Turkey: Consumer organizations warn tax hikes might reduce purchasing power

Turkish business and consumer organizations on Friday warned that recent tax hikes would make things even more difficult for Turkish consumers as they stressed that the government should be careful not to introduce tax hikes and raise revenues at the expense of reducing people’s purchasing power. The AK Party government on Thursday raised the private consumption tax (ÖTV) on cars and mobile phones as well as on tobacco and alcoholic products, set to collect $3 billion in extra revenue per year. The tax hikes came as measures to curb imports of certain products while also increasing revenues at a time of intensifying global risks.

The ÖTV on vehicles that have an engine volume between 1,600 cc and 2,000 cc was raised to 80 percent from 60 percent. Those who want to buy a vehicle with an engine of over 2,000 cc now have to pay 130 percent ÖTV rather than the previous 84 percent. The tax hikes are also expected to have an impact, albeit smaller, on cigarette and mobile phone prices as the relevant ÖTV was increased from 63 percent to 69 percent and from 20 percent to 25 percent, respectively.

Evaluating the developments, Turkish Industrialists and Businessmen’s Association (TÜSİAD) Chairwoman Ümit Boyner said in İstanbul on Friday that Turkey was “forcing the limits” in collecting taxes. Underlining that indirect taxes — taxes that are not directly paid by an individual to the government such as value-added tax (KDV) — dominate Turkey’s total tax revenues, Boyner said people with low incomes were more affected by increases in these taxes, adding, “The government encounters relatively less problems in collecting indirect taxes in Turkey, but we have reached the limits with the latest hikes.” The TÜSİAD head said Turkey needs comprehensive taxation reform before it could minimize inequalities in taxation and combat the underground economy.

Making mention of the government’s Medium-term Economic Program (OVP), which anticipates a decline in public debt and a lower current account deficit (CAD) leading up to the year 2015, Boyner said they were happy to see Turkey has drawn up a roadmap for its economy for the long term. “The government’s announcement of this program is a clear indicator of the level of maturity and experience gained in Turkey’s economy management. … Some will support this program and others will oppose it, but we think that what is important is to define an anchor for economic growth as this will also eliminate uncertainties in the markets,” she argued. As she warned that the latest tax hikes could “place pressure on consumer prices,” Boyner said TÜSİAD would study and monitor the implementation of the OVP closely in the coming months.

Also commenting on tax hikes, Mobile Communication Systems and Tools Businessmen Association (MOBİSAD) Secretary-General Abdullah Gülhan said on Friday that the hikes would slow business in the markets, underlining that Turkey needs tax reductions, not increases. Gülhan also said that Turkish consumers pay some of world’s highest taxes on mobile phones and added that the government should assess the results of their actions for the long term. “I understand the government efforts to minimize the CAD by curbing imports. … Turkey spends 4.5 billion euros on cell phone imports per year, and this should decrease.

However the dealers were not expecting such tax hikes when they were placing orders at the beginning of the year,” he stated. Gülhan suggested that the government offer a KDV discount for second-hand cell phones to encourage the sale of some 80 million mobile phones which he said MOBİSAD predicts are out of use because they were replaced by the latest devices. “People are keeping these phones with an estimated value of $4.3 billion at their homes. We could make them available to the domestic market,” Gülhan said.

The association head also noted that MOBİSAD member firms could collect and repair second-hand cell phones in all corners of Turkey should the government give them the necessary authority. “We simply do not have to throw these devices away,” he asserted. Federation of Consumers’ Associations (TÜDEF) Vice President Ali Çetin said citizens were caught unprepared by the latest tax hikes. Çetin said people were already “contemplating on how to cope with recent price hikes in electricity and natural gas.” Çetin claimed that the tax hikes would decrease purchasing power, adding new people to the pool of the poor. The poverty line — the amount that a family of four should earn on a monthly basis in order to pay rent and meet basic needs such as food, transportation, clothing and education — in Turkey rose to TL 1,558 last month, according to last week’s data from the Turkish Public Workers’ Labor Union (Kamu-Sen). The minimum monthly wage in the country remains at TL 659.

The Consumers Association (TÜDER) honorary president, Engin Başaran, said the government does not have the consent of the public when introducing these tax hikes. Başaran accused the government of being “far from [understanding] the financial problems faced by its citizens.” Meanwhile, the main opposition Republican People’s Party announced on Friday that they will organize mass demonstrations against the latest hikes in energy and taxes. CHP Vice President Gürsel Tekin told reporters on Friday in Ankara that they would hold protests in various provinces on Sunday.

14 October 2011
SOURCE: TODAYS ZAMAN