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Turkey has unveiled plans for an overhaul of its corporate tax structure, including a 10 per cent minimum rate, as policymakers seek to cool the country’s $1tn economy and boost government coffers.
President Recep Tayyip Erdoğan’s ruling Justice and Development party (AKP) on Tuesday circulated a wide-ranging tax reform package to key parliamentary committees for review.
The reforms aim to broaden the tax base and contribute to efforts to bring down scorching inflation by tightening fiscal policy. They come as part of a wider economic turnaround programme that began after Erdoğan’s re-election in May 2023.
The AKP, which leads a coalition that controls parliament, set out plans that include a minimum corporate tax rate and changes to the treatment of property investment trusts. The Financial Times earlier reported that the AKP was set to announce the sprawling new tax plan as early as Tuesday.
Under the proposal, Turkey will impose a minimum tax rate of 10 per cent for most established companies regardless of exemptions. The standard statutory corporate income tax rate is set at 25 per cent, but some companies use exemptions to achieve a much lower effective rate.
Multinationals with an annual turnover of more than €750mn would also face a 15 per cent minimum tax on global income. The move would bring Turkey in line with an OECD deal aimed at keeping businesses from seeking refuge in low-tax havens.
The tax plans would also give authorities a broader toolkit to audit companies and apply penalties to those found in breach of rules — a move aimed at curtailing Turkey’s underground economy.
The country’s economic team, led by finance minister Mehmet Şimşek, has tightened fiscal policy over the past year as part of its goal of curbing inflation that topped 70 per cent in June. Policymakers are looking to correct other severe imbalances caused by Erdoğan’s previous unorthodox economic policies, which included ultra-low interest rates and big pre-election giveaways.
The proposed corporate tax package comes after the government last year increased value added tax on a range of goods and services and tripled levies on petrol, among actions aimed at restoring “rational” economic policymaking.
“We will maintain our efforts to ensure that no area is left untaxed in Turkey,” Şimşek said on Tuesday.
The revenue-raising initiatives have amplified the pressure on ordinary Turks and contributed to a severe erosion in the popularity of Erdoğan’s AKP in March’s local elections.
In an effort to ease some of that pressure, the AKP on Tuesday said it planned to increase the minimum public pension by TL2,500 to TL12,500 ($378) a month. The change will apply to only about 3.7mn pensioners on the lowest rung of the scheme.
Officials are betting that the tax changes will help reduce Turkey’s government budget deficit, which has widened as a result of costs stemming from last February’s devastating earthquake in the country’s south.
Massive stimulus measures employed by Erdoğan’s government ahead of the May 2023 election, including large rises in public sector salaries and pensions, also hit public finances.
The general government budget deficit reached 5.3 per cent of GDP last year, the highest since 2009 and well above the average of 2 per cent from 2006 to 2022, according to FT calculations based on official data.
The new taxes are also meant to complement a tightening in monetary policy by the central bank, which has boosted its main interest rate to 50 per cent in March from 8.5 per cent in June 2023, after Erdoğan abandoned his insistence on keeping rates low.
Turkey’s new economic programme has slowly lured back international fund managers who had abandoned the market, with foreign investors pumping almost $12bn into lira-denominated government debt in the past year, according to central bank data.
There are also signs of progress on repairing the economy, with central bank foreign currency reserves, which had been severely depleted in recent years, rising sharply and the current account deficit narrowing.
