Economist and Finance Expert Prof. Dr. Duran Bülbül evaluates the 40 percent tax regulation for those earning income from the stock market and foreign currency

Gizem Yaralı-12punto

With a new omnibus bill submitted to the Grand National Assembly of Turkey (TBMM) by AKP deputies, President Tayyip Erdoğan is being granted the authority to increase tax rates on interest income from foreign currency and earnings from the stock market up to 40 percent. The economic administration had previously introduced a series of additional burdens, including increasing reserve requirements for banks, to curb savers' demand for foreign currency. Now, preparations are being made for additional costs aimed directly at pruning the foreign currency earnings of savers.

With Article 12 of the omnibus bill, it is envisaged that the President will be granted the authority to levy taxes of up to 40 percent on returns from securities issued in foreign currency (Eurobonds or dollar-denominated debt instruments) and on interest and profit-share income obtained from accounts opened in banks in foreign currency. The current authority to increase is limited to 30 percent, and the tax burden has risen to 25 percent. Once the law enters into force, if the authority is fully utilized, it will become more advantageous to purchase Turkish Lira-denominated debt instruments instead of foreign currency and to open TL accounts in banks instead of foreign currency accounts. The omnibus bill proposes increasing the President's authority to raise tax rates on gains from stock market trading from the current 'up to 15 percent' to 'up to 40 percent.' This authority could be used at different rates depending on the issuance date of the stock, the issuer, and the opening date and type of the account. The tax authority is currently being used in the direction of reduction rather than increase.

In the information note shared by the AK Party, the justification for ARTICLE 12 is as follows: “The President is being granted authority regarding the withholding tax rates that can be applied to deposit, participation, and foreign currency deposit accounts.”

Economist and Finance Expert Prof. Dr. Duran Bülbül's assessments regarding the new tax regulation are as follows:

In the new omnibus bill submitted by AKP deputies to the Turkish Grand National Assembly, a group of deputies has submitted a proposal to increase the tax rate applied to interest income earned in foreign currency and money earned in the stock market up to 40%. The most important justification for this law is to suppress foreign currency, and it is a law issued internally. However, suppressing foreign currency is only [one aspect].

It is not possible to prevent this by increasing the tax applied to foreign currency or foreign currency assets.

And this has many legal, constitutional, and economic drawbacks; the first of which is this: once this bill and this rate are granted to the Presidency, if it is implemented in this way, it will cause foreign currency to go off the books. Secondly, instead of depositing foreign currency in the bank, people will start to keep it under the mattress, that is, in hand. Thirdly, this situation will cause the exchange rate to rise even more due to the withdrawal of foreign currency from the market. Fourthly, it will also cause the capital accumulation in the country to flee. This will seriously harm growth and development. Fifthly, this situation is contrary to the law. It is the state seizing private wealth accumulation. It is unconstitutional.