Increases in various indirect tax items continue

Upon assuming the role from his predecessor Nurettin Nebati, Treasury and Finance Minister Mehmet Şimşek's initial pronouncements resonated with the public and market participants alike, signaling a pivot towards a more pragmatic approach in economic policies. While these declarations were interpreted by the public as an implicit acknowledgment that prior economic policies, particularly those steered by Nebati and Berat Albayrak, were lacking rationality, it became necessary to undertake tangible actions to substantiate Şimşek's commitment to rationality. The emergence of a new phase in Turkey's economic landscape, under the leadership of Mehmet Şimşek, infused optimism that appointments would be grounded in merit and that pragmatic policies would be promptly implemented, akin to the developments surrounding the appointment of Central Bank Governor Hafize Gaye Erkan.

Indeed, the recent interest rate hike determinations made by the new economic team distinctly signal the abandonment of the longstanding notion that "interest rates are the cause, and inflation is the effect." This paradigm had previously posed a significant impediment to ushering in rationality within the economy. Furthermore, both Mehmet Şimşek and Gaye Erkan have consistently emphasized that the central objective of Turkey's novel economic approach is the curbing of inflation. In line with this objective, not only monetary measures such as interest rate hikes are being pursued, but also fiscal discipline within the public sector is being enforced.

However, the public perception created by the term "savings" has raised the question of whether these policies will primarily target government institutions or citizens, given the connotation of austerity associated with it. In fact, one of the initial steps taken by Mehmet Şimşek's economic team has been to raise various indirect taxes, particularly the Special Consumption Tax. It's evident that the hikes in indirect taxes are aimed at consumers. Similarly, recognizing that the Special Consumption Tax functions as a negative externality tax and encompasses goods and services with limited price elasticity, it can be acknowledged that raising taxes on these products is a potentially "favorable" way to address the fiscal deficit generated through public sector savings.

While Mehmet Şimşek has emphasized that these tax hikes won't be a recurrent practice, speculations about potential new tax increases often circulate on social media. Nonetheless, any such measures should be executed in a manner that mitigates the weight of austerity policies on citizens. Notably, this approach does not encompass escalating indirect taxes.

1 https://www.sozcu.com.tr/2023/gundem/tutuklu-ve-hukumlu-sayisinda-yeni-rekor-7566559/ 

2 https://www.mfa.gov.tr/soru-cevap.tr.mfa 

3 https://www.bbc.com/turkce/haberler-turkiye-52269724

4https://www.sondakika.com/haber/haber-rtuk-tele1-ve-krt-ye-program-durdurma-cezasi-verdi-16211060/