Tax reform targeting large businesses on the drawing board
AMMAN -- The government has revised estimates included in the 2012 state budget law, expecting a significant rise in public spending and a drop in overall revenues, which will double the projected deficit.
Briefing the Lower House on the current economic situation in Jordan, Minister of Finance Suleiman Hafez said that based on some budget assumptions that have not been achieved and decisions that have not been taken, public expenditure was reestimated to increase to JD7.69 billion from the JD6.8 billion estimated in the budget law.
He explained that the rise in overall expenditure will come from a JD880 million, or 15.1 per cent, increase in current spending, which is set to reach JD6.7 billion due to a delay in liberalising the prices of gasoline, a move, he said, that was supposed to be taken at the beginning of the year.
Pointing out that a total of JD115 million was allocated in the budget law to subsidise prices of oil derivatives, the official said that current spending will go up because keeping the prices of fuel products at their current levels will cost the budget an additional JD655 million.
Rising wheat and fodder prices on international markets is also expected to cost the treasury an additional JD55 million, according to Hafez, who indicated that the government restructuring programme of public sector employees' salaries and allowances will cost around JD60 million this year.
Raising the salaries of military and civil retirees is set to add another JD30 million on top of the pensions bill, he noted.
As interest rates and public debt are going up, the minister said this will cost nearly JD50 million on top of funds allocated to service internal and external public debts.
Indicating that financial allocations for medical treatment for uninsured Jordanians are expected to increase to JD120 million from the JD90 million estimated in the state spending bill, he told lawmakers that capital spending was reestimated to be around JD962.5 million, a 1.9 per cent or JD18.5 million drop from the JD980 million estimated in the budget law.
As overall revenues, including domestic and foreign grants, were reestimated to go down from JD5.82 billion to JD5.63 billion, a drop of JD181 million, this will push up the projected deficit to JD2.06 billion from the estimated figure of JD1.026, he explained.
The volume of expected foreign grants, Hafez said, remained unchanged at JD870 million, JD700 million of which he noted is scheduled to come from Gulf countries.
He attributed the projected decline in domestic revenues from their levels in the budget law to various factors, including delay in implementing the assumption of raising the sales tax on luxury goods and for not reconsidering the list of items that are exempted from tax.
The income tax figure is also set to go down by JD11 million due to the economic slowdown, he noted.
Based on the new figures, Hafez stressed that the government has to take immediate measures to narrow the widening deficit, calling on lawmakers to support necessary policies authorities plan to take in the coming days.
Among the decisions in the pipeline, he explained, the Cabinet will instruct ministries and government departments to reduce their current and capital expenditures, such as stopping some new projects and rationing spending in terms of travel, power and water consumption.
The government will also halt recruitment at public agencies, except for vacancies at the ministries of health and education.
Reducing government subsidies to the electricity and fuel sectors, without harming vulnerable segments of the society, is another austerity measure, he said, adding that the government has to increase tax rates on a number of luxury goods.
Such measures are expected to generate around JD785 million, which will contribute to reducing the deficit from over JD2 billion to JD1.2 billion, 5.5 per cent of the gross domestic product.
Among immediate solutions is to amend the income tax law by adopting a progressive tax regime on companies, particularly banks and mining firms, Hafez elaborated, pointing out that the government also has to speed up procedures related to reducing the number of independent public institutions.
© Jordan Times 2012
