Finance

Turkey targets business with steep taxes to raise revenue

July 17, 2024, 11:33 AM

In a concession to the electorate, the legislation before parliament proposes a 25 percent increase in the payment to pensioners on the lowest rate of support — Tax rises will affect both international and local businesses but in a concession to the electorate, the legislation proposes a 25% increase in the payment to pensioners on the lowest rate

Multinationals face minimum 15%
10% corporate tax for local business
Increase in lowest pension rate

Multinational corporations operating in Turkey face a steep increase in their tax bills, thanks to one of the new revenue-raising measures outlined by the government in draft legislation aimed at narrowing the budget deficit.

Under the new tax reforms, tabled before the parliament on July 16, multinationals with more than $817.6 million in annual consolidated revenue will be subject to a minimum 15 percent corporate tax. Multinationals did not have to pay corporate tax in the past.

Tax obligations will also rise for local corporations. Standard corporate tax for Turkish businesses is 25 percentand remains unchanged, but a new minimum 10 percent corporate tax is to be imposed, falling on companies that did not previously pay tax. Many exemptions will be eliminated.

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The measure would make Turkey compliant with an OECD agreement to restrict access to tax havens and create a level playing field for economic activity.

There will also be an increase in taxes levied on companies that operate public-private partnership projects, with the corporate tax lifted from the existing 25 percent to 30 percent.

Turkey has funded many of its new infrastructure developments, especially in the transport segment, through the public-private partnership model.

The government is also seeking to rein in the informal economy, tightening regulations for the self-employed and small businesses, with provisions for greater oversight of tax and income declarations among the measures announced.

While the tax package goes some way towards addressing the issue of unregistered income in Turkey, Emre Alkin, economist and dean of Topkapı University in Istanbul, says it does not go far enough and could add to pressures already being experienced by some businesses.

“The taxation package presented to parliament is no revolution nor reform in taxation,” he told AGBI.

“The problem one can see in the package is it imposes compulsory minimum corporate taxes even if no profits are made. In my opinion it is against the market logic to impose corporate taxes on companies that make losses.”

Turkish state finances have weakened. Figures released by the Ministry of Treasury and Finance on July 16 show the budget deficit for January to June growing to $26.3 billion on H1 revenue of $121.2 billion and outlays of $144.8 billion. Of the six-month deficit total, $8.5 billion was posted in June alone.

Turkey’s 2023 year-end deficit was $45.5 billion, representing 5.2 percent of GDP, a level forecast to increase to 6.4 percent this year.

In one concession to the electorate, the legislation before parliament foresees a 25 percent increase in the payment to pensioners on the lowest rate of support, lifting the minimum rate from TL10,000 (currently $302) to TL12,500 ($378). The increase will affect 3.7 million out of Turkey’s 15 million pensioners.

Even though those on higher rates of pension will not receive any increase in benefits, the hike to the minimum level is forecast to add TL33 billion ($1 billion) to budget outlays.