The Turkish government is considering updating tax values by taking into account the inflation targets, a top economy official said Thursday, also pointing to expectations for the disinflation trend to continue.
In a presentation to Parliament’s Planning and Budget Commission, Treasury and Finance Minister Mehmet Şimşek said the government anticipated that disinflation would continue in the coming period, driven by tight monetary policy and supportive fiscal policy.
Starting his speech by addressing developments in the global economy, he emphasized that they expect the global economic situation to take a more favorable course for Türkiye.
He went on to highlight the gains achieved in the last two years thanks to their program, adding: “We have made significant progress in strengthening macro-financial stability, which is one of the primary objectives of our program, and improving our resilience to shocks.”
He also noted that reserve adequacy according to international standards has been ensured, stating that from May 2023, gross reserves increased by $87 billion, and net reserves, excluding swaps, increased by $112.6 billion.
“We are successfully managing the exit from foreign exchange-protected deposits (KKM),” Şimşek further said, referring to a scheme adopted in 2021 that aimed to counter a fall in the lira and protect deposits by covering depreciation costs.
Following a shift to more conventional macroeconomic policies back in 2023, the authorities placed a focus on discontinuing the scheme.
“As of Oct. 24, we expect the balance, which has fallen to TL 171 billion ($4.05 billion), to drop below TL 5 billion by the end of the year. With the increased confidence in Turkish lira assets, the share of the Turkish lira in total deposits reached 59.8%,” said Şimşek.
Furthermore, explaining that they have reduced macroeconomic imbalances to make the gains from the program permanent, he said they have eliminated the current account deficit “as a source of concern,” citing achieving significant improvement.
“The ratio of the annualized current account deficit to national income, which was 5% in the middle of 2023, decreased to 0.8% in 2024,” he added.
“We foresee that this ratio, which is 1.3% as of the second quarter of 2025, will remain at sustainable levels with an average of 1.2% during the Medium-Term Program (MTP) period.”
Similarly, he said that along with the improvement in current balance, they foresee that the gross external financing need, which he said was 23% as a ratio to national income in June 2023, will decrease to approximately 17% by the end of this year.
‘Disinflation continues’
“Although temporarily slowed by seasonal effects, the disinflation process continues,” the minister noted.
“Annual inflation decreased by 15.7 percentage points in October compared to the same month last year, reaching 32.9%,” he added.
Official data released earlier this week showed inflation easing following an uptick in September and also reaching its lowest level since late 2021.
“We anticipate that the disinflation process will continue in the coming period with tight monetary policy, supportive fiscal policy, prices managed and guided within budgetary limits, aligned with targets, and supply-side measures, particularly social housing.”
Şimşek also stated that they are considering setting lower tax and fee updates, taking into account inflation targets rather than the revaluation rate, in line with budgetary constraints. He added that they will continue to implement policies aimed at establishing price stability in a coordinated and determined manner.
Highlighting the ongoing moderate trend in economic activity, he further said: “We expect moderate growth similar to 2024 in 2025. We foresee that the growth path will support disinflation during the MTP period.”
He also suggested that employment increased by 1.1 million people during the program period.
“Due to the weak trend in labor force participation, the unemployment rate remained in single digits. To revive the weak production, especially in labor-intensive sectors and to maintain employment, we will continue to increase our support for the real sector,” Şimşek said.
Addressing budgetary developments, he said they expect the budget deficit to the national income ratio to be 3.6% in 2025. He indicated that the upward revision of the 2025 budget deficit from 3.1% as predicted in the MTP last year is mainly due to some tax revenues falling short of expectations.
Also evaluating taxation, he said their aim in tax audit is not to impose penalties but to inform taxpayers and increase voluntary compliance.
“We completed our work on the audit standards to be applied in tax examinations aimed at protecting taxpayer rights, and we will publish them in the coming days,” he maintained.
“Our fight against informality is yielding results. We have achieved significant increases in the number of returns and declared incomes. This year, 473,000 taxpayers filed returns for the first time,” he added.
Şimşek also pointed out that as of October, they have secured long-term and favorable financing of approximately $13.6 billion from multilateral investment banks for infrastructure, transportation, health, combating natural disasters, environment, energy, and supporting the real sector.
“This amount is the highest achieved on an annual basis,” he added.
