Jordan has enacted legislation to halve the sales tax rate on luxury items from 16% to 8% in order to boost economic activity in the retail sector and curb widespread tax evasion. However, analysts debate the effectiveness of this measure as even a 50% tax rate reduction may not offset Jordan's overall high indirect tax rates. While the new law aims to stimulate spending and reduce incentives for evasion, experts say taxes remain too high and the impact on consumer sales and government revenue will be limited.

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Jordan
Jordan Halves Sales Tax in Bid
To Boost Spending, Curb Evasion
J
ordan has enacted legislation to halve the sales tax
on luxury items to boost economic activity in the re-
tail sector and to help tackle tax evasion in the coun-
try.
The measure’s anticipated effectiveness however, is
the subject of debate, with analysts saying that even a
50 percent rate drop won’t be enough to mitigate the
overall high taxes levied on retail sales.
Jordanian sales tax is levied at 16 percent on a wide
range of items, including many basic and nonessential
commodities and services, while rates as high as 24 per-
cent are levied on the communications sector. The new
legislation, published Oct. 18 in the Official Gazette and
effective Oct. 19, reduces the sales tax from 16 percent
to 8 percent on clothing, bags, watches, shoes, perfume,
jewelry, toys and cosmetics.
Apart from providing an economical boost, the gov-
ernment’s aims in bringing in the rate drop are to coun-
ter a rising tax burden and to remove the incentive for
tax evasion. Jordan suffers from widespread tax eva-
sion, which the government estimates costs the country
almost 1 billion dinars ($1.4 billion) annually.
Mazin Marji, an independent consultant and eco-
nomic specialist, told Bloomberg BNA Oct. 21 that the
high level of tax evasion has ‘‘prompted successive gov-
ernments to expand imposing indirect taxes.’’
As a result, tax per capita in Jordan ‘‘has risen four
times since 1985 as the taxation system started to rely
heavily on indirect taxes,’’ he said. These policies were
significantly increasing the tax burden and pushing
prices upward to levels higher than many other Arab
and foreign countries.
Mixed Reaction. Welcoming the change, the Amman
Chamber of Commerce said in a statement Oct. 20 that
the government’s decision to lower the tax rate would
‘‘contribute to curbing tax evasion and supporting so-
cial classes with limited income.’’
Although agreeing that the measure could contribute
to limiting tax evasion, Jawad Al Anani, Jordan’s for-
mer Deputy Prime Minister for Economic Affairs, told
Bloomberg BNA Oct. 21 that despite lowering the cost
of some items, the ‘‘surprise’’ move wouldn’t make a
deep impact on consumer sales or government revenue,
because the products are still subject to high customs
tariffs. Al Anani, who now heads a private consulting
firm, said the problem is that taxes are still too high
overall.
The Chamber of Commerce was of the same view,
calling for more to be done and for the government to
reconsider taxes and fees imposed on many food items,
which have witnessed sharp price fluctuations to pre-
vent them from entering the local market illegally.
However, economist Salama Darawi told Bloomberg
BNA Oct. 22 that the government is unlikely to make
any such change, referring to similar past decisions.
‘‘The impact of the decision on the market is limited, es-
pecially in light of the government’s determination to
raise electricity prices this year,’’ he said.
BY RASHA FAEK
To contact the reporter on this story: Rasha Faek in
Jordan at correspondents@bna.com
To contact the editor responsible for this story:
Cheryl Saenz at csaenz@bna.com
The legislation is available in Arabic at http://
www.ammanchamber.org.jo/Uplaoded/PRNews/
5936.pdf.
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