An example of injustice: Taxation of wage income

Gizem Yaralı-12punto

The 2024 income tax brackets were published in the Official Gazette on December 30, 2023, under the title "General Communiqué on Income Tax." According to the published communiqué, the first income tax bracket was set at 110,000 TL.

For years, tax brackets have been deliberately increased by less than the revaluation rate and the minimum wage increase. This causes wage earners to enter a higher tax bracket earlier and pay taxes at a higher rate. In such a high-inflation environment, the struggle for livelihood becomes even more difficult for workers whose take-home pay decreases because they enter a higher tax bracket during the year.

If the first tax bracket, which was 2,500 TL in 2000, had been increased according to the revaluation rate, the first tax bracket in 2024 should have been applied as 288,571 TL. However, the first tax bracket for 2024 was set at 110,000 TL. A difference of 178,571 TL has emerged between the first tax bracket that should have been according to the revaluation rate and the current first tax bracket.

Public Economist and Finance Expert Prof. Dr. Duran Bülbül shared his assessments regarding the taxation of wage income with 12punto.com.tr.

Bülbül's assessments are as follows:

The success of public services relies on the existence of continuous and regular public revenues. Public services must continue uninterrupted. For this reason, public revenues such as taxes, duties, and fees must be collected in a short time within certain periods. Two criteria are applied when collecting taxes. One is the benefit theory; the other is the authority, or ability-to-pay theory. In our country, according to both the Constitution and tax laws, taxes are theoretically collected according to the ability-to-pay theory. That is, those who earn more pay more, and those who earn less pay less. However, when we look at the implementation, we see that those who earn more pay less tax, and those who earn less pay more. For the ability-to-pay theory to function correctly, there must be few tax exemptions and exceptions, high tax morality and compliance, and no tax amnesties.

Today, approximately 75% of taxes are collected from expenditures and 25% from income. Wage earners pay 60% of this 25% tax collected from income. While the taxes of wage earners are deducted at the source through withholding before they even receive their wages, corporate income tax payers pay their income tax 15 months later. However, it is also a fact that they do not pay these taxes fully and accurately. In our country, where tax loss and evasion are at 85%, how correct is it to pay taxes 15 months later? Furthermore, the amnesties issued every year are in the nature of a reward for this.

While a fixed, or flat, rate of 25% is applied to commercial companies in terms of corporate tax, a progressive rate is applied to wage earners. The lowest tax rate starts at 15% and goes up as 20%, 27%, 35%, and 40%. This creates a ruthless tax injustice for wage earners. After the third and fourth months, wage earners see a reduction of 2,000 TL to 5,000 TL in their wages every month.

In other words, in this situation, wage earners do not receive 12 months of wages, but 11 or 10 months. Tax brackets have been rearranged for 2024. The tax base, which was 70,000 TL for the 15% tax bracket, has been increased to 110,000 TL for 2024. In this case, there will be a decrease of between 2,000 and 5,000 TL in the wages of wage earners after their first three or four months in 2024. Instead of progressive taxation for wage earners, a transition to flat-rate taxation should be made, and this rate should be exempt from tax up to the minimum wage amount, while the amount above the minimum wage should be a flat rate of 10% for one year. To prevent this tax injustice for employees, the political power must urgently change this from a progressive rate to a flat rate.

News Source: 12punto