Turkey to tax crypto and stock market earnings

Umit Bektas/Reuters

• Mehmet Şimşek unveils tax plan
• Economist warns of ‘difficulties’
• Turkey’s GDP growth slowing

Turkey is planning to tax income earned from cryptocurrency and stock market trades, as the government seeks new revenue streams to help shore up its public finances.

The measures were part of a package unveiled by the finance minister Mehmet Şimşek at a gathering of senior officials of the ruling Justice and Development Party on June 4.

Previously, cryptocurrency earnings were not covered by Turkey’s tax regulations. Income from trades on the Istanbul Stock Exchange were made tax free in 2008, as part of a government plan to encourage investment. 

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Şimşek did not specify a rate for the levies. Earnings from trades were formerly taxed at 10 percent. 

Turkey’s real GDP will expand 2.4 percent in 2024, S&P Global forecasts, down from 4.5 percent last year and the smallest increase since pandemic-hit 2020.

Public debt will equate to 20 percent of GDP in 2024, according to S&P Global. Interest payments as a proportion of government revenue will be 17 percent in 2024, up from 13 percent last year.

When it comes to balancing the public finances, the investment tax measures are a positive step, according to economist Mustafa Sönmez.

“Currently, Turkey raises two thirds of its taxation via indirect taxes,” Sönmez told AGBI. “That is easy to collect. This new move is the right thing to do and the government needs to tap into this potential to raise money.”

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However, he is sceptical that the programme will achieve all its goals.

“It won’t be as easy due to a lack of inspections and past practices such as tax amnesties,” he said. “It is a move in the right direction but in practice it will face difficulties.”

The finance minister’s announcement pushed the Istanbul exchange’s main index down 1.8 percent late on June 4. Further retreats on Wednesday have taken the losses to more than 2.3 percent. 

Significant earning potential

The potential tax earnings from the crypto sector could be significant. The Chainalysis Global Crypto Adoption Index, issued in September 2023, said Turkey had emerged as a significant player in the global crypto market. About $170 billion had flowed into the country in the preceding six months. This placed Turkey 12th in the world, higher than markets such as Germany, Russia and Canada.

Other measures outlined by Şimşek included an increase in withholding tax on earnings from investment funds. The rate will rise from 7.5 percent to 10 percent on July 31. 

His announcement also included more details of the spending cuts revealed in May. 

Under the proposed austerity measures, outlays on state investment projects will be cut by 15 percent this year. Priority will be given to developments that are 75 percent or more completed, while there will be a freeze on new projects.

Şimşek had already announced a halt on new public service hirings, except to fill vacancies, a ban on state vehicle hirings and purchases, and a reduction in government spending on goods and services of 10 percent for this year.