Turkey’s new earthquake tax

Prof Dr Hakan Üzeltürk

Yeditepe and Galatasaray University Law Faculty, Istanbul
huzelturk@yeditepe.edu.tr

Introduction

A new additional tax was enacted in Turkey, dubbed the ‘earthquake tax’, through the adoption of Act No 7440 (the ‘Law’) by the Turkish Grand National Assembly on 9 March 2023 (Official Gazette: 12.3.2023-32130). According to the Act, corporate taxpayers are obliged to pay ten per cent additional tax on the amounts of discounts and exceptions to be applied on their returns for 2022 and on their bases subject to reduced corporate tax. In addition, according to the corporate tax law, the additional tax will be calculated within participation earnings to which the exemption is applied and the exemption earnings, which were obtained from abroad and proven to carry a tax burden of at least 15 per cent, has been determined at five per cent.

Although it is claimed that the new tax can be seen as positive in terms of the sense of social solidarity, the Law should be considered unlawful since there is retroactivity due to its enactment after the end of the 2022 accounting period. The Law is also arguable in terms of its unconstitutionality and other tax law principles, such as the ability to pay and equality.

Since the earthquake tax will be recorded as income in the budget, it is not certain that it will be spent on earthquakes, as in previous examples. It can be used for any expenditure within the general budget. The amount collected by the earthquake tax imposed after the 1999 Marmara earthquake and collected as part of the special communication tax between the years 2000-2022 was over U$38bn. This figure is based on the annual average exchange rate announced by the Central Bank of the Republic of Turkey for each year (https://tr.euronews.com/2023/02/11).

The issues

The main problem with the Act is the way it is enacted. Looking at the provisions in the Law, it is understood that this is an amnesty law. According to the Turkish constitution, an act must be accepted with a 60 per cent majority in the Grand National Assembly of Turkey. This means that it should be approved by at least 360 deputies. The Law was passed with 282 votes. Therefore, it is also unlawful in form. As such, it should be annulled by the Constitutional Court.

As detailed in Act No 7440, corporate taxpayers located in earthquake-affected regions are exempt from the tax. As of 6 February 2023, these regions have been determined as those that have corporate tax liability in Adana, Adıyaman, Diyarbakır, Elazığ, Gaziantep, Hatay, Kahramanmaraş, Kilis, Malatya, Osmaniye and Şanlıurfa Provinces and in the Gürün District of Sivas Province. In this case, it is estimated that approximately 22,000 taxpayers will be liable to pay the earthquake tax.

The additional tax will be paid in two instalments. The first instalment is due to be paid by the evening of 30 April 2023, which is the payment period for corporate tax, and the second instalment is due to be paid in the fourth month (August) following this period.

Another feature of this tax is that it must be paid even if there is a loss in the corporate tax return or if there is no tax base due to this loss. This tax cannot be considered as an expense or deduction and cannot be deducted from any tax.