A Tax Proposal: “Win-Win”

While the state in Turkey tightens the noose on low-income earners, it collects almost no taxes from businessmen. We have a strange system of incentives and tax exemptions. It provides no benefit to economic development or employment. It only serves to enrich businessmen, politicians, and bureaucrats.  

I wrote about this last week. If the state can collect 6 trillion liras in indirect taxes, fees, and penalties without even accounting for the informal economy, it could increase direct taxes from 2.5 trillion liras to 14 trillion liras without finding a single new taxpayer in the informal sector. I stand by this claim. 

This week, the Istanbul Chamber of Industry announced Turkey’s 500 largest industrial enterprises. These data show the companies' profits, but not the taxes they paid. However, since the balance sheets of publicly traded companies are published, we can see how much tax they paid—or rather, how much tax they did not pay due to the incentives provided by the state.

The corporate tax rate that publicly traded companies are supposed to pay is 23 percent… But do companies pay this much in taxes? Never and no…

Let’s give an example. A company has a 2023 profit of 32 billion Turkish Liras. It should pay 7 billion 590 million liras in taxes at a rate of 23 percent. This company is not evading taxes, but the state is not collecting them. The state says, “If you make a new investment or do this or that, I will grant you exemptions. Make a new investment, provide employment…”

The company we are discussing in this example pays only 133 million liras in taxes instead of 7 billion 590 million liras at 23 percent. That is only 4 per thousand of its profit… 

There are many similar companies. The realization of the 23 percent corporate tax rate is zero for some, 4 per thousand for others, 2 percent for some, and 9 percent for others… But 23 percent is rarely seen…

WHO OWNS THE INVESTMENT?

Amidst this chaos of incentives and investments, the question that is overlooked and must be asked is: Who owns this new investment? Is it the partners of this company, or the state that does not collect taxes and, consequently, the 85 million citizens?

Since no tax is collected from profits under the name of new investment, then the company should increase its capital by the amount of the new investment and transfer shares equivalent to that new investment to the state. However, the state should not interfere with the company's management; the company should still be managed by its former partners.  

THE STATE AND THE CITIZENS WIN… If the company is not listed on the stock exchange, it should be… The state should receive dividends from the profit generated in subsequent years… When necessary, these shares should be able to be offered to the public at the value formed on the stock exchange.

THE COMPANY ALSO WINS: There is no loss for the company owner either. They do not pay taxes; they give company shares equal to the tax they would have paid, but in return, they grow the company they manage with the new investment, increasing the value of the company they own and its profit potential in future years.

You have either given up on collecting taxes, or you have put money into someone’s pocket and said, “Make an investment and be the owner of the investment you made.” Where does this “all for me, all for me” attitude come from? Can such a system of plunder exist? It is not just for one person or a small minority. It is a win-win situation for everyone. As you know, the President likes the term “win-win.” 

If this tax proposal happens to be liked and accepted, I would like a 4 per ten-thousand share as a royalty fee on the extra shares… (If you ask where this figure came from… Since the company in the example above pays 4 per thousand in taxes, I said 4 per ten-thousand, which is one-tenth of that. However, I am open to negotiation!)

There is no need for long discussions. Let’s discuss it if desired. But all incentives provided and all tax exemptions granted without realistic planning do not contribute in the slightest to the growth, development, or employment of the economy or the relevant sector, nor to increasing tax revenues for the next period. Incentives, exemptions, and waivers serve entirely to enrich companies, individuals, politicians, and bureaucrats. I could give hundreds of examples of this.