Tax advantage for KKM is being removed! Minister Şimşek announced...

Treasury and Finance Minister Mehmet Şimşek stated, "Exiting the Foreign Exchange Protected Deposit (KKM) scheme was an important priority for us, but we said from the beginning that we would exit without disrupting the market or creating problems in the market. And we are truly exiting. We have already ended KKM in Turkish Lira. Let me give you the news now regarding foreign currency-denominated ones as well: we will not renew the tax advantage for companies in July."

Minister Şimşek made these remarks at the "Climate Economy Sustainability Finance Summit."

In his speech, touching upon economic programs, Şimşek reminded that the essence of the program is to ensure price stability—meaning reducing inflation to single digits—fiscal discipline, a sustainable current account deficit, structural transformation, and steps to make all these gains permanent. 

INFLATION MESSAGE

Arguing that the transition period in the disinflation program has ended and that they are on the threshold of the disinflation process, Şimşek continued his words as follows:

"In the coming months, we will all see inflation falling, not just due to the base effect, but in a permanent way. We said from the beginning that the first year is a transition year. We said that in the transition year, inflation would rise on an annual basis. I have been saying this very clearly in the field for months, that is, for 8-9 months since the program was announced. But that is why we said the worst is behind us. Now, monthly inflation is already evolving towards a path. Annual inflation will also start to decline from June onwards. Especially in July and August, there will be sharp drops due to the base effect. But the decline will continue after that. Because this is not limited to the base effect alone. Because monetary policy has been strongly rebuilt. Next year will be a year where the fiscal policy deficit will drop significantly. That is, it will be a year where the deficit is pulled below 3 percent. Therefore, we will have entered a very different period in terms of fiscal impact. Incomes policy will also start to be consistent with the targets."

Stating that if measures had not been taken last year, the market expected a current account deficit of around 10 percent due to the impact of the earthquake, and that they limited this to 5.2 percent, Şimşek said, "I am stating this 5.2 as a ratio to national income. The ratio of the deficit to national income was 5.2 percent last year. Only 1.6 points of this is non-earthquake related. Therefore, the earthquake is the determining factor here. The deficit will remain high this year; our goal is, of course, ideally to pull it below last year's level. We hope to pull it below 5. But next year will be the real determining factor."

"WE WILL PULL IT BELOW 3 PERCENT"

Şimşek claimed that the additional measures currently being taken and those to be announced in the coming period will, in all likelihood, permanently reduce the budget deficit to below 3 percent next year, including earthquake-related expenditures. 

Asserting that the economic program is working, Şimşek stated, "The program is running like clockwork. Sound policies, rational policies—that is, policies based on global norms and rules, appropriate policies, and structural reforms—have created a new story for Turkey. There is tremendous interest in this story, both domestically and abroad. Investor confidence has increased. This is truly reflected in the figures. In the last two months, the Central Bank's reserve position has exceeded 70 billion dollars."

RESPONDED TO CRITICISM

Addressing the criticism of the implemented program by certain circles, Şimşek noted the following:

"When we said, 'this program will work and confidence will be restored,' they said, 'no, that's not possible.' First, they said, 'there is no program.' Then they said, 'there is a program, but it is not a very credible one.' Now, of course, with the increase in interest following the local elections, certain circles have called it 'carry trade.' The ratio of 'carry trade' and similar very short-term, so-called hot money inflows to the total inflow is not even at the one-third level. Therefore, there is a genuine portfolio preference here. Of course, a critical perspective is very valuable to us; constructive criticisms are very valuable because they serve as a guide for us. But for some reason, certain circles prefer to constantly look at the half-empty part of the glass regarding this program."

WILL KKM CONTINUE?

Regarding the exit from the Foreign Exchange Protected Deposit (KKM) scheme, Şimşek stated the following:

"Exiting KKM was an important priority for us, but we said from the beginning, 'we will exit without disrupting the market and without creating problems in the market.' And we are indeed exiting. We have already ended KKM in Turkish Lira. Let me announce in advance that we will not renew the tax advantage for companies in foreign currency-denominated KKM in July. Furthermore, we have currently imposed a limited tax on deposit interest income. Therefore, we are working on that issue as well. Consequently, we believe that regular Turkish Lira deposits will become more attractive. There is an improvement in inflation expectations. Inflation remained high on an annual basis. It peaked in May. But if you ask the market, they say inflation will fall to 33 percent in the next 12 months. They say it will fall to 21 percent in the next 24 months. We believe these figures will converge with our targets starting from the coming months."

HE ONCE AGAIN ASKED FOR 'PATIENCE' FROM LOW-INCOME EARNERS

Stating that the banking sector has had a difficult year during the inflation process, Şimşek concluded his remarks as follows: "There is a temporary squeeze in your book value. But we are reducing risk so quickly that, do you remember your multiplier, that is, the ratio of your market value to your book value? Around this time last year, it was around 0.3. Now it is rising toward 1. So it will have almost doubled or tripled. Why am I saying this? For patience. I mean, we are not just asking for patience from one segment of society. We are asking for patience from all segments of society. Why? Because reducing inflation is a very arduous and difficult process. But there is a great window of opportunity ahead of us. If we continue on our path with patience and determination, this inflation will quickly fall to single digits in 2026. We believe in this."

News Source: 12punto