Companies will see margins come under more pressure with an increased corporate tax, while consumers will face price hikes across a vast number of goods’ in Q3 due to rises in VAT and other consumer taxes. Inflation will remain high in H2 2023, putting pressure on the lira. Companies selling to the public sector will continue to face a strained public budget despite the tax hikes.
Overview
New taxes have been implemented to cover an additional mid-year budget announced by the government. The original 2023 budget had assumed TRY3.673 trillion tax revenues. Additional budget assumed an added TRY1.150 trillion of tax revenues. Rough estimates show the added taxes can generate around 250 to 400 billion TRY revenues, which fall short of the extra revenue assumed by the additional budget. Thus, the risk of more tax hikes remain. Executives should expect a wide fiscal deficit – likely above 4-5% of GDP – for H2 2023 and 2024, as earthquake reconstruction efforts can cost anywhere between US$50-80 billion according to different estimates.
Our View
The government announced populist consumer support measures in the lead up and after the elections…
- Minimum wage has been increased by more than 30%
- Public sector wages have seen a flat TRY 8,076 increase
- An additional budget of TRY 1.1 trillion has been proposed for H2 2023
…while also raising pressure on consumers and fueling more inflation via new taxes
- Increase in 18% VAT to 20%, and 8% VAT to 10%
- Cleaning products have seen a 12 point increase in VAT, from 8% to 20%
- Increase in corporate tax from 20% to 25%
- Many fees, including for passport issuance has been increased by 50%
- Fee for registering an imported phone has been raised from TRY6,000 to 20,000
- Income earned from chance games has been doubled
- Vehicle owners will pay this year an additional vehicle tax to what already exists
- Fuel tax will increase by rate of inflation in H1 2023 (which officially was 47.5%)
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