Last-minute tax hikes on gas, autos, alcohol draw criticism

ISTANBUL - Hürriyet Daily News

Patrons and waiters are seen at a restaurant in Kadıköy on the Anatolian side of Istanbul. The tax increase on alcohol is likely to affect these business, which mostly rely on customers who drink rakı with traditional food. DAILY NEWS photo

The Turkish Finance Ministry decision to largely increase the special consumption tax (SCT) across the board on a number of items ranging from gasoline to alcohol and automobiles to help it reach its budget targets, has raised criticism among sector representatives.

The hikes were announced on Sept. 22 in the Official Gazette and accordingly the SCT was raised by 30 kuruş on gasoline, 0.03 percent on home deeds, and as much as 15 Turkish Liras on alcoholic beverages. It was also increased from 37 percent to 40 percent for automobiles whose motors do not exceed 1,600 CC.

This came days after the Finace Ministry’s warnings over a budget deterioration. Deputy PM Ali Babacan also said last week that the government could miss the 2012 bugdet target with $14 billion, widening to gap to some $35 billion.

Hyundai General Manager Ümit Karaarslan said in an announcement that the hikes come at a time when there are a lot of orders for automobiles. According to Karaarslan, 90 percent of the auto market is comprised of automobiles with motors under 1,600 CC and this new hike will be harmful for all. Hayrı Erce, the general coordinator of the Automotive Distributors Association (ODD), told Anatolia news agency that the SCT hike would discourage foreign investment.

“The SCT hikes will force foreign auto companies to pause before deciding to invest in Turkey. In 2011 there was a change in the tax scheme and if this happens again in 2012, then it looks like things are constantly in flux here. It’s like the rules of the game are changing.” He said foreign firms will have to take a step back.

Meanwhile, according to a study released by alcohol sector representatives, the SCT on rakı, Turkey’s national drink, has increased from 10 liras and 20 kuruş to 77 liras over the past 10 years and, considering that Turkish consumers consume 40 million liters of rakı per year, the latest tax will have a substantial increase in shelf prices and will negatively affect consumption. The SCT for wine has been increased from 21.58 liras to 25.25 liras and from 66 liras to 77 liras for rakı.

The price for gasoline increased, from 4.37 liras to 4.73 liras after the hike. Sector representatives told daily Hürriyet that the prices were approaching the “psychological boundary” of 5 liras.

Highest gasoline taxes

“In any case we were the world’s leader in terms of gasoline taxes. When petrol prices move to the $115-120 band, this will increase gas prices to five liras. The Finance Ministry hadn’t increased the SCT for three years, so we were expecting it, but after the new year. Thirty kuruş is a lot, but I guess they thought they needed it,” Petroleum Industry Association (PETDER) General Secretary Erol Metin told daily Hürriyet.

Not only will the tax hikes hamper the sectors in question, but might also destabilize the country’s 2012 inflation target. Following the tax hikes, Garanti Invest, for example, revised its September inflation expectation from 0.8 percent to 1.4 percent and its year-end inflation target from 6.5 percent to 7 percent.

“The latest hike will translate into a 0.044 point increase in prices for alcohol, a 0.43 point increase in gasoline and 0.15 point increase for motor vehicles, adding 0.62 points to our inflation calculations,” said Garanti Yatırım in its announcement. “The Central Bank had been underlining the fact that it would meet its 5 percent inflation target for the first quarter of 2013, but after these tax hikes, we will have to increase our 5 to 5.5 percent inflation expectation for the March-April 2013 period.”