Value Added Tax Effective in Palestine and Sales Tax in Jordan: Comparative Study

This comparative study highlighted the basic features of Value Added Tax (VAT) regime, effective in Palestine, and sales tax law applied in Jordan. In the introduction, the study dwelt on definition of taxes, their characteristics, basic elements and rules of imposing them. It also dealt with the types of taxes and highlighted the most important indirect type of taxes: VAT regime. Historically, VAT is considered the most important development in taxation policies in the last fifty years. In the 50s of the 20th century, no one heard, outside France, of such type of taxes. However, at present, VAT is applied in more than 136 countries. The number of countries introducing this type of taxes is on the increase given its significant contribution to public revenues. VAT contributes about one fourth of the tax revenues. VAT, basically a wide-ranging tax, is levied on sales and services. At the beginning, VAT was introduced to face the then recurrent and burgeoning needs and the urgent need for revenues. To that end, VAT was first applied in France. This study identified the basic characteristics of VAT imposed on stages of production coupled with tax discount on production inputs. That is, despite obliging tradesmen to collect tax on all their sales, they also have the right to ask for a discount in return for the tax burden imposed on their production inputs. A comparison was held between the VAT system effective in Palestine and the sales tax regime applied in Jordan. The focus of the comparison was on source of legislation, the basis of the enforcement of this law, registration procedures and the hows of completing monthly reports for this type of taxes. These taxes were compared in terms of the extent of their contribution to public revenues, local revenues and particularly the degree of their contribution to tax revenues and accordingly the extent of their (VAT and sales tax) contribution to the financing of the budget between 1995-2005. The researcher conducted an analysis of the percentage of contribution of both. It was found that the VAT was significant in the financing of the budget. That is, it significantly contributed to the finance of the budget revenues through collection of local cash or through paid-up VAT upon imports or through clearing. The same can be said about the Jordanian sales tax which, through analysis of its share in the budget revenues, was found to be important. This taxation regime in Jordan has proved its effectiveness despite its recent application. The VAT, introduced by the Israeli military authorities in 1976, has no legality and out-of-date system imposed on the Palestinian people by the use of force. It has failed to keep abreast of development in the system. The tax departments also failed to apply the full text of the system because 95% of taxpayers are actually tax evaders, according to the system, and therefore, harsh penalties are enforced against them. In contrast, the Jordanian sales tax system is relatively new. Concerning the mechanism of its work, it was found that the sales tax system is a form of value added tax similar to the one applied in Palestine. However, given the miserable economic situation prevailing in Palestine, this system levies a low percentage on basic goods in addition to the well-known general rates. In the light of the study findings, the researcher recommends drafting and enacting of a new law for VAT taking into consideration all social and economic conditions which the taxpayer in Palestine is living in. He also recommends making a distinction between basic commodities and luxury goods and services. Pertaining to the sales tax law, it is worth noting that this law has undergone amendments four times before taking its current form. In this context, the researcher believes that it's a developed system and should keep its name, sales tax law, although what is applied locally and universally is VAT system