A new draft of the proposed Income Tax Law has been submitted for review to the Legislation and Opinion Bureau in Jordan. At a later stage this draft law will be submitted to the Parliament for discussion and ratification.
The draft law is intended to replace the Income Tax Law No. 28 of 2009 (‘the 2009 Law’).
One of the key features in the draft law is that it introduces gradual tax on incomes in a detailed manner. This is further explained below.
The draft law does not amend the taxable incomes in Jordan, nor does it change the exemptions laid out in the 2009 Law, but rather it proposes a new set of ratios for taxes and exemptions.
The taxable incomes still include: Income from professional services or activities; Interest; commissions; discounts; currency differences; deposit profits and profits from banks and other legal resident persons; royalties; income from selling goods; income from the selling or leasing of movable and immovable properties or intangible assets in Jordan; income from re-exporting; and income from transportation of goods between Jordan and a foreign country.
Even though the taxable incomes have not been amended, minor changes were made to some aspects relating to exemptions granted on the income of pensioners. For example, in accordance with the 2009 Law, an exemption is applicable to the first JD 4,000 of monthly pension salaries paid to a resident person. However, the draft law provides that the same exemption be applicable only to the first JD 3,500 of the same monthly pension salary.
Additionally, the draft law intends to place an exemption on the first JD 100,000 of any agricultural activity generated inside Jordan1.
Further to the above, it is important to note that the draft law states that the income paid (as a return for services provided) by a judicial person (i.e. an entity created by law such as a company or institution) to a resident of Jordan who is a doctor, lawyer, engineer, auditor, expert, agent, or broker shall be subject to a withholding tax at the amount of 5% of the paid amounts.
Other minor amendments in the draft law include changes made in relation to the income deductions applicable to tax payers. The draft law has added the option of deducting the Murabaha (which is an Islamic financing structure, where an intermediary buys a property with free and clear title to it then agrees upon a sale price with the prospective buyer, including an agreed upon profit for the intermediary) and interest amounts paid by any judicial person. This, however, does not apply to the Murabaha and interest amounts paid by banks, financial institutions, or financial companies and individuals who perform financial lending activities. Furthermore, this deduction shall not be applied to amounts that exceed the total debt paid-in-capital ratio.
As regards amendments made to the income tax ratios applicable to companies and people, the draft law provides that they should be as follows:
1. Natural Persons2:
The draft law further proposes the following exemptions:
2. Judicial Persons:
The draft law proposes that the following ratios apply to the income of both Banks3 and Financial Institutions4:
However, in regards to communications companies, basic substance-mining companies, insurance companies, reinsurance companies and financial intermediation companies, the Draft Law suggests that the following income tax rates apply:
As for other judicial persons not addressed in the above mentioned mechanism, the following rates shall apply5:
There are mixed views with regards to the Draft Law, subject of this article. While some commend the effort of revitalizing the stagnant Jordanian economy, there are views which suggest that the increased number of taxes imposed on different factions of the public, including pensioners for example, could have a negative effect, and may also be contrary to the principles of the Jordanian constitution which provide for progressive taxation, in accordance with principles of social equality and justice.Footnotes: