The Turkish government has finalized a comprehensive tax reform package that includes the imposition of minimum corporate and income taxes; as well stricter taxation of the self-employed and will submit it to Parliament in the coming days.
The new package could mark one of the largest tax overhauls in two decades and its initiatives are expected to generate an additional $7 billion in revenue, according to a Bloomberg report.
The proposed legislation is part of a broader effort to enhance the country’s fiscal discipline and ensure a more equitable tax system. The government has already announced salutary spending cuts as it moves toward stricter fiscal policies.
Simsek and his boss VP Cevdet Yilmaz have heralded two more set of fiscal measures, probably to be announced in tandem with the revision of Turkey’s Medium Term Economic Program in September.
The tax package has drawn a huge amount of criticism from opposition media, on account of not going after major areas of tax evasion, such as real estate sales and funds deposited in overseas tax havens. A measure to means-test every citizens in the high income bracket to make sure that they pay taxes by comparing bank transactions and spending to tax declarations has apparently been vetoed by Erdogan.
The new bill envisages a tax on capital and seeks to increase the share of direct taxes, according to officials.
Vice President Cevdet Yılmaz said the government’s main framework is to “increase tax justice without creating inflationary side effects, to consider income distribution and to protect investment, employment, production, and exports.”
The nation’s budget has been considerably plagued by a sharp increase in spending after devastating earthquakes struck the southeastern region in February last year. The results for the first half year announced today reveal a deficit of TL750 bn, or $25 bn, rising by 55% in nominal terms vs 2023.
The annual shortfall is projected to be TL 2.7 trillion, or 6.4% of GDP, according to the government’s estimates.
Yılmaz said the new tax bill and revenue measures will reduce the interest expenses and the country’s need for public borrowing.
“The improvement in fiscal balances achieved through spending and revenue measures will support the disinflation period starting in June and provide an opportunity to finance public expenditures, including the earthquake expenses, which are in the trillions of Turkish lira annually, with healthy resources,” he wrote on social media platform X.
The new package could mark one of the largest tax overhauls in two decades and its initiatives are expected to generate an additional $7 billion in revenue, according to a Bloomberg report.
“We will strengthen tax justice with regulations aimed at increasing the share of direct taxes included in the package expected to be discussed in our Grand (National) Assembly soon,” Treasury and Finance Minister Mehmet Şimşek wrote on X on Thursday.
At the heart of the tax package lies the introduction of a minimum corporate tax, which will require multinational companies with annual consolidated revenue exceeding 750 million euros to pay a corporate tax rate of at least 15%.
The measure aligns with similar initiatives implemented by other countries, such as the United States and several European nations, and aims to address concerns about tax avoidance by large corporations.
Experts highlight that nearly half of domestic corporate taxpayers either reported losses or no taxable income despite high revenues. The Treasury and Finance Ministry has developed a hybrid model by studying systems in EU and OECD countries, comparing taxpayer declarations with revenue and payment capabilities.
Under the new rules, a portion of the profit reported in the income statement will be considered the taxable base, and the higher of the determined tax amounts will be applied.
The package also proposes the implementation of a minimum income tax for individuals engaged in commercial, agriculture, and freelance professions. The new model stipulates that the income reported by taxpayers cannot be less than a specified percentage of their declared profits, as shown in their income and earnings statements.
For self-employed individuals, the proposal envisages a minimum threshold that will be set where their reported income cannot be less than the annual gross minimum wage.
The package also proposes increasing the corporate tax rate from 25% to 30% on earnings that entities generate within the scope of projects under the build-operate-transfer (BOT) and public-private partnership (PPP) models.
The new bill is also said to include a proposal to increase the departure fee for traveling abroad to TL 1,500.
Turkish citizens flying to international destinations are currently required to pay a TL 150 fee per person.
The bill is expected to be presented for debate as soon as next week. It is likely to be approved by lawmakers, given the ruling Justice and Development Party (AK Party) and its allies’ control of Parliament.
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