Will theğ rate cut cure it all?

For the sake of brevity, it won’t; because, there’s a huge amount of tax imposed on goods and services prices. Let me break it down for you:

Take a car with an engine capacity smaller than 1600cc and a sale price of TRY 100.000.

The sale price for this, excluded tax, is TRY 58.445. Obviously, this isn’t the issue here is it’s not possible to purchase anything without paying tax anywhere in the world.

There’s 45% SCT levied in this car. Yes, you heard me right. You have to pay as special consumption tax much as half of the car’s sale price. You may ask yourself what’s so “special” about buying a car that you have to pay a special consumption tax for it. This tax act was drawn up and entered into force after İzmit earthquake of 1999 in Turkey, and remained effective despite all warnings and objections. Each and every government that came into power fiercely loved and embraced this tax.

So, the sale price of a car (with no tax), which is TRY 58.445, suddenly amounts to TRY 87.745 when subjected to 45% SCT, and as if that weren’t enough, the Government wants you to pay 18% VAT, which is imposed on the SCT! I thought you can’t impose a tax on a tax according to universal law, but apparently you can! So, the final sale price of the car becomes TRY 100.000, out of which TRY 41.555 is the amount of tax you will pay.

“It’s Constitutional Court-Approved! There’s nothing you can do about it!”

In short, you should know that you are required to pay 41.55% tax when you buy a car with a sale price of TRY 100.000. If you bought a car for TRY 50.000, you would pay a tax amount of TRY 20.777, which means nothing would change. You would still pay 41.55% tax. But, did people object to this taxation practice? Of course, they did.

Deciding that such taxation isn’t fair at all, Istanbul 2nd Tax Court filed an appeal at Turkish Constitutional Court. As a result, the following verdict was issued on December 25th, 2014: “The inclusion of taxes, which are an integral part of the cost of a good and a factor that affects the sale price of a good, into the VAT is an essential aspect of the tax system integrity, thus the aforementioned practice does not violate the Constitution”. In other words, the Constitutional Court deemed appropriate that the SCT and other taxes are included in the cost of goods sold, which enables government to levy VAT tax on other taxes, especially sales tax.

I do not think that any rate cut would enliven markets significantly as long as the government does not amend its taxation practices. People will never get the monkey of their backs unless the public sector shrinks gradually.