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

In 2023, an increase in expenditure due to election promises led to the further deterioration of the economy and the need for a new source of income. As always, the preferred method was tax increases and additional taxes. However, the correction of the deterioration in the budget balance is unlikely to be solved by new tax increases. When a rapid increase in foreign exchange and inflation is added to this, the problem only gets worse.

It is clear that next year’s local elections will increase the need for income and disrupt the budget balance. It will not be possible to restrict public expenditures due to the elections; for this reason, it is inevitable that there will be more new tax increases.

Since the deterioration in the economic conditions of taxpayers cannot be improved, insufficient income against inflation will increase the fragility in the economy. The fact that tax increases are predominantly indirect taxes causes yet more negative effects, especially on low-income groups. The tax increases will further distort the income distribution and increase inflation. This issue should be taken into account when assessing the increase under consideration.

The solution for economic challenges depends on many different parameters and policies. This is a very wide field of study: for this reason, we will only talk about new tax changes in general terms in this article.

Tax increases

First of all, significant increases were made to various taxes, namely:

• VAT;
• the special consumption tax on petroleum products and natural gas;
• games of chance tax;
• bank and insurance transactions tax on consumer loans; and
• fixed fees and fees for mobile phones bought from abroad.

The tax withholding rate applied to share repurchases of companies that are not traded on the stock exchange was also increased. Various tax exemptions were also removed to increase tax revenues.

The additional motor vehicle tax

An additional tax was introduced alongside the motor vehicle tax, which turned into a wealth tax on 15 July 2023 via Act No 7456. The additional tax is being imposed on existing motor vehicles and those registered for the first time in 2023.

The additional motor vehicle tax can be paid in two instalments until the end of August and November for existing vehicles, and by the end of the year for vehicles registered for the first time, with the motor vehicle tax paid at the time of registration. The additional tax is equal to the motor vehicle tax to be paid. There are also exemptions and exceptions for vehicles and earthquake victims in the earthquake zone.

An additional motor vehicle tax has been introduced twice before, in 1999 and 2003, and applications were made to the Constitutional Court for annulment due to its illegality both times. Since the 1999 application was brought in terms of various taxes due to the Marmara earthquake, it was seen to be in the public interest and was not found to be unconstitutional. After the 2001 economic crisis, the Constitutional Court cancelled the additional tax imposed in 2003, stating that it only brought additional obligations to vehicle owners instead of various taxpayers. The Constitutional Court cancelled a second attempt to levy an additional motor vehicle tax in 2003, and stated that this tax was not an obligation imposed by extraordinary conditions.

In terms of the additional motor vehicle tax introduced this year, although there is a reference to the earthquake in the justification of the law, it is clear that the need for this collection does not stem from the earthquake alone. Since there is no extraordinary situation that requires this tax to be taken, the newly introduced additional motor vehicle tax is not in compliance with the law and tax law principles. It will not be a surprise if the additional motor vehicle tax introduced in 2023 is cancelled by the Constitutional Court, as it was in 2003.

VAT

As of 10 July 2023, the VAT rate of eight per cent was increased to ten per cent, and the rate of 18 per cent to 20 per cent. The Union of Turkish Bar Associations filed a lawsuit at the Council of State for the cancellation of the increases in the VAT and special consumption tax, and requested an application to the Constitutional Court.

With these increases, the lawfulness of the extent of the powers granted to the President in all taxes on the basis of the special consumption tax has also become debatable.

Corporate tax

The corporate tax rate has been increased by five points to 25 per cent in the declarations to be submitted as of 1 October 2023. For some institutions, such as banks and financing companies, this rate will be applied at 30 per cent. This situation also poses a risk for the inflow of foreign capital. The rate to be applied to the earnings of the exporting institutions from this export will be 20 per cent. Manufacturer institutions will also apply a rate of 24 per cent (a one point discount).

In terms of the special accounting period starting in 2023, the effective date of the increases for the relevant institutions is 15 July 2023. For corporations whose shares are offered to the public, with at least 20 per cent traded on Borsa Istanbul, a corporate tax reduction of two points will be applied with some exceptions. This application is accepted as five accounting periods starting from the date of the first public offering. In terms of all these increases in corporate tax during the year, discussions of illegality will come to the fore, including with regard to the principle of non-retroactivity and legal security.

Another additional tax introduced in 2023 was within the scope of corporate tax. Act N 7440, which came into effect as of 12 March 2023, required that taxpayers pay ten per cent (five per cent for some taxpayers) additional tax on tax bases subject to reduced corporate tax, with some exceptions and discounts taken into account in corporate income for the year 2022.

The tax will be paid in two equal instalments in April and August. The emission premium exception adversely affected technology investors and entrepreneurs, causing anger. Many lawsuits have been filed by companies regarding the issue, for which a final decision has not yet been made, as there are unlawful violations of tax principles related to the regulation.

Tax arrangements should not be made only to meet resource needs, but should comply with the tax law principles, should not disturb the economic balance and should not impose an excessive economic burden on the taxpayers. Otherwise, the expected efficiency will not be achieved and there will be corruptions of the legal order that cannot be compensated.