(Arab News) AMMAN: Anyone wanting to understand the economic difficulties facing Jordan needs only to read the letter in which King Abdullah appointed the new prime minister.
King Abdullah on Thursday asked the former World Bank economist Omar Al-Razzaz to form the next government and called on him to revisit the proposed income tax law that had triggered the kingdom’s biggest protests in years.
The letter urged Al-Razzaz to ensure “tax fairness” by giving the “correct tax balance between rich and poor.”
The tax law was driven by the International Monetary Fund (IMF), as part of a three-year program to reduce vast public debt and push the economy toward growth.
Public debt stands at about 94 percent of gross domestic product, one of the highest in the region, largely thanks to previous governments overspending to create jobs in the bloated public sector.
The kingdom’s unemployment rate still stands at more than 18 percent.
The government of Hani Mulki, who quit on Monday after days of protests, had argued that the proposed law would produce much-needed revenue for public services and place a larger tax burden on higher earners.
When it was decided to row back on the law amid fears of the protests escalating, it was not the first time a Jordanian government has backed down on painful fiscal measures. How to balance austerity against public anger is a dilemma that has been faced by governments across the Middle East and North Africa, in the post Arab Spring era.
Mulki’s resignation raises the question of how the IMF will respond and what fiscal options are available for his replacement.
In his letter, the king struck a conciliatory tone, calling on the new government to “immediately launch, in coordination with parliament, dialogue with political parties, unions and all members of civil society to accomplish the income tax law, which is an important step to a new economic and social path.”
Mohammed Hussainy, director of the Amman-based Identity Center, said the letter’s call to revisit “indirect taxes” was a clear reference to the sales tax increase earlier this year, which was introduced at the same time as subsidies on bread and other commodities were removed.
Hussainy suggested that a revised version of the proposed law should ensure that the lowest earners should not have their income taxed.
Mulki’s government had wanted to reduce the minimum taxable income from 12,000 Jordanian Dinars per month ($17,000) down to 8,000 Dinars. “This should be rescinded,” he said.
A major complaint from business owners to the draft law was that it made tax evasion a crime. They feared that the tax collectors would use this to blackmail merchants to make exaggerated tax estimations.
Instead, the government needs to improve the professionalism of the tax officials, Hussainy said.
Ahmad Awad, the director of the Phenix Center for Economics and Informatics Studies, told Arab News that he was impressed by the “unprecedented language in the letter.”
He welcomed the king’s instructions to the new prime minister-designate to initiate dialogue with civil society.
But the public anger over the last government’s attempt to raise revenue leaves little room for the next one to maneuver.
Khalil Hajj Tawfiq, head of the food merchants union, said they should wait to hear the new prime minister’s ideas before deciding whether to continue to strike or not.
“We are talking about days and not weeks and it is important to give Dr. Al-Razzaz a chance to see what he and his economic team have to say.”
Tarek Khoury, an opposition member of parliament, told Arab News that he never understood why the Mulki government had not spent more time designing the law.
“The IMF is expecting this income tax law to take effect on Jan 1, 2019, so why the rush to pass it without proper discussion?” Khoury asked.