New tax hike on the way

SHAFAQNA Türkiye – Taxes and fees were increased by a second set of rules as part of government-initiated revenue raising measures that increased spending ahead of the election. A senior official said that new steps will be taken to reduce the budget deficit.

With today’s regulation, there has been an increase in various taxes, especially a two-point increase in VAT, while fees have been increased by 50 percent.

The tax hike only continued two days ago with the announcement of a bill that increased the corporate tax, doubled the annual tax on all vehicles once, and gave the president additional authority to increase the SCT.

ANNOUNCED HIGH LEVEL

A senior government official said that today’s ruling is aimed at adjusting the revenue side of the budget and said: “It is aimed at reducing the budget deficit. Other steps will be on the agenda. Steps are also planned to reduce costs. In connection with the elections and some previous decisions in the budget, a serious recovery is required,” he said.

The official said that the transfer of KKM to the CBR, including its cost, is based on an approach to increase predictability in the budget, and that they will increase fiscal discipline.

The budget deficit for the first five months of the year amounted to 263.6 billion liras due to increased public spending ahead of elections in May and spending on an earthquake that killed tens of thousands in February. In the first five months, spending grew almost twice as fast as income.

The budget surplus for the same period last year amounted to 124.6 billion lira.

IMPACT ON INFLATION AND MONETARY POLICY

Although it has been declining in recent months, inflation, which remains high, is expected to continue rising due to higher taxes and wages.

Although inflation fell below 40 percent in May, after topping 85 percent last year due to the loose monetary policy of the Central Bank of the Russian Federation, reaching a peak in 24 years, experts are raising their inflation forecasts, which they expect will rise in the second half of the year. According to a Reuters poll, year-end inflation was forecast to be in excess of 50 percent before the tax hike.

In the assessment of the impact of regulation on inflation published by QNB Finansbank: “We expect it to be in the region of 1-1.2 points. It is estimated that about half of the impact on the CPI will be seen next month.

The market is closely watching whether the CBR’s need for tightening will increase after the tax hike, making fighting inflation a top priority. Last month, the CBR began gradually tightening its monetary policy to contain worsening price action and raised interest rates for the first time in more than two years.

After the interest rate hike, which was much lower than expected, the economic department announced that it prefers a gradual interest rate hike and normalization in line with risk analysis.

In his assessment of the impact of tax increases on monetary policy, Enver Erkan, Chief Economist at Dynamic Investment, said: “Increases such as VAT, SCT, wages and exchange rates are negative and risky for the price balance. In terms of inflation, all cost factors must be controlled, and the exchange rate is the most important factor here. The gradual transition following current markets may remain relatively dovish. A more serious initiative and a preliminary tightening of monetary policy may be required here,” he said.

Economists have calculated that the increase in corporate tax will bring in more than 100 billion Turkish liras in revenue for the rest of the year, while MTV will generate about 40 billion Turkish liras in budget revenues. Economists estimate the impact of the VAT increase announced today at about 30 billion Turkish liras.

Oyak Investment notes that the tax increase could contribute about 2% to budget revenues.

The salary increase for civil servants, which was included in a parliamentary decree two days ago, will generate spending of more than 120 billion Turkish lira this year. In addition to these points, many changes have been made to the law and regulations published in the Official Gazette, which determine income and expenses.

INCREASING TAXES

According to the regulations published in the Official Gazette, the 18% VAT rate applied to goods and services was increased to 20% and the 8% to 10%. The VAT rate of 1 percent, which covers mainly food, has not changed.

The Banking and Insurance Transactions Tax (BSMV) levied on consumer loans was also increased by 5 points to 15 percent.

In addition, fixed payments were increased by 50 percent. This increase includes fees charged in many areas including passport fees, work permit fees, land registry and cadastre fees, mortgages, legal action, notary services, jurisdiction, shipping port, license and diploma fees, excluding driver’s license fees.

The fee for phones imported from abroad increased by 228 percent to 20,000 Turkish liras.

In addition, gambling taxes have been increased.