Turkish gov’t vows no tax hikes on cigarettes this year amid inflation concerns

ANKARA

Turkey will not hike taxes on cigarettes in 2017 in a bid to contain inflation, Finance Minister Naci Ağbal told Reuters on June 30, as the government continues to struggle with double-digit growth in annual consumer prices.

The Turkish government has recently announced a number of measures aiming to ease the rising inflation rate, and it announced on June 30 a decision not to increase the tax on tobacco in the second half of the year. 

The government has also cut customs taxes in meat and in a number of grains that have a direct or indirect impact on the prices of red meat, white meat, bread and eggs, including wheat and corn, in a bid to ease rising food prices.

Inflation hit an 8.5-year high last month, touching 11.72 percent, mainly due to gradual increases in food prices, despite a slight regression in recent weeks. 

“We have been acting in a very careful manner in our fiscal and monetary policies to limit the inflation rate in pre-forecasted levels by the year-end,” Ağbal said on June 30. 

“Cigarettes have a significant share in the inflationary basket. The hikes in cigarette prices last year had an impact on our 2016 inflation rate and created a base effect for this year. In a bid to prevent the inflationary effects from these sources, we have decided not hike taxes in such products,” he added. 


Tobacco products’ share in inflation basket is high

Turkey makes price hikes in alcohol products and tobacco products twice a year according to their share in the domestic producer price index. 

The share of these products in the inflation basket is 5.87 percent and price hikes in these products last December had a significant impact on the headline inflation figure in that period. 

“As we have repeatedly said since the beginning of the year, we will not hike taxes. Our fiscal policy will play a supportive role in helping our monetary policy to achieve its goals. In using our fiscal policy tools, the inflation target will be a priority target to consider,” Ağbal said. 

He also noted that the decision not to increase taxes in tobacco and cigarette products would likely cost around 60 million Turkish Liras to the budget.