Turkey’s tax revenues trailing behind OECD

BATMAN - Anatolia News Agency

Finance Minister Şimşek (2ndR) is at a fast-breaking dinner in his hometown Batman, a town in the southeast of the country. Tax burden on companies is low, he says.

The ratio of collected tax to the national income in Turkey is about 19 percent, well below the Organization for Economic Co-operation and Development (OECD) average of 34 percent, Finance Minister Mehmet Şimşek has said.

The ratio rises to 26 percent if other fees and charges are calculated in, he said Aug. 2 during a fast-breaking dinner in his hometown of Batman in Turkey’s southeast.

But Şimşek also challenged popular views that tax rates were not at reasonable levels, saying Turkey’s situation should be compared to other countries and previous terms to acquire a realistic understanding of the issue.

The tax burden on companies has significantly decreased since 2002, he said.

Turkey used to be first among OECD countries in terms of the tax rate collected from company profits in the past, Şimşek said.

“Now we have become fifth in terms of collecting the lowest tax in this regard.”

Turkey currently collects a 20 percent corporate income tax, down from 33 percent in 2002. The total tax rate to the national income rises to 34 percent if profits are paid as dividends to partners, but the figure was 5 percent in 2002, he said. The corporate tax rates have even been lowered as part of the recent incentive scheme initiative, Şimşek said.

“Today, the top tax bracket is 50 percent in many European countries, while the figure is 35 percent [in Turkey],” he said.

The average value added tax rate in Turkey is 14.4 percent, while the figure has hit an average of 21 percent in European countries, he said.

“Then where is the problem? Tax rates are very high on four or five products. They are fuel products, cigarettes, spirits, automotives and communications,” Şimşek said.

Possible tax hikes

Şimşek also said there could be possible tax hikes this year due to a poor budget performance.
“It is clear that we are not comfortable with the budget this year because of the crisis in Europe, the slowing Turkish economy, the rise in public servants’ salaries that exceeded our expectations, and the slow privatization process,” he said.

Additional taxes may be imposed if necessary, as the budget balance deteriorated “seriously” during the first half of the year, Şimşek said July 16. Turkey registered a budget deficit of 6.7 billion Turkish Liras in the first six months of the year, while it recorded a 2.9 billion-lira budget surplus in the same period last year.

Deals with tax havens

Turkey is also in the process of signing double taxation deals with 10 countries that are leading global tax havens, Şimşek said.

“I am after tax evaders not only in Turkey, but abroad as well,” he said.

Two state boards have initiated a plan to ensure companies register their employees with their real salaries after Şimşek revealed last month that 45 percent of private companies registered their employees at the minimum wage for the purposes of tax evasion.