Turkey will refrain from hiking taxes in 2017 in an effort to contain inflation, Finance Minister Naci Agbal told Reuters in an interview on June 30.

Annual inflation hit its highest in more than eight years at 11.87% in April, before slightly easing to 11.72% in May. Domestic producer price inflation on an annual basis deescalated to 15.26% in May from 16.37% in April.

"This year, fiscal policy will be supportive of the monetary policy targets, thus we will not make any tax hikes," Agbal reportedly said. The Turkish central bank is attempting to keep monetary policy tight until inflation has been reined in.

One consequence of the freeze on taxes is that the Turkish government will not this year push up the special consumption tax (STC) on tobacco products. The SCT, indexed to domestic producer price inflation, is automatically adjusted twice a year. The government last raised the SCT on tobacco prices in December.

“Considering the inflation dynamics, the SCT will not be raised for the period of July-December”, the finance ministry said in a statement on July 29.

The decision not to increase taxes on tobacco and cigarette products would likely cost the state budget around TRY60mn (€15mn), Agbal also told Reuters. 

The central government budget surplus rose by 74% y/y to TRY6.39bn in May, but the deficit in the first five months amounted to TRY11.5bn against the surplus of TRY9.07bn posted for the same period of 2016.

Agbal noted in the interview that the last tax hike on tobacco products added 0.44 points to annual inflation.

Also in a bid to get food inflation under control, the government has reduced customs tax on certain meat products and grains.

The customs duty for livestock imports has been slashed to 26% and for carcass meat imports the tax was cut to 40%, Hurriyet Daily News reported on June 28.

The government also zeroed customs duties for certain types of wheat and barley imports from Bosnia Herzegovina, while cutting customs duties for such imports from the EU-EFTA countries, South Korea, and other countries to around 40-45%, according to the newspaper. Customs duties for corn imports were decreased from 130% to 25%.

Food prices declined by 0.55% m/m in May with unprocessed food prices falling by 4.05% m/m and processed food prices rising 0.43% m/m.