Turkey: Government announces new tax package and pension increase

• 30% corporate tax to be levied on public-private partnership profits
• Tax exemptions on exporters in free zones to be limited
• Minimum pension to be raised, budgetary cost estimated at TRY 33.2bn in H2

AK Party group chairman Abdullah Guler announced details of the new Tax Package and the increase in the minimum pension, local media reported. The proposal outlined comprehensive reforms to strengthen tax equity, increase direct tax revenues, enhance tax compliance, and combat unregistered economic activities, he said. Key measures included modifying or removing certain tax exemptions, increasing penalties, reducing carried-over VAT, and aligning domestic and import taxation to improve collection efficiency.

To bolster tax justice and efficiency, a 30% corporate tax will be imposed on profits from public-private partnership projects and build-operate-transfer models, Guler stated. Other measures included exempting real estate gains of investment funds from profit distribution taxation and limiting the tax exemption for businesses in free zones to their export revenues.

The proposal also included stringent measures to combat unregistered economic activities. Fines for irregularities and special irregularities will be increased, and penalties for using others' POS devices or IBANs will be significantly raised. The VAT exemption for services provided to leisure marine vessels in marinas will be removed, and VAT deductions unutilised within five calendar years will be excluded from records and considered in tax audits for income or corporate tax assessments.

Guler highlighted that the reforms also involved excluding the tax principal from settlement negotiations, allowing settlements for penalties only, and making carried-over VAT and refund rights transferable to new entities in mergers, transfers, and divisions without being subject to the five-year criteria or statute of limitations. The proposal also involved the increase in the fee for international departures from TRY 150 to TRY 500, with annual adjustments based on revaluation rates.

Several changes were proposed to the social security system. The 5pps premium incentive for retirees who continue working will be removed, and the short-term insurance premium rate will be increased from 2% to 2.25%. Guler emphasised the need for a more balanced and fair retirement system, stating that efforts will continue to protect fixed-income citizens from inflation without compromising budget discipline. In this context, another key change in the package will be the increase in the minimum pension from TRY 10,000 to TRY 12,500. This adjustment will affect approximately 3.7mn retirees in H2, with an estimated budgetary cost of TRY 33.2bn for the same period.

The proposed amendments to the tax laws and other related laws will be discussed in the parliamentary budget commission on Jul 18, Guler concluded. He did not provide details on the expected budgetary impact of the full tax package.