Jordanian parliament backs new tax law to lower debt

Jordan’s parliament approved a new tax law in a move to push ahead with fiscal reforms needed to lower record public debt.

A majority of deputies in the chamber approved the 36-article bill after a series of amendments that included raising family exemptions to mitigate its effect on the middle class.

Prime Minister Omar Razzaz had warned deputies the kingdom would pay a heavy price if parliament failed to approve the legislation, a main plank of austerity measures to ease a fiscal crunch and spur stagnant growth hovering at 2 per cent in recent years.

The bill will still need to go to the upper house for approval before it is enacted as law. It is expected to be effective early next year, officials said.

Mr Razzaz told deputies who were debating the legislation that failure to approve the bill would mean the kingdom would have to pay even higher interest rates on its substantial foreign debt.

He said the law promoted social justice by targeting the wealthy and combated longtime corporate tax evaders, but opposition deputies said it will hurt the already stagnant economy and diminish middle-class incomes.

“The individuals who will be affected are the top 12 per cent income earners, it won’t affect middle and low income earners,” Mr Razzaz said.

The government sent the bill to parliament in September after withdrawing an earlier draft submitted by a previous government that triggered protests over the summer.

This year, Jordan increased a general sales tax and scrapped a subsidy on bread as part of a three-year fiscal plan agreed with the International Monetary Fund, to cut public debt of $37 billion (Dh135.8bn), equivalent to 95 per cent of gross domestic product.

The debt is at least in part due to successive governments adopting an expansionist fiscal policy characterised by job creation in the bloated public sector, and by lavish subsidies for bread and other staple goods.