Lawsuit fighting increased taxes could benefit Yemeni consumers [Archives:2008/1172/Local News]

July 14 2008

Wojoud Hassan
For the Yemen Times

SANA'A, July 8 – Yemen's Supreme Circuit Court will hold another hearing this Tuesday regarding the sales tax law and its modifications, which could help lower the prices of basic necessities for all Yemenis.

The law, which is being recommended by the World Bank and the International Monetary Fund, will allow the government to tax Yemeni manufacturers twice for the goods they produce: first when they manufacture them and then again when they sell their products wholesale to a distributor.

These taxes could cause manufacturers to sell goods at higher wholesale prices, which in turn forces retailers to sell them to consumers at higher retail prices.

In the first lawsuit of its kind in Yemen, the Chambers of Commerce and Industry Association is suing President Ali Abdullah Saleh and executive members of his Cabinet, alleging that the sales tax law is unconstitutional.

Others, including the prime minister, the ministers of finance and legal affairs, the speaker of Parliament and the head of the Taxation Department, also are named in the suit.

“When the government or any segment of its authority is accused, the Legal Affairs Ministry is then responsible for their representation in court,” explains Abdullah Mohammed Al-Ansi, the Ministry of Legal Affairs attorney representing the defendants.

He further notes that because a legislative authority issued the allegedly unconstitutional laws, which are operational, they cannot be suspended or invalidated unless the Yemeni Parliament decides to do so.

The capital city's Chamber Association filed its case in 2005 over the unconstitutionality of several articles in the 2001 sales tax law. Some articles have been amended, but others remain unchanged.

The association demands either canceling or amending the sales tax law in order to decrease its burden on Yemeni businesses.

“When this lawsuit first began, Parliament changed many of the articles, canceling some because they obviously contradicted the Yemeni Constitution,” says Hassan Ali Mejalli, a Sana'a University Faculty of Law professor representing the Chamber of Commerce.

“Chamber of Commerce members initiated this lawsuit in April 2005 after realizing that there was no other way to stop implementing these wrong articles except to seek legal protection,” Mejalli explains.

He adds, “We're seeking to change more unconstitutional articles in order to have better and stronger laws to protect Yemeni economics and businessmen, as well as to protect citizens themselves from violations against their constitutional rights.”

More than 40 percent of Yemenis live below the poverty line on less than $2 per day and illiteracy is estimated at 50 percent. Average annual individual income is $450 while unemployment was 37 percent in 2003, according to World Bank statistics.

“Ordinary Yemenis worry that implementing this tax will increase the financial burden upon them when they already can't afford to buy basic necessities,” notes Member of Parliament Abdulrahman Fadl of the Islah party. “What will happen to them when such a law is implemented?”

Jamal Al-Mutarib, a senior member in the Chamber Association, points out that although five of the tax law's articles have been modified since the lawsuit began, many articles still worry the organization because “They simply violate traders' rights and lead to economic crises in the country,” he says, adding, “I'm afraid that people aren't aware of how serious this case is.”

He adds, “Taxation is done to achieve social justice, but it's not done for that purpose here. This law will encourage tax evasion, already estimated at 56 percent due to commodities smuggling, which the tax authority is unable to control.

“World Bank reforms haven't improved the economic situation; instead, they just leave behind a lot of taxes that people can't pay,” Al-Mutarib concludes, further warning that, “This sales tax will reduce citizens' purchasing power.”