2023-07-08 16:38:32
The surprise announcement of tax and fee increases in Turkey has caused miles of traffic jams at the borders with Georgia and Azerbaijan. Local media show pictures of people who want to quickly buy a cheap smartphone. Because in Turkey, smartphones are often twice as expensive as abroad because of the high taxes.
Andreas Mihm
Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.
However, models brought from abroad may only be operated for 120 days with a Turkish SIM card without registering with the Turkish authorities. A registration fee is due for this, which has cost 6,091 lira since January – twice as high as before the price increase. From Saturday, the registration fee was increased again by 228 percent to 20,000 lira. That’s the equivalent of around 700 euros – or almost twice the minimum monthly wage, which was raised to 398 euros on July 1st. The website that registers the mobile phones was overloaded, according to local reports.
About five times
The increase, announced in the Official Journal on Friday, is part of a larger package of tax hikes that will affect all consumers. Because the VAT rates will be raised by two points. The reduced rate, for example for basic food and everyday necessities, is now ten percent, for all other goods 20 percent. Fees for some administrative services have been increased by 50 percent, a bank insurance and transaction tax on consumer credit will rise from 10 to 15 percent.
The government had previously tabled a bill in parliament that would increase corporate income tax on banks and financial institutions by five percentage points to 30 percent and on other companies from 20 to 25 percent. However, exporters should be granted a deduction of five percentage points. Vehicle taxes would also be doubled on vehicles registered by the end of the year. In addition, the president is to be authorized to increase special consumption taxes on various goods by a factor of up to five. So far, this is limited to 50 percent.
The government justifies the increase with the high reconstruction costs after the earthquake in February, which killed 50,000 people and whose damage is estimated at more than 100 billion dollars. Among other things, 600,000 houses are to be rebuilt. However, President Recep Tayyip Erdogan had also distributed expensive election gifts before his re-election in May. For example, the minimum wage rose in July for the fourth time in a year and a half, civil servant salaries and pensions were also raised, households get gas free of charge to a certain extent, and early retirement was made possible for up to 2 million employees. All of this drives state budget spending.
It also has to shoulder billions of dollars in charges to offset the currency losses that investors have suffered from the government’s reclassification of foreign exchange into lira balances. The management of the accounts of the KKM program – and thus presumably also the costs for it – has now been delegated to the central bank by the Ministry of Finance. Last year, the government paid nearly $4 billion to compensate for exchange rate losses. Since January, the lira has again lost around 30 percent of its value against the dollar and euro.
By Friederike Böge and Niklas Zimmermann Published/Updated: , Recommendations: 20 Bülent Mumay Published/Updated: Recommendations: 48 Andreas Mihm, Vienna Published/Updated: , Recommendations: 11
In the first 5 months, the Turkish budget deficit, at the equivalent of 10.26 billion dollars, had risen more than twice as much as in the same period last year. The new government, which has been in office since June, had announced a course of economic consolidation and combating inflation. Among other things, the new central bank governor had raised the key interest rate from 8.5 to 15 percent. Inflation is currently at 38.2 percent. However, economists point out that the price increases associated with the tax increases are likely to lead to a further increase in the cost of living.
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