VZCZCXYZ0005
RR RUEHWEB

DE RUEHAM #2572/01 3291249
ZNR UUUUU ZZH
R 251249Z NOV 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 6354
INFO RUEHGB/AMEMBASSY BAGHDAD 6320
RUEHLB/AMEMBASSY BEIRUT 3127
RUEHEG/AMEMBASSY CAIRO 4192
RUEHDM/AMEMBASSY DAMASCUS 4277
RUEHRH/AMEMBASSY RIYADH 2239
RUEHTV/AMEMBASSY TEL AVIV 1947
RUEHJI/AMCONSUL JEDDAH 0928
RUEHJM/AMCONSUL JERUSALEM 5710
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS AMMAN 002572 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA AND EEB 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV EAID JO
SUBJECT:  Jordan's Tax Revenues Increase in 2009, But 2010 
Projections Look Grim 
 
Refs: A. Amman 2408 
¶B. Amman 2253 
¶C. Amman 1804 
¶D. Amman 1646 
¶E. 08 Amman 1392 
 
¶1. (SBU) Summary:  Jordan's Tax Department announced recently that 
tax collections through October 2009 are 7.2% higher than the 
corresponding 2008 levels.  Better collection efficiency and good 
business performance in 2008 have led to higher tax revenue income 
in 2009.  Tax reform efforts in 2009 have included an increased 
focus on curbing tax evasion and increasing collection of back 
taxes.  The Government of Jordan (GOJ) is also making more efficient 
use of its resources by increasing collection efforts on individuals 
with higher incomes.  Projections for 2010 tax revenues, however, 
are grim.  End Summary. 
 
Increased 2009 Tax Revenues 
--------------------------- 
 
¶2. (SBU) In a bit of good news following months of bad budgetary 
news, revenues from tax collection between January and the end of 
October 2009 reached $2.97 billion, a 7.2% increase compared to the 
same period in 2008 when they stood at $2.77 billion (refs A and D). 
 Tax collection for the month of October 2009 reached $254 million 
compared to $213 million in October 2008.  According to Musa 
Mawazreh, Director General of the Income Tax Department of the 
Ministry of Finance, his department has been working diligently on 
increasing its efficiency with a priority focus on collecting 
outstanding debts and curbing tax evasion.  Currently, about $1.4 
billion is registered in the department's books as outstanding 
amounts dating back for as long as 25 years. 
 
Targeting Scofflaws Yields Higher Collections 
--------------------------------------------- 
 
¶3. (SBU) Mawazreh explained to EconOffs that collections are 
increasingly being secured through out-of-court settlements, which 
have led to an 80% increase in the Department's success rate in 
collecting overdue taxes.  The Tax Department is also seizing assets 
-- cash, stocks, or real estate -- more quickly, going to the courts 
earlier, as opposed to waiting for months and years before taking 
cases to court.  For older debts, the Tax Department is now waiving 
some of the penalties and even a portion of the debt, depending on 
its age, just to be able to clear its books.  Tax Department 
officials are also implementing a public awareness campaign that 
encourages taxpayers to come forward to settle their outstanding 
debts with the Tax Department to avoid court proceedings.  This 
policy has proven successful as 3,000 taxpayers approached the 
department recently to satisfy their obligations and benefit from 
penalty waivers that the Council of Ministers offered earlier in 
¶2009.  Additionally, outstanding cases are being resolved within 
three to four months instead of years, which had been the previous 
practice.  The Tax Department has also shifted focus to those in 
higher tax brackets.  In 2009, 57% of the personal estimates from 
taxpayers, mostly those with lower tax burdens, were accepted 
without being audited.  This allowed the Tax Department to 
concentrate its resources and tax collection efforts on the larger 
tax-paying entities such as individuals and businesses with higher 
tax burdens so as to better use the Tax Department's resources. 
 
Efforts to Curb Evasion Hampered by Existing Law 
--------------------------------------------- --- 
 
¶4. (SBU) As part of the GOJ's efforts to increase tax revenues, a 
special directorate was established in 2008 within the Tax 
Department to curb tax evasion, focusing on the industrial, 
commercial, and service sectors and their business income and 
profitability.  The new directorate is carrying out sector studies 
to determine the profit margins of each sector.  However, the 
current Income Tax Law does not support the Tax Department's efforts 
in this area, since it lacks the requirement that the Department 
prove the amount of tax evasion.  The critical issue under the 
current law is whether there was an act of tax evasion, not the 
amount of tax evasion.  The law also states that the crime of tax 
evasion requires a premeditated action.  Passive neglect of the 
statutes is insufficient to establish a violation.  The penalty for 
tax evasion in the current law is double the amount of tax evaded 
with either a fine between $141 to $706, or imprisonment from one 
 
week to one year, but not both.  Judges rarely impose the 
imprisonment sentence on tax evaders and the law does not allow the 
adjustment of penalties for repeat offenders.  Moreover, the current 
Income Tax Law does not consider tax evasion to be a felony, which 
carries a fine of more than $14,000 or a jail term of more than 
three years. 
 
¶5. (SBU) A new income tax law, a draft of which failed to pass after 
being submitted by the GOJ to the parliament during its recent 
extraordinary session during the summer of 2009, is currently in the 
making (refs B and C).  It is expected that the draft law would 
propose setting more stringent penalties that would have greater 
success in compelling individuals and businesses to declare and pay 
their taxes and would define evasion as a crime against "honor and 
trust," which would add a criminal citation to an individual's 
identification records.  The proposed draft would also authorize Tax 
Department auditors to examine bank statements of taxpayers. 
 
¶6. (SBU) Additionally, Mawazreh confirmed that the Tax Department is 
working on establishing a database to monitor governmental 
purchasing and tendering departments in order to have precise 
information about business activities concerning government 
contracts.  The database will also link national identification 
numbers for individuals with their activities involving the Amman 
Stock Exchange, Social Security Corporation, Jordan Customs, and the 
Land and Surveys Department to allow the Tax Department to better 
assess indicators of net worth, including income and related 
business activities.  These efforts have benefited from USAID 
support in modernizing the Tax Department's IT infrastructure and in 
improving its auditing and collection functions.  USAID is also 
helping the Tax Department restructure, to help it operate more 
efficiently. 
 
A Grim Outlook for 2010 
----------------------- 
 
¶7. (SBU) According to Mawazreh, the outlook for tax collection in 
2010 is not promising, in spite of the Tax Department's efforts.  He 
asserted to EconOffs that the positive rates of collection in 2009 
were a reflection of the good performance of companies in 2008, 
prior to the global recession hitting Jordan.  This year's growth 
and economic performance are significantly lower.  As an example, 
recent profit disclosures of companies trading at the Amman stock 
exchange showed that profits in the banking sector in Jordan were 
down 29% over the first six months of 2009 compared to the first six 
months of 2008.  Arab Bank, a market leader in its field and in 
Amman's stock market, suffered a 72% drop in its profits during the 
first half of 2009.  Arab Bank's profits plummeted from $1.15 
billion in the first half of 2008 to $320 million in the first six 
months of 2009. 
 
¶8. (U) Another important factor for the grim outlook for 2010 dates 
back to November 2007, when international commodity prices 
increased, and the GOJ eliminated sales taxes on 13 basic 
commodities (ref E).  These taxes used to generate about $140 
million in revenues annually.  Taxes on other goods were also 
reduced.  For example, the fluctuation in iron prices and the 2007 
tax cuts have contributed to significant losses of tax income for 
Jordan.  Jordan imported an annual average of 842 million tons of 
iron and steel between 2005 and 2008.  The value of these imports 
reached $532 million in 2007 and $787 million in 2008.  The GOJ used 
to tax iron and steel at 16%, generating $85 million in tax income 
during 2007.  This decreased in 2008 to $63 million at the 8% tax 
rate instead of an estimated $126 million that would have been 
generated if the tax rate had been at 16%.  Such fluctuations in 
international prices and the GOJ's responses to them have 
contributed to losses in Jordan's tax income. 
 
¶9. (SBU) Comment:  The GOJ continues to face a dilemma in finding 
ways to balance its budget and in finding new streams of revenue to 
support its budget.  In addition to significant cuts built into the 
2010 budget, the GOJ will likely need to take other painful steps. 
Reinstating or increasing sales taxes on some basic commodities are 
options, but unpopular choices when unemployment remains high and 
wages stagnant.  Empowering tax auditors to do their job properly is 
another important area requiring tough decisions that would require 
capital expenditures in hardware and software to link the critical 
tax and income-related government entities to the Tax Department (a 
tough proposition during the 2010 budget process and its 
 
across-the-board cuts) and amending the current Income Tax Law, 
possibly as a provisional law following the dissolution of Jordan's 
parliament on November 23.  End comment. 
 
Visit Amman's Classified Website at 
http://diplopedia.state.sgov.gov/index.php?ti tle= 
Embassy_Amman 
 
Beecroft