Turkey to see huge tax hikes

The Turkish government has increased special taxes on cars, cigarettes, alcoholic drinks and mobile phone prices prior to the announcement of a medium-term program. The plan forecasts 2011 growth at 7 percent
This photo shows an automotive fair held in the Mediterranean province of Antalya. Turkish government decided to increase special taxes on non-electric cars. AA photo

This photo shows an automotive fair held in the Mediterranean province of Antalya. Turkish government decided to increase special taxes on non-electric cars. AA photo

Turkey’s medium-term program announced yesterday features increased social welfare programs but depends heavily on a boost in privatizations as well as an eleventh-hour tax increase, according to economists.

Despite a revised growth forecast, the plan also dashed hope for a drastic narrowing in the current account deficit, the Achilles heel of the well-performing Turkish economy.

“Sustaining the stable growth process, increasing employment, continuing the fiscal discipline, raising domestic savings, narrowing the current account deficit and as a result, strengthening the economic stability” are the priorities of the new program, Deputy Prime Minister Ali Babacan said yesterday during a press meeting in Ankara.

The government will privatize 12.5 billion Turkish Liras of assets in 2012, compared to 4.3 billion liras this year, according to the plan, which was also posted on the State Planning Organization’s website.

Government increases taxes

The government increased taxes on alcoholic drinks, tobacco products, mobile phones and cars through a special consumption tax (SCT) prior to the announcement of the medium-term plan. The SCT rate on cigarettes rose to 69 percent from 63 percent, according to the Official Gazette published yesterday. A flat tax on beer rose to 0.53 liras (29 cents) per liter from 0.44 liras, and to 19.82 liras per liter for sparkling wines from 16.12 liras.

The special consumption tax rate rose for all non-electric passenger cars with engines larger than 1.6 liters. The new tax levels range from 15 percent to 130 percent, up from 10 percent to 84 percent.

For mobile phone sales, the tax rate rose to 25 percent from 20 percent. A flat tax of 40 liras on mobile phone sales went up to 100 liras.

Speaking at the meeting, Finance Minister Mehmet Şimşek said the government expected 5.5 billion liras in income annually through its economic measures.

The current account deficit will peak at 9.4 percent of GDP this year and decline to 8 percent next year, falling to 7.5 percent in 2013 and 7 percent by 2014, Babacan said.

Right perception of gap

“We observe that there is a meaningful perception change about the current account deficit compared to previous unrealistic deficit forecasts by the government,” Özgür Altuğ of BGC Partners wrote in a note to investors, adding that the government’s inflation forecasts for this anc coming years looked “optimistic.”

The government’s forecast for growth this year is “aggressive”, said Yarkın Cebeci, an Istanbul-based JPMorgan Chase economist.

Thursday, October 13, 2011
ANKARA – Hürriyet Daily News