Identifier
Created
Classification
Origin
06AMMAN540
2006-01-24 11:50:00
CONFIDENTIAL
Embassy Amman
Cable title:  

PARLIAMENTARY OPPOSITION PUTS TAX REFORM OFF FOR

Tags:  EFIN ECON PGOV KMPI KTDB JO 
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ZNY CCCCC ZZH
R 241150Z JAN 06
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 7663
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHGB/AMEMBASSY BAGHDAD 2342
RUEHTV/AMEMBASSY TEL AVIV 3978
RUEHDM/AMEMBASSY DAMASCUS 3167
RUEHJM/AMCONSUL JERUSALEM 3685
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000540 

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/19/2016
TAGS: EFIN ECON PGOV KMPI KTDB JO
SUBJECT: PARLIAMENTARY OPPOSITION PUTS TAX REFORM OFF FOR
ANOTHER YEAR

REF: 05 AMMAN 9954

Classified By: Ambassador David Hale, Reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 000540

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/19/2016
TAGS: EFIN ECON PGOV KMPI KTDB JO
SUBJECT: PARLIAMENTARY OPPOSITION PUTS TAX REFORM OFF FOR
ANOTHER YEAR

REF: 05 AMMAN 9954

Classified By: Ambassador David Hale, Reasons 1.4 (b) and (d).


1. (SBU) SUMMARY: Jordan's anti-reform parliament dealt a
significant, temporary blow to Jordan's economic reform
agenda by rejecting a draft income tax law. Parliament was
on strong constitutional grounds in doing so, as the bill had
been enacted as a temporary law in the waning days of the
Badran government, in a clear abuse of the executive's
emergency law-making powers. Special interests mobilized to
exploit the government's vulnerability, and even the
reformers in the new Bakhit cabinet lost enthusiasm for the
bill when they learned of several imperfections in the
Badran-sponsored legislation. Both the Senate and House
voted to rescind the emergency law. (Bowing to the
inevitable, Bakhit actually asked for Senate rejection.)
Parliament is prohibited from considering a revenue bill
during a budget debate, which now has begun and may continue
until the end of this parliamentary session, scheduled to
conclude March 2006. With parliament scheduled to return no
earlier than November, adoption of necessary tax reforms has
been delayed for a year. In a country where income tax
(personal and corporate) generates less than 6% of total
budget expenditures, a step backwards for a tax reform plan
to collect more revenues is one Jordan can ill afford. END
SUMMARY.


2. (C) In the final November days of the Badran government, a
number of time-sensitive legislative initiatives were enacted
as temporary laws, including a tax reform bill. Parliament
was in recess and the King at the time was dead set against
bringing parliament back to life, mulling a decision to
dissolve parliament and call new elections after a 6-8 month
period of electoral reform and campaigning. Persuaded by the
post-bombing mood of unity and support, the King allowed
legislators to come back into session on December 1, giving
parliament a second lease on life. However, the decision to
adopt temporary laws has come back to haunt the palace and

the new cabinet. Offended by abuse of the executive's
temporary law making powers - which stipulate only such laws
needed to address true emergencies or urgent spending
requirements can be adopted in parliament's absence - law
makers are fighting back, as they are now in session and
obliged to adopt or rescind the temporary bills. The first
test case was the tax reform bill. It was an urgent priority
for adoption prior to the budget debate, since parliament is
prohibited from considering revenue and spending bill
simultaneously, and the budget debate and vote are likely to
consume the remaining nine weeks the House is in session.
NOTE: If parliament were to pass a budget faster than
expected, there is a possibility that the tax bill would be
re-introduced in this session, albeit heavily amended. END
NOTE.


3. (C) The tax law was developed over two years with the help
of USAID and contained three main pillars: simplifying tax
rates, broadening the tax base, and lowering tax revenue
leakage by eliminating narrowly-defined tax exemptions that
favor more wealthy tax payers. However, there was a
perception that the outgoing Finance Minister made last
minute adjustments to the tax rates that diluted some of the
reforms, adding fuel to the constitutional fires. Even
within the cabinet, leading reformists lost enthusiasm for
the law, which in the face of vociferous attacks from the
press, special interest groups, and civil society
representatives, quickly became an orphan. Instead of
launching a communications plan (put in place by a USAID
technical assistance program),government officials refused
to comment on the law, which was rejected by the Lower House
within days.


4. (SBU) The public and parliamentary debate threw little
light on the merits of tax reform. Op-ed pieces claimed the
legislation favored the rich and taxed the poor and middle
classes - false charges the government never refuted. For
example, the Arabic daily "Al-Arab Al-Yawm" called the tax
change "a gift to the rich," formulated by a "minority that
does not represent more than two percent of Jordanians."
This charge struck home, as many average Jordanians regard
the reformists in cabinet - mostly well-off, western
educated, private sector leaders - as detached from the
common man. A number of professional associations joined in
the dissent and the Jordanian Bar Association filed a motion
with the Supreme Court to overturn the tax law.

AMMAN 00000540 002 OF 002


Disenchantment was also prevalent among public sector
employees who lost their 50% tax-exempted income under the
new law.


5. (C) With the tax law languishing in the Senate Finance
Committee, and even staunchly pro-regime senators openly
voicing opposition to it, it became increasingly clear that
there was no constituency for this law. In the end, neither
the Senate Finance Committee nor the new government felt it
was worth risking political capital to push for ratification
of a law resting on shaky legal ground. The cabinet made it
clear it accepted that its predecessor should not have
promulgated the bill as a temporary law, clearing the way for
Senate rejection. Deputy Prime Minister Ziad Fariz
acknowledged to the Ambassador that he had personally
advocated encouraging parliament to debate and amend the law,
and this option was discussed in cabinet. But the
constitutional hurdle was judged to be too great.


6. (U) After the Senate's decision, all newspapers hailed the
outcome. In one description, columnist Nahed Hattar wrote,
"the law has been put behind us by means of a democratic
process that represented the Jordanian community's will." A
popular blogsite critical of the government,
ajloun.blogspot.com, carried a piece titled, "Income Tax Law
Rejected: The System Works."


7. (C) Many of those expressing outrage over the executive's
abuse of the constitution have cheerfully endorsed widespread
use of temporary laws in the past when it suited them - and
are among those set to pay the most taxes in any reasonable
reform plan. With parliament unable to renew discussion of a
revenue-impacting bill until it adopts a budget, not likely
until the very end of the current session in March 2006,
needed tax reforms have been effectively delayed until the
next legislative session begins, no earlier than November

2006. That gives the cabinet plenty of time to turn public
opinion around, if it is so inclined.
Hale