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Babacan: No cuts in indirect taxes unless informal economy reined in
Babacan: No cuts in indirect taxes unless informal economy reined in

The minister's promise that the new wave of tax hikes are only temporary comes amid wide public opposition to those hikes, which upped prices on automobiles and alcohol and made Turkish gasoline officially the world's most expensive.

World Bulletin / News Desk

A recent wave of tax hikes on consumables like gas and alcohol are “not long-term solutions” to Turkey's debt woes, Deputy Prime Minister Ali Babacan said at an International Monetary Fund (IMF) summit this weekend in Tokyo, where he told reporters that the government must take more steps to reign in the staggering portion of Turkey's economy that escapes tax collectors.

“When Turkey's informal economy is reduced, government revenue is going to go up -- that's when it will be possible to reverse course and reduce taxes on consumables,” Babacan told reporters during a press conference.

The minister's promise that the new wave of tax hikes are only temporary comes amid wide public opposition to those hikes, which upped prices on automobiles and alcohol and made Turkish gasoline officially the world's most expensive. Taxes currently make up roughly 70 percent of the cost of Turkish fuel, which costs a staggering TL 4.83 a liter ($10.16 a gallon). That price is a hard burden to bear for Turks, whose average daily income was estimated at just $21.33 in 2011.

The easily enforced tax on sales of consumables like gasoline increasingly stands in for revenue that would have been collected from the near 40 percent of the economy that escapes taxation, Babacan said over the weekend, suggesting in turn that the real way to boost government revenues and balance the government's deficit is to reduce the size of the informal economy.

“In the long run [the consumables tax] isn't a sound policy, we have to agree to that,” he said, adding, “But we need to take measures to preserve fiscal discipline and, in the short run, balance the budget.” Babacan said earlier this month that the budget deficit would expand from TL 33.47 billion this year to roughly TL 34.31 billion by 2015 and warned that the deficit remains one of the largest challenges to the country's economic stability.

The effort to reign in the country's informal economy -- among which the textile and regulation-skirting construction industries have long been the biggest participants -- has already begun, with government officials praising in July a Turkish Statistics Institute (TurkStat) report that concluded that the informal economy had been reduced to 37.5 percent of the country's gross domestic product (GDP). Though still staggeringly high, that number was a considerable improvement over the 50 percent of GDP which for decades escaped any taxes or regulations, and reflects what Babacan and others have said is a five-year campaign to audit company registers and to award stiff fines to firms guilty of tax evasion or failure to register employees for the country's compulsory social security program.

Government taxes on consumables meanwhile continue to bite consumers, with economists warning in September that the spike in fuel costs -- which coincided with a 9.8 percent rise in the cost of natural gas and electricity -- are likely to fuel inflation on basic goods, especially food.



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