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Costs of Distrust: The Virtuous Cycle of Tax Compliance in Jordan

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Abstract

Tax compliance has been extensively researched. Yet, the classic question ‘why do people pay taxes?’ remains unanswered. In Jordan, tax evasion is widespread. The state and citizens have been trapped in a continuous hide-and-seek game, which has taken the form of a virtuous cycle. This paper investigates tax evasion along with the most noticeable features of the Jordanian tax system. It also highlights how the virtuous cycle of tax evasion has been established and what could possibly be a way out of it. We argue that sociocultural values are the most prominent cause for tax evasion. That is, the procedures of state formation and functionality in Jordan have created mutual distrust between the state and its citizens. Having been raised in a community characterized by deep distrust, tax evasion is no longer considered immoral by substantial numbers of the Jordanian population. We argue that successive governments need to create a high-trust-based culture and formulate strategies that serve to acquire normative ethical values in order to enhance voluntary compliance. The way to accomplish this necessity is through enforcing the state’s transparency and accountability. The taxation system needs to concentrate on income tax rather than raise tax rates on essential commodities to collect substantial tax revenues. Thus, further reform of the taxation system along with a reduction in tax incentives need to be considered. Moreover, lowering the exceptionally high personal income tax threshold would bring Jordan in line with its peers, expand the base, and introduce more progressivity. There would also be a scope to introduce a minimum tax based on sales as a tool to address tax evasion.

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Fig. 1

Sources: IMF report (2014, p. 10)

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Notes

  1. For an overview see: Cowell (1990), Andreoni et al. (1998), and Slemrod (2007).

  2. Mansur, Y. (Jan, 2015)"What's with Taxes" Jordan Times.

  3. The exchange rate of the Jordanian Dinar has been pegged with the US dollar since 1994 (JD 1 = US $1.4).

  4. Zakat is a form of obligatory—compulsory, or, more recently, voluntary—alms-giving and religious tax in Islam. As one of the Five Pillars of Islam, Zakat is a religious obligation for all Muslims who meet the necessary criteria of wealth. It is the instrument that allows individuals to render to the community its share in the wealth produced (Murtuza and Ghazanfar 1998).

  5. For details, see http://www.jordan-business.net/images/stories/March2012/FEATURE.pdf.

  6. A dunam was a unit of land area used in the Ottoman Empire and representing the amount of land that can be plowed in a day. The unit is still in use in many areas previously under Ottoman influence. It is now defined as exactly one decare (1000 m²).

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  1. Department of Accounting, Al-Ahliyya Amman University, Balqa Governorate, Jordan

    Fadi Alasfour

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Alasfour, F. Costs of Distrust: The Virtuous Cycle of Tax Compliance in Jordan. J Bus Ethics 155, 243–258 (2019). https://doi.org/10.1007/s10551-017-3473-y

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