Turkish auto sector in driver’s seat with state incentives

ISTANBUL

Turkey raises its expectations from the automotive sector and eyes to earn $75 billion from sector exports by 2023. Hürriyet photo

Turkey has begun offering tax breaks of up to 60 percent and incentives such as deductions on employee costs in the interests of attracting investment to the automotive sector in a bid to grow the sector’s annual exports to $75 billion over the next decade.

“The government has introduced this to eliminate import dependency on critical sectors as well as to convert the foreign trade deficit into a trade surplus,” Economy Minister Zafer Çağlayan said Feb. 15 at an event to promote the new incentive system.

Turkey’s automotive industry, a key export sector, was hit hard by a weak domestic market and shrinking export demand from crisis-hit Europe last year, when sales fell 10 percent to 818,000 units and exports dropped 8 percent.

The government is targeting $500 billion of total exports by 2023, $75 billion of them from the auto industry compared to $20 billion from the sector last year.

Extented scheme

According to a new adjusted regulation, automotive investments will be classified as priority investments, while all automotive companies will benefit from the incentives due to a lack of any regional prerequisite. The minimum required investment amount has been decreased as key industry investments over 300 million Turkish Liras, motor investments over 75 million liras and motor section and component investments over 20 million liras will benefit from an expanded range of incentives. Tax reductions, insurance premiums and employee shareholder aids’ shares and validation periods have also been reinstated.

The investment scheme is an extension of a program launched by the government last June that resulted in huge disappointment for the automotive sector because it was excluded from “strategic investments” due to highly selective criteria. The number of models produced should have been higher than the number of imports, investment should have been in southeastern and eastern Turkey and there should have been at least a 40 percent cost advantage, according to the original version of the incentive system.

Çağlayan said the previous incentives had already paid off as the projected investment amount had surged by 28 percent compared to the previous year.

The Economy Ministry issued 421 investment project investment certificates between August 2009 and January 2013, whereas 14 of them were for key industries while 407 of them were for sub-industries.

The incentives are set to include investments of 12.3 million liras and are expected to create 27,000 jobs, he said.