Turkey hikes tax rates in move seen stoking inflation

Istanbul: Turkey on Friday hiked value-added tax (VAT) by 2 percentage points in two broad categories and also raised the tax collected on bank consumer loans, in moves expected to boost already high inflation and also budget revenues.

The Official Gazette said the VAT rate charged on goods and services had risen to 20 per cent from 18 per cent, while that on basic goods such as toilet paper, detergents and diapers was raised to 10 per cent from 8 per cent.

In the announcement, effective immediately, President Tayyip Erdogan signed several decisions, including one that increased the Bank Insurance and Transaction Tax (BSMV) applied to consumer loans to 15 per cent from 10 per cent previously.

The registering fee for mobile phones that are brought from abroad was hiked by 228 per cent to 20,000 lira ($765) from the previous 6,091 lira, one of the decisions on the Gazette showed.

Inflation

Annual inflation dipped below 40 per cent in June but is expected to rebound in the months ahead, driven by minimum wage and other salary increases, as well as the tax measures that also include a corporate tax hike.

The new tax measures are expected to raise overall inflation by 1 to 1.2 points, according to a note by QNB Finansbank.

The tax increases may raise Turkey’s budget revenue by around 2 per cent, an Oyak Investment note said.

The moves came after the introduction of a draft law in parliament earlier this week that seeks to increase corporate tax to 25 per cent from 20 per cent for earthquake-related funding needs.

The earthquakes in February in southern Turkey killed more than 50,000 people and left millions homeless in the country’s worst natural disaster of modern times. Business groups, economists and the government have said rebuilding efforts could cost more than $100 billion.

Separately, Turkey on Friday also exempted from witholding tax the dividend payments of own shares purchased by companies listed on the Istanbul bourse.