Newsletters
Türkiye is advancing a 36-article tax reform package through Parliament, part of a broader effort to reinforce fiscal discipline amid persistent inflation and rising borrowing costs.
The bill—expected to reach the General Assembly soon—is officially framed around “tax justice” and reducing informality in the economy, but it also reflects the government’s urgent need to replenish public finances after years of high spending and currency depreciation.
According to figures cited by local media from an internal Treasury and Finance Ministry assessment, the reform is projected to generate around ₺350 billion (approximately $8.3 billion) in additional revenue.
Roughly $4.8 billion will come from new taxes and fees, while $3.5 billion will derive from reduced incentives and spending cuts.
The fiscal context is that Türkiye's 2025 budget deficit is widening, and external borrowing has become costlier as global rates remain elevated. The government is seeking to broaden its domestic revenue base, aiming to reduce reliance on short-term financing.
A one-point increase in employer social security contributions is expected to yield ₺111 billion ($2.6 billion), while higher contribution caps will bring ₺64 billion ($1.5 billion) more. Narrowing rental income exemptions is estimated to add another ₺22 billion ($520 million).
At the same time, the removal of several incentive programs—including the young entrepreneur premium support—will reduce fiscal outflows by about ₺110 billion ($2.6 billion).
Collectively, these measures are designed to shore up budget credibility without implementing across-the-board tax hikes.
One of the most significant policy shifts targets rental income taxation.
Potentially beginning in January 2026, only retirees, widows, orphans, and individuals with disabilities will continue to benefit from exemptions. All other property owners will be subject to full income declaration requirements.
Additionally, the government plans to eliminate the mortgage interest deduction, arguing that the measure will create “equal treatment” between cash buyers and borrowers.
The adjustment is expected to increase transparency in the real estate market, although some analysts caution that it may raise rental prices in the short term as landlords pass on higher tax costs to tenants.
A parallel objective of the reform is to curb underreporting and informal transactions in the property and second-hand car markets.
If a property’s sale price is found to be understated relative to its actual market value, the penalty rate will double to 100%.
For used cars, the existing notary fee exemption will be replaced by a 0.2% transaction fee—no less than ₺1,000 ($24) per sale.
These measures are meant to boost fiscal transparency and ensure a more accurate reflection of economic activity.
The bill also introduces annual licensing fees for select professional sectors. Fees will range from 10,000 to 7.5 million liras ($240 to $178,000) and will apply to doctors, dentists, veterinarians, jewelers and private hospitals, among others.
Officials argue that this approach expands the tax base without altering standard rates, aligning with the broader goal of reducing informality.
For small businesses and independent practitioners, though, these fixed costs could represent a notable increase in annual operating expenses.
The reform package also makes slight technical adjustments to the social security system, affecting both employers and employees, as the subsidies for the sector are reaching an alarming level.
Employer contribution rates will rise from 11% to 12%, while employee contributions increase by one percentage point. Part-time, agricultural, and domestic workers will see their overall rate move from 20% to 21%.
For self-employed individuals, voluntary insurance payments will rise to 45%, up from 40%.
Meanwhile, the Treasury’s contribution for non-manufacturing sectors will be halved from four to two points.
These revisions are projected to strengthen the Social Security Institution’s balance sheet and contribute to long-term sustainability with small touches.
The reform introduces new oversight mechanisms for private university tuition fees, which have grown sharply in recent years.
The Higher Education Council (YOK) will gain authority to regulate and standardize tuition structures, with penalties for institutions setting “unreasonably high” rates.
Officials present this as a consumer protection measure to ensure price transparency, though education stakeholders emphasize the need for flexibility to maintain financial viability and academic quality.
The Turkish universities this year have seen rising numbers of empty quotas, which translates as fewer financiers and emptier classes.
For all its talk of fairness, the new tax bill may deepen inequality rather than ease it.
While investment fund exemptions are being scrapped, the government stopped short of introducing a progressive wealth tax or restructuring income tax brackets—the main source of wage-earner frustration.
Workers often enter higher tax brackets just months into the year due to inflation, effectively paying more tax without earning more in real terms. Yet this long-standing distortion remains untouched.
Indirect taxes—on fuel, cars, alcohol, and services—still make up two-thirds of total revenue, a structure that hits low-income households hardest.
As critical commentators on Turkish media summarized, “The poor will pay through prices, the middle class through premiums, and the wealthy will still find their exemptions intact.”
3 min read
