Turkey: Latest developments in the tax landscape

Tahsin Nalcı	Eren Güden

Turkish Finance Minister Naci Ağbal has recently announced radical messages about several topics in the Turkish taxation system that might attract taxpayers and investors. As an overall observation, Turkey is planning to reshape its taxation system, especially decreasing the overall tax burden of corporate income taxpayers. These issues are discussed in detail below.

The finance minister has announced that the corporate income tax rate (CIT) may be reduced soon to alleviate the total tax burden of corporate income taxpayers. The main purpose is to increase CIT collection and accelerate domestic and foreign investments in Turkey. In addition, the finance ministry is working on minimising the possible treasury losses due to such a decrease.

The CIT rate last time was reduced from 33% to 20% in 2006. Counter to the reduced rate, it was recorded that the collection rate of CIT was significantly increased. In addition, the finance minister has also announced that the scale of deductible expenses for small-sized enterprises may be expanded within certain conditions to shrink the volume of the grey economy.

The Turkish VAT system has generally been exposed to some concerns about its complexity. The critics claim that the collection of VAT, the VAT refund mechanism and VAT exemption structure are not efficient as much as other taxes because of its complex structure. In principle, Turkish VAT aims to tax consumption. However, VAT may also cause an additional tax burden on the producers, especially exporters.

For instance, they purchase intermediate goods with an 18% VAT, and sell final goods with an 8% VAT. In this sense, the ministry desires to relieve the VAT burden on producers with a reform plan on VAT, which aims to simplify the tax base and rates including VAT exemptions and the refund mechanism.

Excise duties (namely special consumption taxes) have been one of the crucial taxes among others, respectively with a share of 23% in overall tax collection, while OECD countries have a share of 7.5% on average. The finance minister declared that existing excise duty rates on the applied goods such as alcohol, tobacco products and motor vehicles are not intended to be raised anymore.

However, the share of excise duty revenues appears to stay significant in the coming years. Besides, excise duties on new goods such as drones might be imposed, based on the press conference held by the finance minister.

The finance ministry announced that corporate income taxpayers, which have tax debt but did not apply for restructuring of their debt when the tax restructuring programme was in force, will be visited by relevant tax authorities, and be questioned about their tax position.

An electronic monitoring system is used in Turkey to detect traffic rule violations and collect administrative fines for those violations. Currently, municipalities administer the system. The finance minister said that this is going to be privatised in the near future. This means that there will be business opportunities for both domestic and international investors.

Overall, Turkey is planning to reshape its taxation system to provide the financial integration of Turkey into the global economy. This has been clearly affected by the expected corporate tax reforms in other countries.

Therefore, we believe that Turkey is on the right track by planning its future tax landscape. Otherwise, it will not be possible to catch up with the winds of tax reforms all over the world and Turkey will fall behind the other countries in the corporate tax race.

Tahsin Nalcı (tahsin.nalci@centrumauditing.com) and Eren Güden (eren.guden@centrumauditing.com)

Centrum Consulting

Tel: +90 216 504 20 66 and +90 216 504 20 66

Website: www.centrumauditing.com