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Turkey’s ruling AKP proposes tax hikes, public servant salary increases amid economic challenges

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Turkey’s ruling Justice and Development Party (AKP) has proposed a comprehensive bill to parliament raising motor vehicle and corporate taxes in addition to increasing salaries for public servants, against a challenging economic backdrop.

The legislation also shifts parts of the Treasury-run forex-protected lira deposit account scheme to the central bank.

The AKP presented the bill to parliament against a backdrop of slowing inflation, which dropped to 38.2 percent in June from 39.6 percent in May, according to data released by the Turkish Statistical Institute (TurkStat) on Wednesday. However, independent economists from the Inflation Research Group (ENAG), questioning the official data, estimate that the actual inflation figure for June was 108.6 percent, up from 105.2 percent in May.

Despite this slowdown, economists warn that this could be a temporary dip, considering the extensive spending pledges President Recep Tayyip Erdoğan made ahead of May’s general election. They expect inflation will soon start growing faster after having steadily dropped from a more than two-decade high of 85 percent in October of last year.

In the midst of this economic environment, the AKP bill proposes tax hikes and recommends raising the lowest civil servant salary to 22,000 lira (775 euros).

A primary feature of the proposal is an increase in the Motor Vehicle Tax (MTV) and the corporate tax, affecting both currently registered vehicles and those to be registered by year’s end. Moreover, the bill suggests raising the corporate tax rate from 20 percent to 25 percent and increasing the tax for banks and financial institutions to 30 percent, up from the current 25 percent.

The AKP’s parliamentary group chairman, Abdullah Güler, highlighted the goals of the proposal, saying, “In this 17-article proposal, we’re making adjustments to the corporate tax and the MTV and propose changes to remove some exemptions in our tax laws.”

In addition to the tax changes, the government increased the special consumption tax (SCT) on alcoholic beverages and tobacco products by 14.81 percent after the inflation figures were published. The tax on beer will increase to 6.18 lira following the SCT adjustment.

Meanwhile, the country’s struggling currency, the lira, has led to a 25 percent price increase for Turkey’s first domestically produced electric car, the Togg T10X.

Despite being assembled in Turkey, the Togg T10X’s components, such as batteries, engines and electrical systems, are imported, which has contributed to the price surge.

The car, built by Turkey’s Automobile Joint Venture Group (TOGG), is slated to begin sales at the end of Q3 2023.

The lira has lost more than 23 percent of its value against the dollar since Erdoğan extended his rule into a third decade in a hard-fought runoff election on May 28.

The drop underscores a radical shift in policies since the election that includes an end to a two-year era of ultra-low interest rates.

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