Mehmet Şimşek announces: 1.5 million taxpayers removed from scope

Treasury and Finance Minister Mehmet Şimşek made an assessment regarding the inflation accounting practice.

Reminding that professional organizations, primarily TÜRMOB, had requested a postponement until the end of 2023, Şimşek said, "With the legal regulation enacted, inflation adjustment was not applied in 2021 and 2022. The implementation was postponed until the end of 2023. Later, in meetings held with the business world, professional organizations requested that inflation adjustment must be performed at the end of 2023 and continue in 2024. Following the consultations, we, as the Ministry, made the necessary arrangements."

In Turkey, inflation accounting was last applied to balance sheets for the 2004 accounting period, and no new adjustment had been made until the end of the 2021 accounting period because the conditions were not met. At the end of 2021, the conditions for inflation adjustment were met. Upon requests from professionals and non-governmental organizations who stated they were not ready for the inflation adjustment that was supposed to be made at the end of 2021, the issue was brought to the agenda of the Turkish Grand National Assembly (TBMM).

MET WITH THE BUSINESS WORLD

Pointing out that balance sheets were adjusted at the end of 2023 without paying any tax, Şimşek reminded that they had extended the filing deadlines for tax returns with inflation adjustment for the second temporary tax period of 2024, first to August 27 and then to September 6, to provide taxpayers with more time.

Emphasizing that relevant professional organizations stated that businesses with low turnover and those in the investment phase that have not yet started operations might face taxation difficulties due to inflation accounting during this period, Minister Şimşek announced that they had taken new decisions in the latest consultation meeting attended by TOBB, MÜSİAD, and TÜRMOB to ensure that small businesses are less affected by inflation adjustment.

WHO WILL BE EXEMPT FROM INFLATION ACCOUNTING?

Şimşek spoke as follows regarding these decisions:

"We have reached a new stage in 'inflation accounting,' which we implemented upon the requests of the business world and professional organizations such as TOBB, MÜSİAD, TÜSİAD, and TÜRMOB. With the decision we made for small businesses, we are removing approximately 1.5 million income and corporate taxpayers from the scope of inflation adjustment during temporary tax periods. Businesses with a turnover of less than 50 million liras as of the end of 2023 will not be required to perform inflation adjustments in the second and third temporary tax periods of 2024."

Stating that the draft communiqué prepared on the subject has been sent to the Presidency for publication, Şimşek announced that income and corporate taxpayers whose gross sales in their income statements dated December 31, 2023, are below 50 million liras will file their tax returns for the second and third temporary tax periods of 2024 without performing inflation adjustments, and they will not attach their period-end balance sheets to these returns.

Stating that taxpayers within the scope who have already filed their returns will need to file a correction return, Şimşek said, "Taxpayers who file their correction returns by September 6, 2024, will not pay any penalties or interest."

NEW MODEL FOR INVESTORS

Drawing attention to the debates that inflation adjustment causes additional tax before production begins due to the inclusion of investment financing expenses in costs, Minister Şimşek made the following assessment:

"Our goal with inflation adjustment is to ensure that financial statements reflect the true situation. We have given instructions to the relevant units to keep the negative effects of inflation adjustment on the expenses that businesses, which contribute to macroeconomic indicators such as growth and employment through investments and create significant value-added in their fields of operation, account for their ongoing investments at a minimum level. Evaluating that the practice should not increase investment costs, we are working on formulas that will provide convenience to investing taxpayers in inflation adjustment. In this context, a model where profits arising from the valuation of the ongoing investments account due to inflation adjustment are taken into a special fund and not taxed, and this account can be taken into account in the determination of taxable income during the operating period over a period such as 5 years, is among the options. Regardless of the model chosen for inflation adjustment during the investment period, a legal regulation is required to resolve the issue. We are working to bring this issue to the legislative agenda with the opening of the Parliament in October."

WHAT IS INFLATION ADJUSTMENT?

Inflation adjustment is defined as subjecting financial statements to an adjustment process to ensure they reflect the true situation as a result of changes in the purchasing power of money.

Taxpayers with strong asset accounts on their balance sheets are positively affected by inflation adjustment if they have acquired these assets with their own capital, and their tax burdens decrease.

Taxpayers with high debts are negatively affected because the debt item is not subject to adjustment, and they may have to pay additional tax.

With the communiqué being worked on by the Ministry, it is aimed to remove approximately 1.5 million income and corporate taxpayers, who operate using foreign financing sources rather than capital and have the potential to be more negatively affected by the practice, from the scope of inflation adjustment during temporary tax periods, and for these taxpayers to perform adjustments at the end of the accounting period and be less affected by the practice.

News Source: 12punto