High tax burden on lower income groups further deepens injustice

Mustafa SÖNMEZ - mustafasnmz@hotmail.com

The heaviest burden of tax and public expenditures is on the backs of the lower income groups in Turkey, and the wheels are turning in favor of the rich

The tendency in Turkey’s income distribution, which follows a course against the working classes, has not resulted in changes to the tax burden. Wage earners still carry a heavy burden in the field of tax.

Among OECD countries, the top three places in the most unequal income distribution list are occupied by Mexico, South Africa and Turkey. In Turkey, mechanisms to mitigate unjustness through public finance do not work either, and the heaviest burden of tax and public expenditures is on the backs of the middle and lower classes, which have the lowest share of income.

According to the Finance Ministry’s 2013 Activity Report of the Revenue Administration (GİB), tax revenues reached 326 billion Turkish Liras in 2013. Indirect taxes levied on consumption, such as the Value Added Tax (KDV) and the Special Consumption Tax (ÖTV), have a 68 percent share of this total. Turkey’s 16.3 million wage earners and almost 10 million retirees also pay the largest share in indirect taxes.

Indirect taxes constitute more than two thirds of the overall tax burden, with taxes from domestic consumption having a share of more than 41 percent of these indirect taxes. The Domestic Value Added Tax (KDV), which is levied at a rate of 8 percent on food - and up to 18 percent in other goods - makes up almost 12 percent of total tax revenues.

The share of the Special Consumption Tax (ÖTV) - collected from the consumption of several goods and services from fuel to phone calls, from alcoholic drinks to cigarettes - is now approaching 27 percent of total tax revenues.

The other significant leg of indirect taxes, the KDV taken from foreign trade and imports, has a share of 19 percent. Other indirect taxes consist of stamp duties, fees and taxes levied on certain services such as banking and communication.

While the share of indirect taxes in total taxes is 68 percent, only 2.5 percent of the total tax is taken from capital owners. While motor vehicle annual taxes slightly exceed 2 percent, inheritance tax is only around 1 percent.

Income tax

It can be seen that the burden of the main item of direct taxes, income tax, is also on the shoulders of the wage earner. According to data from the Revenue Administration, income tax collected at the source of the wage earner and given to the Finance Ministry constitutes nearly 69 percent of total taxes on income.

In this case, the richest class – outside the wage earner – members of which submit an annual income tax return and declare his or her share of profits, interest and rent revenues, have a 30 percent share of income tax and a barely 3 percent of total taxes.

Thus, wage earners, with their direct taxes paid, constitute 18 percent of total taxes. The share of corporate taxes paid by banks and companies barely reaches 9 percent of total tax revenues.
While the amount of tax collected at the source in 2013 is nearing 64 billion Turkish Liras, almost 70 percent of these taxes were taken from wage earners.

According to GİB data, almost 5.5 million workers were recorded as minimum wage earners, who paid a total of 7.6 billion liras in income tax.

Some 3 million wage earners were recorded as earning above the minimum wage and for them, 38.5 billion liras were paid. Therefore, for a total of 8.5 million wage earners, almost 46 billion liras in tax was collected at source by the Finance Ministry.

On the other hand, self-employed professionals who have declared their income to the Finance Ministry - such as architects, engineers, shop owners, shoe sellers, restaurant owners, doctors, dentists, notaries, hair dressers, lawyers, spare parts sellers, transporters, pharmacists, certified public accountants, fur sellers, jewelers, cab drivers, café owners and kiosk managers - paid a total of 1.9 billion liras in income tax in 2013. This is 3 percent of total income tax revenue.

Interest rate, profit, rent

Income tax levied on revenues from interest on bank accounts and repurchases totaled 4.6 billion liras. This amount was only 7 percent of total income taxes and was 5 points behind the contribution of minimum wage earners.

The amount that office tenants paid to the Finance Ministry was 4.7 billion liras. The contribution of office rents to total income taxes was 6.8 percent, or 4.3 percentage points behind the contribution of minimum wage earners.

The unjustness in the tax burden is no different in the spending leg of tax. The share of public expenditures returning to the lower-middle classes in education, health, social security, social protection and justice spending is not-so-high either. This is a separate topic for research, but in expenditures too, the wheels are turning in favor of the rich.