Taxes on tobacco, alcohol too high in Turkey, finance minister says

Güneş Kömürcüler – ISTANBUL

Indirect taxes on tobacco, alcoholic beverages and automobiles are too high, Turkey’s Finance Minister has said, vowing no further hikes will be made in indirect taxes this year, in a bid to help ease the country’s inflation rate 

Speaking to a group of journalists late on July 20, Finance Minister Naci Ağbal also said it was key for the government to maintain the fiscal discipline and that the budget deficit-to-GDP ratio would not be higher than 2 percent, which is very close to the pre-defined target at 1.6 percent. 

“We will not make hikes in indirect taxes in 2017. Such taxes on automobiles, tobacco products and alcoholic beverages are already too high,” he said, reminding that any tax hikes were not introduced on tobacco products for the second half of the year. 

Turkey normally makes price hikes on alcohol products and tobacco products twice a year according to their share in the domestic producer price index. The cabinet has not increased taxes on cigarettes in a bid to contain inflation as the government continues to struggle with double-digit growth in annual consumer prices. The share of tobacco products in the inflation basket is 5.87 percent and price hikes in these products last December had a significant impact on the headline inflation figure in that period. An additional 7.8 percent special consumption tax has, however, been added for alcoholic beverages in July, automatically in line with Turkey’s producer price index in the first half of the year. The share of alcohol products in the inflation basket is nearly 0.4 percent. 

Turkey also increased its special consumption tax on cars last November, a move that will be applied to all but the cheapest models in what the finance minister then said was a response to demands from the industry. The tax is rated at 90 percent for vehicles with engines between 1,600cc and 2,000cc and 145 percent for cars with engines over 2000cc.

Budget gap-to-GDP ‘not to exceed 2 pct’

Ağbal noted that the government aimed at focusing on diminishing shadow economy and increasing the efficiency of its tax collection activities, adding that another significant step would be putting public expenditures under more control. 

“We have a special emphasis on keeping the budget deficit at a certain point. We put our budget deficit for this year at 1.6 percent, but this is now at around 2 percent due to a number of measures to give a boost to the economic activity and other factors which have created some pressure over the public expenses,” he said, vowing that the country would close this year with a budget deficit just below 2 percent. 

Turkey ran a budget deficit of 25.2 billion Turkish Liras (about $7 billion) this January to June with fiscal measures to stimulate the economy costing nearly 12 billion liras ($3.4 billion), the ministry said on July 17.      

Ağbal noted that the second half would be much better in terms of budget income as the government’s temporary tax cuts on furniture, white goods and properties would end by September. 

The government will also start collecting delayed social security payments, he added.

“Most importantly, we will start to reap the positive results of the rising economic activity, as we will collect this as tax income,” Ağbal noted. 

Speeding up in tax collection efforts 

The minister said the main point was to accelerate efforts to collect taxes in a more efficient manner. 

“We put a tax restructuring plan into action in the previous months. We will continue to charge these payments in the upcoming months, which will create an additional income to the budget,” he said, adding that some 5.5 billion liras ($1.5 billion) of tax income has already been collected until now. 

Through a stronger communication with tax payers, this amount will likely double, Ağbal noted, adding that the government would closely follow and detect those who fail to pay their taxes and change this income. 

“We have also concentrated on privatization transactions. Our privatization target for this year was set at 13 billion liras [$3.7 billion], and we will likely close the year at around 10 billion liras,” he said. 

Ağbal also noted that a comprehensive reform would be realized in the country’s value-added tax (VAT) law, adding that the government started to take opinions from leading business associations to revise the 32-year-old law. 

“The VAT is normally supposed to tax those who consume rather than those who produce. However, our existing law does the opposite. We need to change this,” he said, adding that a technical delegation was in the United Kingdom to examine the VAT law and practices there in detail as part of the works to revise Turkey’s VAT law.

In another speech earlier on July 20, Ağbal noted that more than one million enterprises were not paying their VATs.