Turkey mulls gas and VAT hikes

By bne IntelliNews September 25, 2012

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Following tax hikes on fuel, cars and alcohol announced last week, the Turkish government is now reportedly considering raising natural gas prices and VAT to meet a fiscal shortfall caused by the slowing economy.

The economic slowdown forced the government to introduce the tax hikes last week in a bid to shore up its fiscal position. Unnamed official sources told Reuters that Ankara hopes to earn an extra TRY8.5bn-9bn (€3.7bn-3.9bn) in budget revenue from the extra measures, while forecasting the effect on inflation at around 0.5 percentage points.

At the same time, the sources said, further tax measures, including a hike on cigarettes, the abolition of tax breaks for real estate investment trusts, and a rise in gas prices are also under discussion. The Daily Milliyet also reported that the finance ministry is considering increasing VAT from 18% to 19%, a move expected to generate TRY5bn in additional revenue.

According to Zaman, the government is considering a 10-15% price increase for gas starting from October 1. Such a hike would also trigger electricity price hikes. Yet analysts at Erste Bank point out that according to the local press, Energy and Natural Resources Minister Taner Yildiz stated that there has been no study regarding a hike in natural gas prices to help hit budget targets.

However, Deputy PM Ali Babacan said on September 24 that measures on the revenues side may not be enough, and warned that public institutions should be careful over spending. Babacan did not, however, clearly say that the government is considering any comprehensive measures for spending cuts. Unnamed sources told Reuters that cuts in health spending are likely, although they predict that the impact of the measures on public finances will not be evident until next year.

Babacan last week admitted that the budget deficit is expected to come in at 2.5% of GDP, compared with the original target of 1.5%. However, the deputy PM also suggested that it is not the right time for introducing measures to stimulate growth as uncertainties prevail.

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