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Turkey has announced a revamp of its corporate tax system, introducing a 10% minimum rate to stabilize the $1tn economy and enhance government revenue.
President Recep Tayyip Erdoğan’s AKP party presented a comprehensive tax reform proposal to parliamentary committees for evaluation, aiming to broaden the tax base and support efforts to combat high inflation through stricter fiscal policies. This initiative is part of a broader economic reform program launched after Erdoğan’s re-election in May 2023.
The proposed changes include a minimum corporate tax rate and adjustments to property investment trusts regulations. The AKP is set to unveil the new tax plan soon, which will impose a minimum 10% tax rate on established companies, irrespective of exemptions. Multinationals with over €750mn in annual revenue will face a 15% minimum tax on global income, aligning with OECD guidelines to prevent tax evasion.
Additionally, the reforms empower authorities to audit companies more effectively and enforce penalties for non-compliance, aimed at reducing Turkey’s underground economy. The country’s economic team, led by finance minister Mehmet Şimşek, has been implementing fiscal discipline to combat high inflation and correct imbalances caused by previous economic policies.
Last year, the government raised value-added tax and petrol levies as part of efforts to restore rational economic policies. Finance minister Şimşek emphasized the government’s commitment to ensuring comprehensive taxation in Turkey. These revenue-raising measures have strained ordinary citizens and contributed to a decline in AKP’s popularity following local elections in March.
To alleviate pressure, the AKP announced plans to increase the minimum public pension for select beneficiaries. These tax reforms are expected to address Turkey’s budget deficit, exacerbated by earthquake relief costs and pre-election stimulus measures.
The general government budget deficit peaked at 5.3% of GDP last year, prompting monetary policy tightening by the central bank, which raised interest rates significantly. Turkey’s economic recovery efforts have attracted foreign investors back to the market, with a substantial inflow of funds into government debt. Progress has been made in replenishing foreign currency reserves and narrowing the current account deficit.