10 Things about
Turkey’s tax amnesty
7 million late taxpayers set to benefit from restructure covering cash allowances and social security payments
Finance Minister Naci Agbal announced on April 11 plans for a new tax-credit restructuring for 7.2 million people totaling 47 billion lira. Those who did not pay their tax debts between July 2016 and March 2017 will benefit from the scheme.
The most recent restructure covered tax and social security debt until June 2016. Agbal said that the failed coup attempt in July caused a slowdown in the economy, which had reduced taxpayers’ ability to pay taxes and social security, especially in the second half of 2016. The restructure is aimed at supporting the economy, Agbal said, adding a draft law will be sent to parliament as soon as possible.
The same measures from the previous restructuring, such as cash allowance, will be applied again. In addition, citizens who do not owe back taxes and social security payments from the period before June 2016 but were unable to make those payments for the first time following July 2016 will benefit from the restructuring. We spoke with Zeki Gunduz from PwC Turkey to learn more about public receivables and the planned tax amnesty.
1 What is the aim of the restructuring of public receivables and cash repatriation?
The restructuring will differentiate the payment periods of due debt and certain elements of due debt. A tax amnesty typically includes reduction of interest on overdue taxes, deduction of the penalty, installment opportunities for the payment, the termination of disputes and forgoing inspections for previous periods. The cash repatriation eliminates taxes on assets brought into Turkey from abroad or assets already present in Turkey that were brought in previously, under the certain circumstances.
2 Why is this law necessary, and what is the political and economic reasons for it?
Easing the budget by increasing the collectability of accrued public receivables • Lessening the load on courts by ending legal cases
• Providing an opportunity for citizens to reduce their debt during an election period • Creating future potential taxes by registering assets abroad
3 Will the measure reach its objectives?
The benefits from the tax amnesty are high, but there is not a great deal of interest in the cash repatriation program. The extension of the time limit for cash repatriation is a factor.
4 What are the advantages of these measure from the point of view of the payers?
Both the tax amnesty and cash repatriation provides advantages, including reduction of financial obligations, using installments to postpone the a lump-sum payment, avoiding facing an inspection and resolving any current legal disputes. Suppose, for ex- ample, that a taxpayer had a tax bill of 250 lira, comprised of a 100 lira tax bill, a 100 lira penalty and 50 lira for interest. If he sought to restructure his debt, inflation would be calculated, instead of interest, at a cost of 20 lira. In this case, the amount to be paid within the scope of the amnesty would be 120 lira, comprised of the tax base of 100 lira and 20 lira for inflation. If the payment is made in 18 installments, it would be 138 lira and the debt would be resolved in 36 months, provided 7.66 lira is paid every two months.
5 What are the disadvantages for payers?
In the case of cash repatriation, income for future periods must be declared and taxes should be paid with on the assets declared.
6 Are the long-term outcomes of these practices positive ?
This is a highly controversial topic. Critics argue that taxpayers are discouraged from making timely payments and that every amnesty creates an expectation for future amnesties.
7 How often are tax amnesties introduced in Turkey?
On average, a law allowing for a tax amnesty has been introduced every 2.8 years in the history of the Turkish Repbulic.
8 In practice, does this violate the principles of justice and equality in taxation?
Surely, every amnesty law or similar laws creates some inequality and harms the sense of justice, when one considers the perspective of those taxpayers who fulfill their obligations and pay taxes on time.
9 What has been the response of those taxpayers who fulfilled their obligations to the practice of amnesties?
These laws create negative feelings among taxpayers who make their payments on time. Therefore, a tax reduction is introduced for the taxpayer on a regular basis.
10 Are similar practices often ,applied around the world?
This kinds of laws exist in several countries and are not unique to Turkey.