Gov't signals comprehensive tax reform

Neşe Karanfil- ANKARA

Vice President Cevdet Yılmaz has said there are strong demands from the labor and employer sectors on taxation and that he supports these demands, pointing to radical changes.

“This is an issue we should work on,” Yılmaz said after meeting with representatives of the business world as part of preparations for the Medium-Term Program (MTP) to be announced next month.

" It should not be evaluated as an increase or decrease in taxes,” Yılmaz added.

“Let's call it modernizing, simplifying and balancing the tax system.”

Yılmaz's statement raised questions about what kind of tax reform might be possible. The fact that there is a demand to reduce indirect taxes and increase the share of direct taxes has drawn attention to the MTP and development programs to be announced in September.

The tax reform is expected to be based on elements such as simplifying and balancing the system, broadening the tax base and reducing informality.

“I would like to say that all segments of society, employers and employees, are expecting a tax reform," Yılmaz noted. “There is an expectation to increase the share of direct taxes. There is an expectation for a tax system that ensures social justice on the one hand and maintains public revenues on the other. I also support this demand.”

Tax revenues are composed of direct taxes, such as income and corporate taxes, and indirect taxes, such as Value-Added Tax (VAT) and Special Consumption Tax (ÖTV).

Since the 2000s, the share of indirect taxes in tax revenues has been above 60 percent, usually around 65-66 percent. Reducing indirect taxes, which cause inequality in terms of income justice since they are levied on everyone at the same rate, has been on the agenda for years.

In order to balance the budget, both VAT rates and the ÖTV on fuel were increased in July. Due to these increases, no tax reduction is expected in the short term.

The business community welcomed potential changes to the tax system.

“The tax distribution in Türkiye has been focused on indirect taxes for a long time,” said Süleyman Sönmez, the head of the Turkish Enterprise and Business Confederation (TÜRKONFED).

“Indirect taxes are one of the causes of inflation. The first step should be to update the income tax brackets according to the new increases.”

Bendevi Palandoken, president of the Confederation of Turkish Tradesmen and Craftsmen (TESK), said simplifying the tax system is important.

“We demand that the rates of taxes such as ÖTV and VAT should not be variable," he added.

“We also raised the issue of a 20 percent withholding tax on rentals at the meeting. It is like paying tax on tax. We want a tax system that is not variable, has certain rules, is permanent, reassuring and fair.”

Mustafa Gültepe, president of the Turkish Exporters' Assembly (TİM), said that changing the tax system is important for increasing social welfare.

"From a macroeconomic point of view, it is a fact that indirect taxes have a distorting effect on the distribution of income in our country,” he said. “Not taxing the needs of the people more will strengthen social justice. The informal economy also has a negative impact on our tax system. We need a more transparent, fairer and simpler mechanism.”