoes from a street market in central Amman, on June 8. (AFP)

Following seven days of street protests because of a proposed bill instituting an income tax, things have calmed down in Jordan after several public interventions by King Abdullah II himself, the resignation of Hani Al-Mulki government, and finally the Makkah summit for Jordan. Protests however may return anytime and each time they return, they’ll get worse. The income tax law was withdrawn because of popular pressure by the middle class but the real winners from this move are the rich, that is to say your lawyers, doctors, teachers, engineers, traders, and all public employees whose nerves are flayed at the end of every month.

When trade unions in Jordan called for a general strike around the end of last May to oppose the new income tax bill, few had expected the huge popular support for the strike. The reason is simple: Even though the proposed bill had widened the tax base, it did however really focus more on the higher income brackets.

It was a bit surreal. On the night preceding the protests, hundreds of young people filled the squares in front of the prime ministry and demanded the withdrawal of a tax that concerned no more than ten percent of the population. And they got what they wanted in the end. In the meantime, Prime Minister Hani Al-Mulki and his government had to go and his replacement, Omar Al-Razzaz, promised to repeal the controverted law as soon as a new government is formed.

The scope of the popular protests was quickly widened to include the government’s economic policies. The vast majority of the protesters in Amman and the other provinces belonged to the poor and middle classes. Economic experts in Amman agree that the government’s tax bill was like the “last straw” for most Jordanians, who had seen their incomes shrink severely because of a series of price hikes and new taxes since the beginning of 2018. The price of bread was doubled and electricity and fuel prices were hiked more than once. For more than 160 products, the sales tax was hiked from four to ten percent while a new sales tax of five percent was imposed on some new products.  Bus and taxi fares and other services were increased by 10%.

At the beginning, the protests were purely economic in scope and were steered by young activists using social media pages. When the Mulki government decided to increase electricity and fuel prices during the second day of protests, the angry mobs quickly switched to demanding the departure of the government.

The now-defunct income tax bill would have widened the income-tax base by about 8% only. It focused on high income brackets. According to government statements, 90% of the Jordanian population would not have been subjected to the income tax. Individuals making less than 8,000 Jordanian dinars a year and households with revenues of less than 16,000 dinars a year were exempted from income tax.

Currently, the average income in Jordan is about US$700 (or 500 Jordanian dinars) a month; the country however has the highest prices in the region. Observers believe that the tax protests wouldn’t have found such a popular resonance were it not for the recent painful economic measures which were part of the reforms package required by the IMF.

In its defense of the new tax bill, the Mulki government had explained that “people with average and poor incomes will indirectly benefit from the proposed tax law.” The benefits will come from the expected increase in economic growth, better employment rates, and public expenditures on basic services and subsidies.

The reality in Jordan though reflects a genuine slippage in standards of living and a growing gap between incomes. Jordan’s economy suffers from structural problems, unbalanced public finances, and around $35bn in debts.  Government statistics show a poverty rate of about 20% and an unemployment rate of over 18% in a population of about 10 million.

Experts argue that withdrawing the new tax bill will benefit businesses more than it will do individuals. Yes, the said law would have lowered the limit of taxable income and thus would have increased the number of people being taxed, but in the end the impact of these measures on the poor classes would be much less significant than the government measures regarding prices and subsidies. Many bloggers and commentators pointed out the irony that the poor and middle classes in Jordan have “saved the rich” from a significant tax.

Protest organizers have vowed to enflame the streets again if the new government does not deliver on its promises. But how can the new government satisfy their demands without undoing the reforms and commitments already undertaken? The new government however did promise to withdraw the bill but in fact did not promise to repeal or lighten the price and tax hikes already decided. It is precisely those hikes which drove protesters to the streets.

The current situation in Jordan can be encapsulated in a couple of comments and questions addressed to trade unions by social media activists. The latter are asking the former: “Will you stand with us against the government if it increases prices and taxes just like we stood with you during the income tax protests?”