FETHIYE, Turkey - Most people have a least-favorite part of the economic year. Some hate the day that the car has to be insured, others dread the school fees popping through the mail box. But probably there is one day that unites populations all over the world in distaste and dread - the annual announcement of the following year's taxes.
The population is still digesting the announcements made by Finance Minister Kemal Unakitan last month.
Most existing taxes and fees, he announced, are to rise by 7.8% (based on the 7.76% rise in the Consumer Price Index), but Revenues Administration vice president Osman Arioglu was emphatic that this did not actually represent a rise in taxes. Instead, taxes were merely being raised to keep in line with inflation to avoid losses of revenue by the government, and Arioglu stressed that the Justice and Development Party had chosen not to raise lump-sum taxes over and above the revaluation rate as other governments in the past have done.
Among the taxes that will be affected are environment taxes, stamp duties, and motor-vehicle taxes. Real-estate taxes will rise by half the rate of the other taxes, ie, by 3.9%.
Environment taxes on workplaces will now range between 14 liras (US$9.70) and 1,656 liras ($77.50), depending on the size and type of the work environment. Cars that were previously taxed at the minimum rate of 305 liras will now be taxed at 329 liras, while the maximum car tax will rise from 10,988 to 11,845 liras.
Fees for passports are to rise, gun licenses will go up, as will the privilege of carrying a weapon; driver's licenses will increase from 54.9 liras to 59.2. The allowances for inheritance tax have also been increased in line with inflation from 130,000 liras to 140,140.
The other proposed change to the tax system is an end to the collecting of receipts and their submission to the government to claim value-added-tax (VAT) refunds as part of one's personal tax returns. The onerous task of asking for a tax receipt everywhere one shops or purchases services was eradicated for pensioners earlier during this government's term and replaced with a standardized income rebate.
The widening of the scheme to include all wage earners will come into force in 2008 rather than 2007, as people will have already collected receipts and made income decisions based on the assumption that they will be able to claim VAT refunds.
This change comes at the behest of the International Monetary Fund (IMF), which is keen to see the tax burden on workers reduced and the tax system simplified, and it is likely to be calculated using a sliding scale of wages to determine the amount of rebate that will appear in wage packets at the end of the month.
Those who earn 380 liras per month (the minimum wage) are likely to get 30-35 liras from the state, while those who earn 750-1,000 liras will get 45-55 liras in rebates. The overall effect of this is that employers will find themselves paying 5-6% less tax for their workers without the government having to announce a drop in taxes.
Other new plans announced include the proposed introduction of a tax-credit system aimed at minimum-wage workers whereby those with unemployed partners or many children will receive favorable tax credits that in some cases may actually increase their income by up to 50%.
The IMF Turkey representative, Hugh Bredenkamp, recently carried out a year-end evaluation of the Turkish economy and concluded that developments were positive in general supported the view held by World Bank Turkey director Andrew Vorkink that the tax burden in the formal economy must be reduced to move people out of the informal economy.
The key problem with Turkey's revenue-gathering system is that rates of income tax are very high (up to 40% as recently as 2001) as the government seeks to gather a lot of income from very few people. In a population of 72 million, 29 million people are excluded from workforce statistics (the elderly, pupils, students and the disabled).
The employed population is estimated at 23 million, of which about 4 million people are employed in unpaid labor within the family. Figures indicate that only about 19 million workers receive regular wages or are self-employed. Therefore, the burden of the other 53 million people's cost of living rests on this working population.
In addition to high personal taxes, the government requires employers to make very high social-security contributions, and this also fuels the informal economy. Some estimate that as much as 26% of the county's gross domestic product is earned in the gray economy, and Turkey's tax revenue-gross national product ratio continues to be low by international standards. It is certainly the lowest among members of the Organization for Economic Cooperation and Development.

Yet among the 175 countries studied by the World Bank, Turkey's tax burden ranks 65th. Andrew Vorkink believes that this great weight on the shoulders of the few leads to a form of petty corruption he calls "personal corruption", whereby people declare the minimum income level on their tax returns, when they are not actually earning the minimum level.
"People don't have faith in the tax system, so they try to beat the system," said Vorkink. He added that it makes it very difficult for small businesses to cross the barrier into the formal economy.
The recent European Union report on Turkey's progress toward European harmonization was overwhelmingly downbeat, and the taxation section was no exception: "In the area of indirect taxation, there has been very limited progress. Turkey has partially aligned its legislation ... On excise duties, no progress can be reported. ... In direct taxation there is limited progress ... Overall, alignment remains limited."
Turkey needs to find a way to close the net on those avoiding tax while broadening its base of taxpayers and not seek to gather revenue via indirect taxes, such as the ludicrously high luxury-car taxes and the appalling tax rate of nearly 34% on mobile-phone calls. The proposed tax-credit system, if it passes through Parliament, is a positive start toward encouraging people to move out of the gray and into the black and helping the government lever its way out of the red.