Outlining the proposed tax law package
The Turkish Parliament will be busy with an omnibus bill that includes a huge tax law package in the new legislation period. The government has proposed a bill amending different laws from taxation to crowdfunding, communication, mining, personnel data protection, industry zones, agricultural properties, the Central Bank and many more.
The Draft Law of the Amendment of Various Tax Laws comprises 131 articles, excluding executive and enforcement articles, 41 of which are related to tax regulations with some carrying a highly important.
The bill is set to be debated in the first agenda of Parliament and the bundle of amendments could be effective from Jan. 1, 2018. Some of the amendments will have a signaling effect on the economy, while taxpayers and firms might have to take certain actions to plan for the resultant tax burden.
A summary explaining the proposed amendments to existing regulations is listed below.
Corporate Income Tax Law
The corporate income tax rate is to be increased to 22% for banks, leasing companies, factoring companies, financing companies, payment and electronic money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies and pension companies.
In 2006, Turkey decreased corporate tax rate to 20%. The general global trend in corporate taxation over the last decade has been downwards.
The exemption amount applied to corporate gains derived from sales of immovable properties included in their assets for two years is to be reduced from 75% to 50%.
According to the “Ministry of Finance Tax Expenditure Report”, the exemption for the sales of immovable properties is the biggest figure in the public budget. (bknz www.gep.gov.tr)
The corporate income tax exemption granted to earnings derived from the assignment of the immovable and participation shares of those owing money to banks and their guarantors in return for these debts, and granted to the earnings of the banks derived from the sell-out of these assets, is to be extended to include financial leasing and financing companies. The 75% exemption rate in the current law is to be amended to 50% for immovable properties and kept at 75% for participation shares.
With those two amendments on the sale of immovable properties’ exemption, “sale and lease back and sukuk” options might be more advantageous as they offer 100% exemption rates in the Corporate Income Tax Law.
In investments with incentive certificates, the use of investment contribution rates and the corporate income tax incentive rate valid for expenditure in 2017 are also to be amended for use in investment expenditure in 2018.
The patronage dividend exemption is to be removed for cooperatives within the framework of the new amendment on exemptions. This exemption is to be limited to consumption cooperatives.
Another amendment is to take into account all special provisions, reserved by financial leasing and financing compain nies pursuant to Article 16 of the Financial Leasing, Factoring and Financing Companies Law, as an expense in the year they are reserved.
Financial leasing and financing companies will have this option, but factoring companies will have to continue normal execution.
A designated change will allow the declaration and payment by service providers of value added tax (VAT) related to services provided in the electronic environment to real persons who are not subject to value added tax by those who do not have a residence, workplace, registered office and business center in Turkey.
E-commerce activities have recently been scrutinized by the Turkish Revenue Administration. This change will help operational costs reduced by taxpayers. The MoF will issue a communique on this matter.
An amendment is to ensure the exemption of VAT for roaming services received from abroad within the framework of international roaming agreements, and of services to customers Turkey.
An amendment is to ensure the exemption of VAT for the assignment and delivery of the immovable properties and participation shares of those who owe money to financial leasing and financing companies and of their guarantors in return for these debts. Within the draft law, the exception granted for the assignment and delivery to the banks will also be introduced for assignments and deliveries made to leasing companies and financing companies.
Another amendment is to ensure the application of refunding VAT, which is charged due to construction expenditure made in 2017 because of manufacturing industrial investments, for the year 2018.
This was first applied for manufacturing incentive certificate holders in 2017 and will also apply in 2018.
An amendment is to ensure VAT exemption in the procurement of goods and services for the Ministry of National Education’s FATIH project (also known as the Movement to Increase Opportunities and Technology in Education).
Income Tax Law
There is a proposal to increase the 27% bracket of the income tax tariff to 30%.
Although favorable brackets for wage income taxation will be maintained, a 3% increase would present a fiscal burden on middle-income earners – TL 2,400 more tax for a white-collar worker for the first TL 110,000 a year.
In the case of selection of the lump sum method in the taxation of rental income, an amendment is to reduce the considered lump sum expense rate from 25% to 15%.
Real estate capital revenue such as leases is calculated as either a lump sum or through the expenditure method. This 40% reduction on a lump sum would affect 1 million landlords in Turkey.
An amendment is to make it necessary to calculate the profit distribution withholding tax over the distributable profits of full taxpayer corporations that are not added to capital or subjected to dividend distribution until the end of the second month following the month in which the corporate tax return must be submitted.
The rate should be around 1% but the Cabinet has the right to increase this to 25% in theory. Taxpayers should consider either capital conversion or use distribution especially if a participation exemption can be applied.
Amendments have been made to prevent the occurrence of the income of those receiving the minimum wage being passed to the second bracket of the income tax tariff in the last month of the year.
With this amendment, the minimum wage should be the same by January 2018 and the difference should be considered as the “Minimum Reduction for Wages”.
Tax Procedure Law
An amendment is to ensure that the settlement addresses of taxpayers registered with the Central Civil Registration System (MERNIS) are added to the known addresses, and if the taxpayer cannot be found at the address of his/her work place, there will be a principle to go to his/her settlement address registered with MERNIS.
The authority of the Ministry of Finance on taxation of electronic commerce is to be amended.
Stamp Tax Law
The Cabinet is to be authorized to increase or decrease stamp tax rates and amounts, jointly or separately, according to paper types.
An amendment is to exempt from stamp tax the documents issued by special purpose entities, which are established to provide funds in return for marketable securities exported abroad for the financing of public-private partnership projects, to extend these funds to the project contractor companies, and of the documents issued due to the transactions for securing them and repayment.
Turkey has recently been us- ing PPP for big hospital projects. For those projects, capacity would increase by 50,000 beds.
Spec al Consumpt on Tax Law
An amendment has been proposed to introduce this restriction on Exception in Vehicle Acquisition of the Handicapped within the scope of exemption.
An amendment is to include macaroons and soda pops in the scope of the special consumption tax.
The Cabinet is to be authorized to determine the rate, the minimum lump sum tax amount and lump sum tax amount for cigarettes and other tobacco products will be amended to include macarons.
Expend ture Taxes Law, Motor Veh cles Tax, Spec al Consumpt on Tax, Inher tance and Transfer Tax and other tax laws
Special communication tax rates, currently set at 5%, 15% and 25% for various services, are to be amended to 7.5% for all services.
GSM operators and end users would be highly affected. Different modes of communication services have moved the government to even-out the tax rates.
Regardless of where the transaction is made, monies rendered favorable as a result of forward transaction and option contracts are to be exempted from bank and insurance transactions tax.
An amendment is to increase inheritance and transfer tax from 10% to 20% for lottery prizes and draws organized through lottery games.
Chances are high for the Tax
Office to gain more tax from the lottery. This would result in a 100% increase for taxpayers.
With the amendment made in the Motor Vehicles Tax (MVT) Law, the tax value of vehicles would be added to the existing taxation criteria and the tax amount to be paid differentiated according to the value of the vehicle. The proposed change would result in an increase in the tax rates of various vehicles.
According to the current regulation, automobiles are subject to Motor Vehicle Tax in nine brackets from less than 1300cc to more than 4001cc and tax decreases according to the age of the vehicle. The new proposals add the “value of the automobile” to the tax schedule.
Article 22/A of Law No. 6183, which governs transactions that cannot be made without the payment of public receivables, has been amended.
An amendment is to ensure that domestic banks, that act as intermediaries for the payment of public receivables by taxpayers abroad via bankcards and similar foreign bankcards, can receive a fee for the expenses they incur.
Turkey is ranked one of the first countries for firms to pay tax and other financial transactions by credit card.
Durations relating to the Objection to Precautionary Attachment, Objection to a Payment Order, Payment with Collateralized Receivables and Property Declaration are to be extended in the Public Receivables Law.
All the above are currently due within seven days and are proposed to be due within 15 days.