Turkey has re-introduced a 0.1 percent tax on foreign exchange transactions as per a presidential decree published in the Official Gazette. According to the new law, “banking and insurance transaction tax” will be deducted from some transactions.
Commenting on the new tax law, a Turkish economist said that the presidential decree will protect the value of Turkish currency and deter people from buying foreign currency, but will increase informality in foreign exchange transactions.
Financial Advisor Recep Atakan stated that this decision is revenue-enhancing and has a deterrent effect on buying foreign exchange, but he warned that in a place where volatility is high, the Turkish government should not expect this “banking and insurance transaction tax” to lower investors’ buying appetite quickly.
Atakan added that the volume of foreign exchange transactions between Turkish citizens and Turkish banks is around 4 billion dollars, and with the new tax rule, the government’s “banking and insurance transaction tax” will increase to between 500 million and one billion dollars.
“The decision will increase the total banking and insurance transaction tax, but it will be
necessary to discuss the impact of reducing the depth and liquidity in the market,” Atakan told Bloomberg.
Turkish economists warned that Turkey introduced this tax before, but people shifted their foreign transactions abroad and this problem could possibly rise again.
KPMG Turkey partner, Emrah Akin, said that this is not new as Turkey is facing significant demand for foreign exchange problems and the government is also
trying to take measures to reduce the demand for foreign currency.
Turkey collected 18.2 billion lira in “banking and insurance transaction tax” in 2008, with a 37 percent increase compared to 2017. With the new tax initiative, Turkey expects around 19 billion lira tax revenue from the transactions.
Turkey introduced the 0.1 percent tax on all foreign transactions previously but did away with it in 2008. However, as the lira continues to lose its value, the government has once again introduced the tax.