Taxation Reforms: Problems and Prospects [Archives:2001/24/Business & Economy]

June 11 2001

During the next two years, the government is to complete reform of taxation sector and a phased implementation of the general sales taxation law. The goal here is to support the state’s balance-sheet out of the general revenues flow from new sources.
While optimism to achieve high ceiling of revenues, that exceeding YR 57 billion at the end of December 1999, is there, fears seem to spread among companies which paid YR 12 billion as income-taxes for that year. Companies, too, are worried about adding to customers’ burden, in case this sales law is implemented.
This new orientation is a consequence following the governmental chain of reform in the taxation sector; mainly: cancellation of extra taxes, amendments of income-taxes law, amendment of consumption taxes as well as production and services which the government intends to replace by the sales taxes law.
The government’s focus on taxation reform, includes imposition of the sales taxes which include circulated commodities and rendered services. Hence, the customers, have to bear it.
Categories and classification of Taxes
According to the law No. 31 for the year 1999 regarding income-tax and amendment of the law No. 12 of the same year, taxes are levied on specific annual profits ceilings that exceed exempted annual amounts assigned as YR 36,000. Revenues from these taxes relate to commercial, industrial, non-commercial and industrial establishments, wages and salaries. Tax structure is revised. it’s 10% on revenue upto YR 48,000, 15% on revenue upto YR 180,000, and up to 35% on revenues exceeding YR 824,001.
Therefore the law specifies the income pertaining to the commercial and industrial profit-taxes, etc. at 35% while it blocks increase of tax on salaries and wages at 20%.
The tax structure in Yemen includes taxes on every kind of income, so that the revenue generation process and monitoring and implementation of the law are carried out easily.
Specialists expect that the implementation of the sales tax will lead to a more moderate consumption, and encourage imports, increase government resources to support and finance basic development projects.
Reformation of the Taxation sector, according to the Economic Reforms Programs, implemented since 1995, stipulates exemption of products and basic services in order to improve people’s living standard. The law aims at including in the taxes the additional surcharges through which the state will generate about 25% of the general resources and about 5% of the GDP.
Economists believe that one of the features of the laws is to achieve a sense of fairness between national and imported products, exempting the basic services from taxes, encouraging investment, fighting tax-evasion, etc.
Consumers are the victims
Since the additional duties will be imposed on the prices , economists are worried that the implementation of the law will lead to more burden on people who are already overburdened. The law has generated a sense of fear among the private sector institutions which thought it would add more taxes.
The government of Bajammal decided to pursue reforms in the taxation sectors and implement of the sales’ law which it says will not add more burdens but will rather create a kind of fairness in tax collection.