Turkey: Taxes increase on cigarettes and alcoholic beverages

According to the decree published in the Official Gazette, fixed taxes on alcoholic beverages and tobacco products are increased. While the rate of increase in alcoholic beverages was 25%, there was a 10% increase in cigarettes. Fixed tax amounts for alcoholic beverages and tobacco products vary by category.

Recently, the regulations regarding fixed amounts in items such as mobile phones and vehicles, for which SCT has been taken, draw attention. Normally, tax adjustments are made twice a year, covering the January – July and July – December periods. If this tax adjustment based on PPI was done in the same way, there would be an increase of around 60-65% periodically. The 10% specific tax increase for cigarettes and 25% for alcoholic beverages is well below this rate.

In terms of budget; When the January-April period of last year is correlated with the conjugate period of this year, it is seen that the expenses increased more than the income despite the high tax performance, and a deterioration with the opened gap. This means that we will face a higher budget deficit than planned throughout the year. The increase in inflation has a negative impact on indirect tax revenues by reducing consumption by disrupting the purchasing power of the citizens, while the government’s reduction of taxes such as VAT to control prices reduces income performance. Budget expenditures also negatively affect inflation through items such as civil servant salaries, SSI premiums, and interest-indexed debt stock. It can be expected that similar SCT increases and new tax measures will continue in the future.

While the increase in indirect taxes will increase the budget revenues, it will also increase the inflation. Alcoholic beverages and tobacco products have a weight of 4.31% in the inflation basket. The weight of alcoholic beverages and tobacco items in the entire inflation basket is 4.31%. If we calculate the inflation contribution of the 25% SCT hikes for alcoholic beverages and 10% for cigarettes, according to their weight rates, the direct effect on June inflation will be approximately 0.5 points. With indirect effects, this rate may increase.

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