Page 9 - EY-VG_Agustos_2023_v2

Vergide Gündem
English Translation

Invisible hand collecting taxes and

supplementary budget

While the preparations for the Medium Term Program (MTP) for the 2024-2026
period continue, the 2023 Supplementary Budget Law (Law No. 7457) was adopted
by the Turkish Grand National Assembly and entered into force on 27 July 2023.
The additional budget law proposal of 1,119,514,513.000 TL, which was prepared
on the grounds of meeting the appropriation needs of public administrations,
especially the expenditures due to earthquakes in Kahramanmaraş province,
Pazarcık and Elbistan districts occurred on February 6, 2023, was enacted.

The distribution of the total tax revenues of the 2023 budget, including the
additional budget, is as follows:

Tax type 2023 Budget share (%)
Direct Taxes 34,11
Indirect Taxes 64,14
Wealth Tax 1,7

Who is the invisible hand collecting taxes?

What is the biggest support to realize budget targets? Absolutely the inflation.
Inflation is defined as a hidden tax by many economist. For this reason, invisible
hand inflation will be the biggest assistant of the treasury in meeting its tax revenue
targets. Inflation causes tariff shifts (shifting payrolls to higher tranches and
rates), allowing more direct tax revenue to be collected. In addition, since there is
no inflation accounting, paying taxes on unreal fictitious gains also increases tax
revenues. Since inflation is a hidden tax, it also violates the principle of legality in
taxation. Inflation taxes fictitious income, not real income.

What should change in terms of medium term program and taxation policies?

Instead of taxing the existing tax base with tax rate increases and additional tax
liabilities, the following steps should be taken to expand the tax base:

• A strategy should be determined for the implementation of the “global minimum
corporate tax” and predictability should be ensured by taking the opinions of
Turkish resident multinational companies,

• Mechanisms for the taxation of net income and real income taxation should be
included in the tax legislation:
• Inflation adjustment practice should be commenced,
• The "last in, first out" (LIFO) practice should be brought back due to inflation,
• The scope of the "discount rate" application used in real income taxation should
be expanded,
• In order to update the income tax schedule, both tax brackets and rates should
be reviewed (more tax brackets and different tax rates with wider bracket
amounts),

Ağustos 2023 August 2023 9