Raad Mahmoud Al-Tal

The effectiveness of tax policy should not be judged solely by the amount of revenue it generates. It should also be assessed by its ability to ensure fairness among taxpayers and prevent distortions that allow tax privileges to become a source of unfair competition. At a time when public finances are under increasing pressure, reviewing tax exemptions and special provisions is more important than ever. The objective, however, should not be to impose additional tax burdens, but to ensure that legally due revenues are collected and that incentives serve their intended economic purposes.

Free zones were established to strengthen the economy’s links with international markets, promote exports and re-exports, facilitate international trade and transit, and attract domestic and foreign investment by offering a competitive business environment. They are also intended to develop the country into a regional hub for logistics, storage and distribution, create employment opportunities, facilitate the transfer of knowledge and technology, and generate added value for the national economy. In this context, tax exemptions and investment incentives should be viewed as instruments for achieving these objectives, rather than as ends in themselves. When activities within a free zone increasingly serve the domestic market, moving beyond their intended role in international trade and re-export, questions arise about whether the incentives remain justified by the nature of the activities being undertaken. More importantly, it becomes necessary to ensure that these privileges do not create an unfair advantage over businesses operating within the domestic market and complying with the applicable tax obligations.

Vehicle trading in the Zarqa Free Zone provides a case that warrants closer examination. Available data covering the period from the beginning of 2022 to 25 October 2026 show that approximately 195,600 vehicles were cleared, with a total value of nearly JD 2.69 billion. The estimated net profit amounted to approximately JD 537.8 million. Applying a hypothetical income tax rate of 20% to these estimated profits would imply a tax amount of approximately JD 107.6 million.

More specifically, the data indicate that approximately 196,000 vehicles were cleared for the domestic market during the same period, with a total value approaching JD 2.69 billion. Based on the estimates provided, net profits reached approximately JD 537.8 million, equivalent to a hypothetical income tax liability of around JD 107.6 million at a rate of 20%. These figures raise important questions about the actual tax obligations arising from this activity and the extent to which taxes collected are consistent with the profits generated. It is important to emphasise that this amount represents an estimate based on an assumed tax rate, rather than a confirmed figure for unpaid tax.

The data also point to a substantial expansion in domestic market activity. The number of vehicles sold locally increased from approximately 40,300 in 2022 to 82,600 in 2025. Over the same period, estimated profits rose from JD 99.1 million to JD 193.5 million. This growth highlights the need for more effective tax oversight, particularly through linking customs records with commercial invoices and tax returns. Such integration would help establish a more accurate picture of actual profits and the tax obligations associated with them.

From an economic perspective, applying different tax treatments to businesses engaged in similar activities and competing for the same consumers can distort market competition. It may also encourage investment to flow towards activities that benefit from preferential tax treatment, rather than towards those offering greater efficiency, productivity or economic value. The consequences extend beyond potential revenue losses. They can affect the allocation of resources, undermine the competitiveness of businesses operating within the formal economy, and limit their ability to survive, invest and expand.

What, then, needs to be done? The first priority is to review the legislation governing free zones and establish a clear distinction between activities serving foreign markets and transactions that ultimately supply the domestic market. All such transactions should be subject to the tax obligations prescribed by law. In addition, economic incentives should be evaluated periodically against measurable outcomes, including their contribution to exports, investment and employment, as well as their fiscal cost to the Treasury. This would help determine whether the benefits generated by these incentives justify the revenue foregone.

Tax reform should not be understood as a call to eliminate investment incentives or undermine the role of free zones. Rather, it should ensure that these incentives are directed towards activities that generate genuine added value for the national economy. Fairness in tax treatment is not simply a means of increasing government revenue. It is a fundamental requirement for a competitive market, a level playing field for businesses, a more attractive investment environment and greater confidence in economic policy.

The question is not whether free zones should enjoy incentives, but whether those incentives are achieving the economic objectives for which they were introduced, without undermining tax fairness or distorting competition.