As Turkey seeks to deliver on its election spending commitments and restore the region devastated by earthquakes, it has imposed a series of taxes and fees in order to increase government revenue.
Several values added tax rates will be raised to 10% from 8% and 20% from 18% in the new measures, which shall come into force immediately as well as some of them over the coming days. According to a decree published in the Official Gazette on Friday, administrative fees have also been increased by 50 %.
Background
The tax hikes coincide with Turkey’s growing fiscal deficit. During the first five months of 2024, it grew from 124.6 billion ($4.78 billion) to 263.6 billion Turkish lira ($10.21 billion). Reuters said that the rise in spending was brought on by preparations for the May elections in Turkey as well as the effects of the catastrophic earthquake that struck the region’s southeast in February.
The increase in taxes, according to a Turkish official, is intended to lower the deficit.
What is draft tax law in Turkey?
On April 2, 2021, the Turkish Government presented the Turkish Parliament with a Draught Law on Amendment of The Law on Collection Procedures of Public Receivables and Other Certain Laws (the Draught Law). In accordance with the Draught Law, the company tax rate would be raised to 25% for the 2021 tax year and 23% for the 2022 tax year. Consult the EY Global Tax Alert. On 5 April 2021, Turkey proposed raising the corporate tax rate.
According to the law, for the 2021 and 2022 tax years, the provisional article has been added to the Corporation Tax Law No 5520 and the corporation tax rate has been increased from 20 % to 25 % and 23 % respectively.
Why it matters?
Despite Turkey’s litany of economic problems, Erdogan was reappointed for a third term in May. In spite of the ongoing problems, an AlPremiseMonitor poll taken in May indicated that Erdogan was more trusted on economic matters. Turkey is currently wrestling with high inflation, currency shortages and a depreciation of the lira.
Erdogan’s willingness to alter Turkey’s economic course may be suggested by the country’s new cabinet. In June, for instance, the President restored Mehmet Simsek as Minister of Finance. Simsek held the Office of Deputy Prime Minister and Ministry of Finance from 2009 to 2018. According to a story from AL Monitor’s Amberin Zaman last month, they fired him because he was opposed to some of Erdogan’s policies such as his emphasis on low interest rates.
But last month, Turkey’s central bank raised its rates in a sudden change of heart. There is also a new head of state in the Fiscal Institution. In June, former Goldman Sachs banker Gaye Erkan was appointed governor of the bank and became the first woman to hold that post.
