Authorities act to stem tax evasion

ISTANBUL - Hürriyet Daily News

Total number of employees with social insurance is about 11.25 million as of April 2012, 5.13 million of which are reportedly minimum-wage workers. DAILY NEWS photo, Hasan ALTINIŞIK

The General Directorate of Revenues and the Social Security Institution have initiated an action plan to prevent tax evasion, by stopping firms from falsely registering employees at the minimum wage. The move comes after Finance Minister Mehmet Şimşek’s recent remarks that point at that 45 percent of private companies registered their employees at the minimum wage and fresh data about corruptions in the system.

Şimşek said on July 16 that the budget balance had deteriorated “seriously” during the first half of the year and that an additional tax might be imposed later in the year if necessary. Turkey registered a budget deficit of 6.7 billion Turkish Liras in the first six months of the year, a significant drawback considering there had been a 2.9 billion lira budget surplus in the same period last year.

The social security deficit, an important factor in the budget balance disruption, also increased by 7.4 billion liras in the first six months of the year, despite reforms such as a raising of the retirement age and the combination of the three different social security institutions under the Social Security Institution (SGK) in the last 10 years since the Justice and Development Party (AKP) came to power, daily Radikal reported yesterday.

The General Directorate of Revenues has started to ask for information on the number of employees, the number of minimum-wage workers and documents such as payrolls and bank receipts from employers, in order to determine the actual statuses of employees, according to daily Akşam.

Companies pay lower social insurance premiums and severance benefits by registering employees at the minimum wage and paying the rest of the salaries under the table. This causes lower income-tax payments, resulting in tax revenues below the potential level.

Approximately 5.13 million employees earn the minimum wage, according to the annual report of the directorate, while the total number of employees with social insurance was nearly 11.25 million as of April 2012. The figure comprises about half the people working in Turkey, and results in 6 billion liras of income tax, 65 percent of total income-tax revenues. The estimated loss in tax revenue is 3 billion liras, on the assumption of tax professionals that 2.5 million employees reported as earning the minimum wage are actually paid more.

Salary coefficients

The SGK has begun work to determine salary coefficients based on occupational groups, in an attempt to prevent tax evasion. This will prevent, for instance, hotel employees such as bellboys, hotel managers, one-year employees and 10-year employees from all being registered at the minimum wage, which is often the case in Turkey. It is expected that the number of minimum-wage employees will drop and real salaries will be reported on payrolls after the coefficients are announced. The SGK recently canceled the social insurance of 127,000 babies and underage children who were registered as employees at various firms before a social insurance reform raising the retirement age to 65 came into effect.

Professionals suggest enhancing auditing of self-employed people, such as doctors, lawyers who run their own private offices, jewelers and pharmacies.