Companies hold cash
Treasury’s failure to collect taxes and receivables has economic knock-on effect
The Turkish government has created major budget and cash deficits through its economic stimulus policies. The Treasury borrowed $7.4 billion in foreign debt in the first five months of the year, while the target is $6 billion for the entire year.
The domestic-debt-rollover ratio was 113.2 percent by the end of June, while the target was 98 percent. This is due to the sharp increase in spending and the fact that the increase in government income is limited.
Economic activity has been relatively strong in this period. The economy grew by 5 percent in the first quarter of the year. Leading indicators for the second quarter show that the growth will continue. However, tax revenue is making no headway in real terms.
Only 43 percent of accrued tax was collected in the first five months of 2017. This rate was 65 percent last year and 80 per- cent in 2009. The collection rate in declaration-based tax is falling to a much lower level. For every 100 lira, only 19 lira of declared income tax and 9 lira of corporate tax could be collected in 2017. The collection rates of these items was more than 50 percent 10 years ago.
Taxes paid by consumers stay with companies
An alarming factor is the drop in the collection of tax receipts for goods and services. Companies refuse to transfer this source of revenue to the tax administration, even though they collect the taxes in advance from their clients for the goods or services they render.
The collection rate, which was more than 90 percent for this item up to a few years ago, declined to 32.5 percent in May, showing that companies use taxation as a source of financing.
The failure in the collection of public receivables is not only lim-
ited to tax. There is also a serious decline in the payment of fines issued to companies and citizens. The payment of traffic fines has declined to 7 percent, and whole tax penalty payments is stuck at 13 percent.
Experts say that the problems caused by the collection of penalties goes beyond the budget and harm rule of law.
Companies tight grip on their cash
Terrorist attacks, a failed coup, turbulence in the markets and the slowdown of the economy all led Turkish companies to keep a tight grip on their cash last year, making the Treasury the cheapest source of financing during this period. On paper, penalties are designed to prevent the use of taxes for this purpose.
Meanwhile, tax exemptions and restructuring, which are implemented on average every two years in Turkey, prevent these penalties from being imposed in reality.
Companies that are confident they can take advantage of periodic tax amnesties do not take kindly to sharing their cash reserves with the Treasury when cash is at its most valuable.
Tax-registry exemption, often applied to companies, is another factor that prevents companies from paying their taxes on time.
Corporate and international companies in Turkey continue to pay their taxes on time, regardless of the conditions in the country.
However, the habit of regular tax payments from many local firms, especially small and medium-sized enterprises, is gradually disappearing.
This creates unfair competition with corporate firms, since those who do not pay their taxes in a timely fashion can use this cash as an advantage over their competitors.