As summer heat rises, so do taxes in Turkey

Image by Emil Kalibradov. Free to use under Unsplash License.

The morning of July 7, 2023 will go down in Turkish history as the day when citizens woke up to a more expensive life. Not that life was not already expensive amid inflation and with a devalued national currency. But the decision to raise taxes on scores of products and services announced in the Official Gazette that night just made life for millions of Turks even harder. According to the announcement, the value added tax [VAT] rate charged on goods and services increased from 18 to 20 percent, while that on basic goods such as toilet paper, detergents and diapers was raised from 8 percent to 10 percent. A range of administrative government fees was also hiked by 50 percent. #KendiDüşenAğlamaz [as you make your bed so you must lie on it], a Turkish proverb, was trending on Twitter briefly, with users addressing the ruling party's voter base, for being responsible for the recent hikes, having voted for the ruling Justice and Development Party (AKP) in May's general election.

The news of price hikes started trickling in on July 5 when price hikes on tobacco and alcohol as well as petrol made the headlines.

The reasoning behind such drastic measures were manifold, from empty state coffers to the growing costs for earthquake repair, which by some estimates totals to USD 100 billion.

“Reducing the budget deficit is the aim of the latest increase in taxes and fees, and some other steps to ensure fiscal discipline are on the agenda too. Spending cuts are planned as well,” a senior official told Reuters.

‘An economic coup’

As one economist described the recent hike, this was “an economic coup.” In a tweet, academic Veysel Ulusoy wrote, “what do you say to this overnight economic coup?”

As taxes on registering new mobile phones jumped by over 200 percent some Turks rushed to Georgia to buy new devices and register them the same day to avoid paying higher fees:

In Istanbul, some grocery stores were rampaged through over the weekend before the hikes went into effect. “They came in yesterday and finished everything,” said an employee at a local car wash on July 10, in an interview with Global Voices. “They bought everything [before prices went up]. Toilet paper, paper towels, all of it.”

Journalist Melis Alphan, responding to the most recent hikes, wrote on Twitter, “continue to put the burden of the economy you have sunk on the consumer. How long will you oppress the citizens?”

Lawyer Oguzhan Aslan tweeted, “the state has misunderstood the concept of spreading the tax evenly across the base and instead just offloaded the tax payments onto the backs of the base.”

Academic Prof. Dr. Şenol Babuşcu accused the ruling AKP for having the citizens pick up the tab of the election costs:

Since the AKP entered [the election race] as the ruling party, it had the election financed by the state. The public is paying the price for the state-financed election and will pay even more…

Similarly, member of the opposition Republican People Party (CHP) Abdurrahman Tutdere said, “The heavy burden of the election economy has been put on the back of the citizen,” following the decision that was announced overnight.

When all of Turkey was asleep, with a signature of the AKP Chairman the value-added tax for soap, shampoo, detergent, disinfectant and wet wipes, toilet paper, paper towels, tissues and napkins was increased from 8 percent to 20 percent, and the tax on registering mobile phones purchased abroad, was increased from 6 thousand Turkish Lira to 20 thousand. Notary, passport and visa fees were increased by 50 percent. Meanwhile, the minimum wage was raised by 34 percent and the civil servant by 17.55 percent. The most bitter prescription was imposed on the citizen. Overnight, the rate of increase, put on citizen's tap reached 339 percent in total.

Separately, on July 5, a draft law was introduced in the national parliament by AKP lawmakers seeking to increase the corporate tax to 25 percent from 20 percent to fund earthquake-related costs and measures. The draft bill was described as the “National Solidarity Package,” and aimed to reduce the financial burden caused by the earthquake that hit the country on February 6, 2023. At the time, the state promised to rebuild some 600,000 homes that were destroyed during the quake. The comprehensive bill also included a proposal to raise public servant salaries.

The bill was backed by Turkey's newly appointed Minister of Finance and Treasury Mehmet Şimşek who, in a tweet on July 9, wrote, “The National Solidarity Package discussed at the parliament aims partially to reduce the effect of the additional costs caused by the earthquakes. The regulations in question will also implicitly support to keep current account deficit under control.”

But questions loom as to where previously raised earthquake funds went, if raised at all. Following the quake, a country-wide fundraising campaign “Turkey, one heart” was launched on February 15 and broadcasted on several television channels. By the end of the campaign, allegedly over TRY 115billion (approximately USD 6 billion at the time) were raised. In July, 2023, when the opposition CHP filed a motion at the parliament to investigate what happened to the funds, the motion was rejected by members from the ruling AKP and the Nationalist Movement (MH) party.

Distorted inflation numbers

On July 5, the state run Statistical Institute announced the country's annual inflation rate at 38.21 percent  the lowest since its been. However, that is not the case according to the independent Inflation Research Group (ENAGrup), which estimates the inflation rate is over 100 percent.

Despite raising the minimum living wage by 34 percent from TRY 8,500 (USD 325) to TRY 11,402 (USD 482) in June 2023 (effective July 1), the continuing devaluation of the national currency against foreign currency showed the hike was insufficient  in just a week, the minimum living wage eroded by USD 45 and that was even before minimum wage earners began receiving these salaries.

The national currency has lost some 30 percent of its value since the beginning of this year.

Meanwhile, the biggest salary bonus went to President Recep Tayyip Erdoğan, whose salary was raised by 39 percent, drawing criticism over disparity. Member of opposition CHP Özgür Özel tweeted, “Tayyip Erdoğan, who has increased the salary of pensioners by only 25 percent, is increasing his own salary by 39 percent. While 86 million are suffering from financial difficulties, Erdogan is increasing his salary by 40 thousand TL to 140 thousand TL with his own signature!”

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