EUROPE: Türkiye launches tax avoidance crackdown to shore up revenue

Türkiye has launched a tax compliance initiative targeting small and medium-sized enterprises (SMEs) to strengthen budget stability and curb unregistered economic activity.

The move, part of a broader effort to improve public finances, follows recent crackdowns on corporate tax avoidance.

In late October, Finance and Treasury Minister Mehmet Simsek, the architect of a 2023 disinflation program, introduced a series of new regulations to scrutinize SMEs and boost revenue for Türkiye’s struggling economy. He highlighted that many of these enterprises have been using cash transactions to evade value-added tax (VAT) payments.

This initiative follows an earlier measure aimed at large corporations, in which hundreds of state auditors were dispatched to examine top businesses for tax compliance. These actions underscore the government’s commitment to addressing tax evasion, which is prevalent among smaller businesses and self-employed individuals who often underreport income in cash-based transactions.

Simsek’s latest measures aim to close loopholes and address the widespread issue of unreported economic activity. However, the crackdown has drawn criticism from business owners who argue that the new measures are burdensome, especially during a period of high inflation.

“We are already struggling with rising input costs amid the cost-of-living crisis, and now we face added pressure from new regulations,” said Ahmet Ercan, a small boutique owner in Ankara’s commercial Kizilay district, to Xinhua. Ercan expressed frustration, stressing, “The economy is tough on everyone. We need support, not more restrictions.”

The government’s crackdown comes at a time when Turkish consumers are being squeezed by a declining yet still high inflation rate of 48.6 percent annually as of October, according to the latest official data released on Monday. Rent, food, and transport costs have all increased significantly.

Wealthy individuals and corporations have also come under heightened scrutiny as the Turkish government intensifies tax audits on these groups to ensure compliance. Nevertheless, some critics argue that high-profile cases involving large corporations are not being fully pursued, fostering a perception of unequal treatment.

“I have no choice but to pay taxes, but are large corporations truly fulfilling their tax obligations?” Ercan questioned.

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In recent years, large-scale tax fraud schemes in Türkiye have involved companies underreporting their revenues, inflating expenses, and creating fake invoices to lower their taxable income.

On Nov. 1, Türkiye’s Revenue Administration disclosed the names of nearly 37,000 taxpayers and companies with tax debts and penalties exceeding 5 million Turkish lira (146,000 U.S. dollars) each.

According to a report prepared in July by the Ankara-based Economy Policy Research Foundation, Türkiye’s budget deficit is expected to reach 6.4 percent of the gross domestic product this year, marking the largest deficit in two decades. The deficit was partly fueled by spending following last year’s devastating earthquakes in southeastern Türkiye.

In response, Simsek emphasized last week the government’s determination to reduce unregistered economic activity and warned of stricter penalties for tax violators. Legislation approved in August imposes fines of up to 150 U.S. dollars on shoppers who fail to request a receipt or report retailers who do not provide one.

The government also introduced new regulations in late October, restricting the amount of cash that can be used in a single transaction to 7,000 lira, approximately 200 dollars.

Istanbul-based economist Atilla Yesilada remarked that additional measures may be forthcoming as Türkiye seeks to shore up its revenue base. “Mr. Simsek appears set on maximizing state revenues, and 2025 could be even tougher on households and businesses,” Yesilada told Xinhua.

As Türkiye intensifies its efforts to improve fiscal health, the government’s latest initiatives signal a firm stance against tax evasion, he noted, also raising concerns about their impact on already struggling businesses.