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Turkey targets butchers, bakers and tax law breakers

Finance minister Mehmet Şimşek said “Bakeries are the places where the most tax evasion occurs" in Turkey but those in the industry dispute this Alamy via Reuters
Finance minister Mehmet Şimşek said “Bakeries are the places where the most tax evasion occurs" in Turkey but those in the industry dispute this
  • Focus on small businesses
  • Limits on cash payments
  • VAT on bread just 1%

Ankara has opened a new front in its war on tax avoidance, as the Turkish finance minister flags a crackdown on small and medium-scale businesses to help balance the budget and increase transparency.

Just weeks after announcing a major offensive against tax avoiders in the corporate world, with hundreds of state auditors to be deployed to look into the affairs of leading businesses across the country, finance and treasury minister Mehmet Şimşek called for a crackdown on SMEs, many of whom he said were using cash transactions to escape paying VAT. 

While acknowledging that “no one wants to pay taxes”, Şimşek told a meeting of ruling Justice and Development Party parliamentary deputies on October 17 that more needed to be done to stamp out what he said was a culture and mentality of tax avoidance by small businesses, going on to cite bakeries as a prime example of this practice. 

“The lowest VAT is on bread,” he said. “Have you ever seen a baker give you a receipt? They even evade the 1 percent VAT.

“Bakeries are the places where the most tax evasion occurs and no tax comes. They do not issue receipts at the beginning, middle or end of the day. They sell bread from morning to night but do not pay tax.”

However, one the third-generation owner of a bakery in the northwestern province of Çanakkale, rejected the minister’s assertions that bakers were at the forefront of tax avoiders, telling AGBI that there was little chance for ducking state levies in Turkey’s highly regulated industry. 

“We pay our taxes as any input ingredients we buy are registered and have to be shown in the books,” said Ayşe, who preferred not to give her last name. 

“Our input costs are going up and up but we cannot set the price of a loaf of bread. In the past, it was our elected bakery association setting the price of bread but today it is the provincial governor and how can we fight the state?”

Echoing Ayşe’s complaints, and those of many small business owners in other sectors across Turkey, Erdoğan Çetin, president of Istanbul Chamber of Bakeries, said most transactions were receipted and therefore taxed. 

“All input costs are at 20 percent VAT – power, water, natural gas, along with packaging,” he said. “Only the bread itself is subject to a 1 percent VAT and as it is most sales are to supermarket chains, markets, shops and cafes, not over the counter, with all sales recorded.”

“Maybe our minister was misinformed,” he added diplomatically. 

Misinformed or not, Şimşek has said the government is serious about combatting unregistered economic activity and plans greater penalties for those in breach of the law. 

Indeed, there are few carrots but a lot of sticks in Turkey’s new tax avoidance crackdown and consumers are also being targeted.

Under legislation approved in August, shoppers can be fined almost $150 if they do not report a retailer who fails to supply a receipt for a purchase. They are given a five-day grace period in which to inform authorities. 

The government has also proposed new regulations aimed at dethroning cash as king, restricting the amount of cash that can be used in a single transaction to 7,000 lira, the equivalent of $205 at the current exchange rate.

The aim of the regulation is to register all money movements, either through the use of credit cards or through banks and other financial agencies, such at the state post office, and is seen as targeting the small end of the business community.

Again, the regulation comes with a stick, and those who make cash payments in excess of 7,000 lira can be fined 10 percent of the transaction value. 

For Bereket Bakery’s Ayşe, the campaign against tax avoidance in Turkey is focusing on the wrong end of the market: “Rather than looking at small businesses that are struggling due to price caps, why not look at big companies that are making billions in profits?”