Türkiye hikes tax rates to reduce budget deficit

Istanbul, July 7 (BNA): Turkey on Friday raised value-added tax by two percentage points and also raised the tax collected on bank consumer loans, in moves aimed at tackling a growing budget deficit that is also likely to lead to an already significant hike. economic inflation.

The Official Gazette said that the value-added tax rate imposed on goods and services rose to 20% from 18%, while it rose on basic goods such as toilet paper and detergents to 10% from 8%, effective immediately.

Among other changes signed into law by President Recep Tayyip Erdogan, the government raised the bancassurance and transaction tax applied to consumer loans to 15% from 10%, Reuters reported.

The Official Gazette showed that registration fees for mobile phones brought from abroad jumped by 228%, to reach 20,000 pounds.

“Reducing the budget deficit is the goal of the latest hike in taxes and fees, and some other steps to ensure fiscal discipline are also on the agenda. Spending cuts are also planned,” a senior official said.

“It is necessary to seriously restore the budget.”

The budget posted a deficit of 263.6 billion liras ($10.21 billion) in the first five months of the year, compared to 124.6 billion liras a year earlier due to increased spending ahead of the May elections and the impact of devastating earthquakes that hit southern Turkey in February.

Oyak Investment said in a note that the tax increases could raise Turkey’s budget revenues by about 2%.

Annual inflation fell below 40% in June but is expected to rebound in the coming months, spurred by minimum wage and other salary increases as well as fiscal measures, which also include corporate tax hikes.

The new tax measures are expected to raise headline inflation by 1 to 1.2 points, according to QNB Finansbank’s note.

The central bank raised interest rates last month and pledged to tighten policy in an effort to tame inflation.

Economists said that increasing the value-added tax rate imposed on goods and services will boost state revenues by about 30 billion pounds.

The moves came after a bill was introduced in parliament earlier this week seeking to increase corporate tax to 25% from 20% for earthquake-related financing needs.

Earthquakes that hit southern Turkey in February killed more than 50,000 people and displaced millions, in the country’s worst natural disaster in modern times. Business groups, economists and the government have said the rebuilding effort could cost more than $100 billion.

Separately, Turkey on Friday also exempted from withholding tax dividend payments purchased by companies listed on the Istanbul Stock Exchange.

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