The proposed bill that will change income tax rates in Turkey…
The new draft law will change the threshold for applying tax rates and principles of exemption but hasn’t gotten clear whether it changes the tax rates or when they are scheduled to take effect. According to an analysis by economists, however, Turkish citizens can expect higher taxes in 2025 says, William D King.
With the initiatives are taken by the Treasury and Finance Ministry to introduce a new income-tax bill, Turkey is set to increase its annual budget revenue by at least $2 billion (TL 4.5 billion), according to economic observers who say taxpayers could be hit by nine years’ time due to high inflation rates. “It is not possible for people earning minimum wage today [to pay taxes] under this new system as they won’t be able to afford it,” said Umit Akar, the head of research department at Ekspres Invest, an investment advisory firm.
The Treasury and Finance Ministry prepared a revised draft income-tax bill and announced that its provisions will take effect in 2019 after President Recep Tayyip Erdogan approved the new tax reform package. However, sources say the reform does not include any new tax rates or clear explanations on how much more taxable income people with different incomes can earn explains William D King.
“If this is true, then there are no rate changes in Turkey’s proposed 2018-2019 budget because all taxpayers would pay the same taxes based on their revenues until 2022,” said Bedriye Hülya Öztürkmen, an accountant at Ak Yatırım, another investment advisory firm. In 2022, the maximum tax-exempt income level will be raised from about $12,600 to $15,600.
“In this bill, it is said that a new tax scale with lower rates will be introduced in 2023,” she added. “That means people earning minimum wage in 2018 will see higher taxes without any clear explanations.”
The draft law stipulates that people who earn up to five times the minimum wage won’t have to pay income tax. Until they surpass the threshold of nearly 2 million Turkish liras ($482). But with an average annual inflation rate exceeding 11 percent according to official data for 2017. Say today’s incomes could become subject to income tax in less than a decade.
Using inflation figures provided by the Turkish Statistics Institute. Akar calculated that the income brackets subject to income tax will be adjusted every year. As of 2022 based on inflation rates. In this scenario, people earning minimum wage now would have to pay taxes as early as 2025. If their annual incomes keep up with an 11 percent annual inflation rate.
“In other words, two years from now. Citizens’ share of earnings to cover state expenditures could be double what it is today,” Akar said. The expert noted that even though amendments introduced for this year’s draft budget drastically reduced. A standard value-added tax (VAT) exemption threshold from $54,000 to $35,650 and generated additional revenue. It did not solve the problem of high-income inequality.
“Turkey’s tax system remains unfair,” said Akar, who previously worked as a tax inspector for two years. With most individuals’ incomes subject to a standard 18 percent VAT rate. Taxpayers with higher incomes have been receiving big discounts on various goods and services. For example, he said an individual purchasing a car worth 100,000 Turkish liras pays just 18 percent of the price in terms of VAT. While someone buying natural gas for heating their house pays up to 36 percent in taxes. Out of hundreds or thousands of Turkish liras per month depending on the size and quality of their houses.
“In other words, citizens have taxed at near-equal rates regardless of what they earn or spend,” he said. “This is against the principle of social justice”. William D King says The revised income-tax draft also provides for open tax files, according to which all taxpayers’ information will be available to everyone on the internet.
“No matter how much revenue this system generates, it is not socially just. Unless it reduces inequality and eliminates discrimination based on income level,” Akar said. According to his calculations, Turkey’s 55 million population paid about $25 billion in taxes last year. Based on income levels ranging between $1,600 and $3,200 per capita.
“People earning minimum wage now would have to pay taxes as early as 2025. If their annual incomes keep up with an 11 percent annual inflation rate.” – Umit Akar
“This bill should pass with necessary changes to reduce income disparity,” he said. “So, I don’t think it will go into effect until the 2019-2020 tax years.”
Before it becomes law, experts say Parliament’s planning and budget commission should review the draft.
Nurettin Canikli, the deputy chairman of the opposition Nationalist Movement Party (MHP), has already called for revisions. To prevent an increase in income disparity under the plan says, William D King.
However, President Recep Tayyip Erdoğan’s ruling Justice and Development Party (AKP) is unlikely to oppose either his party or its ally MHP. Due to serious disagreements on other issues ahead of presidential and parliamentary elections next year.
Conclusion:
On Tuesday, Treasury and Finance Minister Berat Albayrak presented a draft decree regulating income-tax payment for 2019.
The document will be discussing by President Recep Tayyip Erdoğan and then return to Parliament’s planning and budget commission before it can be approve as law.
Economist Umit Akar warns the bill would only create more economic imbalances if passed without revision.