public debt

Economic Optimism

The man steering Jordan’s economy is upbeat about what the coming months will bring after the government took steps to reduce its public debt and increase revenue. 

By Dina al Wakeel

The measures, which were guided by the International Monetary Fund, mainly included removing exemptions on general sales tax and unifying low 4 to 8 percent rates on a large number of items at 10 percent. The government also raised special taxes on tobacco and premium gasoline while lifting bread subsidies.

Minister of Finance Omar Malhas told Venture on the sidelines of the Euromoney conference in Amman last month that these measures are expected to generate JD540 million this year and reduce budget deficit to a decade-low.

What are the expected growth rates for 2018?

The IMF is expecting a 4.2 percent nominal growth, and around 2.1 to 2.2 percent real growth. When we prepare the budget we do it based on nominal growth, the same with the GDP and debt-to-GDP. We look at it before the deflator. I think the deflator would be about 2.1 to 2.2 percent.

When do you see higher growth rates, and how effective will the harsh measures that were adopted this year, including the tax hikes, be in boosting the economy?

The measures that we adopted were not really harsh because we did not impose new taxes. We reduced exemptions. On January 1, 2008 the rate of tax revenue to GDP was 21 percent. For one reason or another it went down by the end of 2011 before the start of the Arab Spring to 15 percent. Every 1 percent in today’s money equals JD300 million. JD300 million times 6 equals 1.8 billion. So we are talking about 800 to 900 million in lost revenue each year. Who benefited from that? It wasn’t us. Second, in the 2017-18 budgets we added a table calculating the cost of exemptions, both tax and customs. The tax expenditure in 2015 was JD3 billion. In 2016 it was JD3.3 billion. The tax revenue is not enough to provide citizens with services such as healthcare and education We expect that these extra measures will provide us with JD540 million this year.

What about the budget deficit?

This year it will be JD543 million, which is approximately 1.8 percent of GDP and is among the lowest in the past 10 years or more.

There was uproar when the government also decided to increase taxes imposed on hybrid cars, how much will that contribute to the government’s coffers?

We increased taxes on hybrid cars because the government is losing revenues from the auto sector year after year due to the shift from the internal combustion engine to the hybrid. In 2016, the tax revenue from cars was JD328 million. In 2017 it went down to JD303 million although the overall cost of the cars that entered the Kingdom in 2016 was JD670 million and in 2017 JD950 million. Yet it went down because there was a reduced special sales tax of 25 percent so in 2017 we had around 40,000 hybrid cars entering the Kingdom, out of a total of 70,000 cars. The hybrid cars value was JD630 million that generated around JD120 million in revenue, while the regular fuel cars whose worth was around JD197 million generated revenue of around JD170 million.

When will the new Income Tax Law be approved?

It is coming. But I cannot comment on the law before the cabinet approves it. What is required is that we expand the taxpayers’ base but those who will be included in the law and how much [the increase] is depending on the Cabinet’s approval.