Turkey’s new Economic Reform Package aims sustainable, strong and quality growth

Within the scope of the Economy Reform Package, approximately 850 thousand tradesmen such as barbers, hairdressers, plumbers, haberdashery, carpenter, body shop worker, tire dealer, turner, tea shop operator, tailor, and repairman will be exempted from income tax.

The booklet prepared for “Economic Reforms” announced by President Recep Tayyip Erdogan was published on the website of the Ministry of Treasury and Finance.

Accordingly, the main goal of “access to sustainable, strong and quality growth in line with the economic structuring of the post-epidemic period” was determined for the reforms.

The main objectives of the reform package were “Ensuring macroeconomic stability”, “Competitive production and productivity increases” and “Transparent, predictable and accountable governance”.

According to the booklet, there are two main reform areas, namely “macroeconomic policies” and “structural policies”, while 5 titles were determined under both main goals.

While “macroeconomic policies” included public finance, price stability, financial sector, current account deficit, and employment, the scope of “structural policies” included corporate governance, promoting investments, facilitating domestic trade, competition, and market surveillance and control.

Under the heading of “public finance”, while “financial discipline based on trust and stability” was determined as the main priority, it was aimed to “create a strong public finance structure against risks” and 6 targets were included under this heading.

Within the scope of simplifying the budget preparation process, the Medium Term Program (MTP) and Medium Term Financial Plan (MTFP) will be combined into a single document.

The “Public Finance Report”, which includes the budget implementation results, public financial policy developments, and targets, will be shared with the public quarterly. Special account applications will be limited to those that are urgent and mandatory due to the nature of the service, and applications that do not meet these criteria will be removed gradually. Revolving funds will be gradually included in the central government budget, starting from the 2022 budget, and the scope of the budget right will be expanded. Revolving fund enterprises will be reviewed, and inefficient revolving fund enterprises will be closed. Financial discipline will be strengthened by making regulations that will prevent the increase in the debt stock of local governments and ensure debt sustainability.

In order to effectively distribute social assistance, all social assistance data (including those provided by municipalities) will be integrated into the Integrated Social Assistance Information System.

Strict restrictions will be imposed on spending areas such as vehicle purchase and rental, representation and hospitality in the public sector.

As a requirement of the Presidential Government System, the organization of public institutions will be further strengthened by taking into account the efficiency and effectiveness of the management.

It will be ensured that the works and transactions regarding public personnel will be carried out by a single administration.

Foreign organizations of public institutions will be reviewed within the framework of effectiveness and efficiency principles.

The accounts of institutions excluded from the use of the Treasury will be transferred to the Treasury Institutions Account system and cash management efficiency will be increased.

The share of foreign currency-denominated debt in the total debt stock will be reduced.

The average maturity of the borrowing will be increased, and the focus will be on fixed income and Turkish lira denominated instruments in the borrowing composition.

Exchange auctions will be used as an effective debt management tool to ensure a balanced distribution of the redemption profile.

Tax exemption for tradesmen

Within the scope of tax regulations, small tradesmen with low income will be granted tax exemption. Approximately 850 thousand tradesmen, such as barbers, hairdressers, plumbers, haberdashery, carpenters, body shop workers, tire makers, turners, tea shop operators, tailors, repairmen, who are taxed in a simple way, will be exempted from income tax and their declaration obligations will be abolished.

The Tax Procedure Law will be updated to encourage voluntary compliance. Taxpayer groups to be included in electronic ledger and electronic document applications will be gradually increased. The “Digital Tax Office of Turkey” application, which can provide 24/7 service to cover all taxpayers, will be implemented. Technological innovations will continue to be used and the “Digital Tax Assistant” system will be created. Double taxation avoidance agreements will be revised.

The “Mutual Agreement Method” with other countries will be used in the solution of tax problems of international investors that concern more than one country.

Advance pricing agreements on transfer pricing that increase tax predictability for the taxpayer and administration will be expanded. It will be ensured that debts not paid to the public on time will be collected by a single administration.

Digital Tax Audit System will be developed and review times, including tax refund reviews, will be shortened. Standards-based, predictable and audit models that prevent unfair competition will be implemented.

Exceptions will be reduced

Exceptions in the Public Procurement Law No. 4734 will be significantly reduced. Maintained exceptions will also be regularly monitored and audited. The Sectoral Public Procurement Law will be enacted to regulate the procurement of public enterprises.

By establishing a certification (license) system, the criteria determining the merits and competencies of companies that will participate in public tenders will be shared with the public. The certification system will be open to all companies that meet the conditions shared with the public. Public tenders will be held transparently within the conditions of perfect competition between companies registered in the certification system.

Tender models that ensure the cooperation of public and domestic industry will be introduced. A Central Monitoring System will be established under the Industrialization Executive Committee to encourage the use of domestic products in public procurements.

Specification pools will be created to increase the use of domestic goods in public procurement. Except for obligatory cases, domestic products will be required for purchases made through the State Supply Office (SSO).

The studies for the PPP Framework Law Proposal will be completed, which will ensure efficiency, flexibility, and integrity in public-private sector cooperation (PPP) practices.

State economic enterprises will be reformed.

Price stability

According to the booklet, a Price Stability Committee will be established to monitor the inflation dynamics, to evaluate the shocks that pose risks to the disinflation process, to determine and manage the necessary measures in order to ensure price stability. The Committee will consist of the Ministries of Commerce, Industry and Technology, Agriculture and Forestry, Energy and Natural Resources, as well as the Strategy and Budget Department and the Central Bank of the Republic of Turkey under the coordination of the Ministry of Treasury and Finance.

An Early Warning System will be established in order to prevent fluctuations in food prices, which have a significant weight in the inflation basket of climate, disasters, and changes in crop cultivation behavior, and to reduce their impact on inflation.

Products remaining in the field and in the market will be brought together with buyers in the special section to be opened in the Digital Agricultural Market (DITAP). In order to prevent food waste, the Food Banking System will be made attractive and popularized.

Awareness of consumers on food waste will be increased through social media and other communication tools.

The State Law Proposal, which will also reduce intermediation costs in unprocessed food prices, will be submitted to the TGNA.

Inflation inertia will be reduced by determining the administered and directed prices according to the target inflation.

Financial sector

According to the regulations under the “financial sector” heading, the Loan Life Cycle Project will be implemented. Operational restructuring and firm rehabilitation functions will be established in the banking sector for loans under close monitoring. Efforts will be made to establish venture capital funds for the rehabilitation of those who have the potential to generate added value and create employment among problem loans. Necessary incentive and precautionary mechanisms will be established to exclude non-viable non-performing loans from the balance sheet through methods such as sale to asset management companies and deletion from assets. A legislative amendment will be made to securitize loans in the close monitoring and non-performing loans group, and they will be transferred off-balance sheet.

Legal infrastructure will be created for asset management companies to operate in a stronger structure. In order to create a competitive and corporate structure in the sector, the exception of stamp, fee, and Resource Utilization Support Fund deduction granted to these companies for five years will be made indefinite. These companies will be enabled to become a member of the Financial Institutions Union.

A separate Participation Finance Law will be prepared, the participation finance sector regulated under various laws will be gathered under a single roof, and the Central Advisory Board will be put into practice at international standards for all sectors under participation finance.

A “participation finance rating” system will be put into practice to ensure that the compliance levels of participating financial institutions with participation finance principles are rated independently. A participation finance arbitration mechanism at international standards will be implemented within the Istanbul Arbitration Center and a special arbitration center will be established in the Istanbul Financial Center.

Infrastructure work will be done for digital money

In the upcoming period, important steps will be taken to develop Turkey’s financial markets, to increase employment, and to reduce the structural current account deficit.

The Risk Center, which includes all financial credit and risk data, will be reorganized under the control of the Central Bank of the Republic of Turkey (CBRT).

“TROY”, a Turkish brand in card payment systems, will be structured under a separate company. Digital (Branchless) Banking licensing applications will be enabled.

The Central Bank will create the economic, technological, and legal infrastructure of digital money.

A surveillance mechanism will be established to protect financial consumers, market integrity, and strengthen competition.

Investment accounts transferred to the Investor Compensation Center due to the statute of limitations will be returned upon request of the beneficiaries and their ownership rights will be secured.

Bonds Guarantee Fund will be established and thus bond issues of real sector companies will be facilitated.

Regulations that will strengthen the capital structure of companies and encourage financing with equity will be implemented.

Fintech Strategy Document will be prepared in the field of financial technology, representation of payment and electronic money institutions will be provided at the Interbank Card Center.

The coverage area of PPS is expanding

On the other hand, regulations will be made to ensure that those under the age of 18 are included in the Private Pension System (PPS). With the Private Pension System, private assurances such as health, life, and education insurance will be offered in the form of an insurance package integrated with attractive opportunities. It will be possible to transfer the savings before the private pension funds, foundations, and similar organizations, which provide private pension services, to the PPS with attractive opportunities until the end of 2023.

Investments that prioritize import substitution and export will be supported in order to reduce the current account deficit.

On the other hand, important steps will be taken by the government to reduce the structural current account deficit.

With the Credit Guarantee Fund (CGF) guarantee aimed at reducing intermediate goods imports, long-term credit support will be provided to manufacturing-based investments that prioritize import substitution and export in the 5th and 6th regions.

For the integration of the manufacturing industry into global value chains, products specific to target countries will be determined and support programs for these products will be implemented.

Two presidencies will be established under the Presidency

In order to develop a competitive, innovative and strong healthcare industry, the Presidency of Health Industries will be established, and the Software and Hardware Industries Presidency will be established to develop domestic capabilities in emerging technologies, encourage youth employment and gain global competitiveness.

Regulations that will ensure the use of domestic goods in construction works will be implemented.

Measures to reduce energy imports

With the amendment to be made in the Energy Efficiency Law, buildings, agriculture, and service sectors will be included in the scope of energy efficiency supports. The legal infrastructure for the establishment of electrical energy storage facilities will be completed, the natural gas market will be restructured and a competitive free market will be developed. The investment climate will be improved in mining, oil, and natural gas exploration and production.

Green transformation in the economy

Green organized industrial zones that meet their own energy and have high resource efficiency will be implemented.

A National Circular Economy Action Plan will be prepared, the ecosystem that will ensure the development of green finance will be strengthened, and studies will be carried out to increase the share of Turkey in international green finance.

Electric vehicle charging infrastructure will be implemented, and the use of electric vehicles in public transport fleets and service vehicles will be encouraged.

Exports will spread to the base

SMEs with high export potential will be encouraged to open up to foreign markets, and steps will be taken to spread exports to the base.

Exporters’ access to potential markets and distribution channels will be accelerated by opening logistics centers abroad.

It will be ensured that exporters producing high value-added products are supported with receivable insurance and buyer loans in countries with a high competitive advantage and export potential.

SMEs ‘access to finance will be facilitated by ensuring that SMEs’ receivables secured with the State Supported Credit Insurance System are accepted as collateral before banks.

Eximbank will be restructured in line with international best practices.

Steps to increase employment will be taken

The effectiveness of employment incentives will be reviewed, and the incentive system will be simplified. On the other hand, financial support will be provided for additional employment. For each additional person they add to the employment of micro and small-scale companies with liquidity shortages, they will have access to a loan of ₺100 thousand with CGF guarantee. The loan has a 2-year term and will be used without a refund for the first 6 months. The social security and unemployment insurance premiums paid by the company, which fulfills its employment commitment, for every 1 person added to employment for 12 months will be deducted from the loan interest balance as a contribution to the company. Thus, companies that create additional employment will have the opportunity to use loans with low financing costs.

In order to increase youth employment, support will be provided in the field of vocational training, and sectoral workforce planning will be made by creating “sectoral skill maps” to direct the labor market.

In order to make vocational training centers more attractive for young people, the wages received during journeymanship will be increased, the wages of the students studying in these centers will be covered by the public and the burden on the employer will be removed.

Economic Coordination Board will be established

Within the scope of structural policies, it is aimed to establish a transparent, accountable and strong corporate governance framework under the title of “Corporate Governance”.

In this context, the duties and responsibilities of the Financial Stability and Development Committee will be reviewed and structured as the Financial Stability Committee (FSC). Under the coordination of the Ministry of Treasury and Finance, FSC will be comprised of the Heads of the Central Bank of the Republic of Turkey, the Banking Regulation and Supervision Agency, the Capital Markets Board, the Insurance and Private Pension Regulation and Supervision Agency, the Savings Deposit Insurance Fund and the Presidency Strategy and Budget.

FSC will identify, monitor and manage systemic risks, focusing on financial stability, focusing on deepening financial markets and increasing savings. The Committee will prioritize policies that will increase confidence in financial markets.

The Committee, which will meet regularly every month, will share the results of the meeting with the public and publish a report every 3 months.

In addition, the Economic Coordination Board (ECB) will be established.

The ECB will be chaired by the Vice President. ECB will be composed of the ministers of Treasury and Finance, Industry and Technology, Agriculture and Forestry, Trade, Energy and Natural Resources, Family, Labor and Social Services, and the President of the Presidency Strategy and Budget.

The Board will ensure the coordination and implementation success of the actions in the Development Plan, Medium Term Program, and Annual Program.

The Board, which will meet regularly every month, will share the results of the meeting with the public and publish a report every 3 months.

TURKSTAT becomes an “associated institution”

It is aimed to strengthen institutional structures under the title of “Corporate Governance”.

In this context, the professional experience conditions required for appointment to high-level public positions will be strengthened. Public officials will be assigned at most one duty in the management/supervisory boards of other institutions.

In principle, it will be observed that the heads of regulatory and supervisory institutions do not take part in other institution management and supervisory boards.

TURKSTAT will be transformed into a “associated institution” structure.

Government Support Reform

A “Government Support Reform” will also be made within the scope of structural policies.

Principles and basis will be established to ensure that support programs are prepared and implemented in line with planned and predictable targets, and that impact assessments are made.

Comprehensive data on all support programs will be collected instantly in a single center completely and thoroughly, and all support applications will be accessed more easily, quickly, and effectively from a single platform.

Incentive system will be simplified

Under the heading of “Incentive System Will Be Reformed”, the current incentive system will be simplified and given a selective and timed structure. In addition, a system that will not allow duplicate applications will be established.

In the new incentive system, exclusive support will be provided to investments oriented towards innovative and value-added production, carried out mainly with equity, candidate to be a part of the global value chain and compatible with regional cluster priorities.

Approaches that will compete with cash incentive models applied to attract new investments in peer countries will be developed, cash incentive practices will be initiated with the Project-Based Incentive System.

In large investments, with partial completion, the opportunity to make a revaluation of the contribution amount to the investment entitled will be provided.

In the incentive programs for new investments, it will be possible to reduce the amount of contribution to the investment deserved from other tax payments other than corporate tax at certain rates.

Social Security Institution premium support periods applied in investment incentives will be applied with additional periods in case of employment of young people and women.

Necessary amendments will be made in the Law on Protection of Personal Data based on the provisions of the EU General Data Protection Regulation (GDPR) regarding data transfer abroad.

Digital markets

Practices that will increase competitiveness in domestic trade and facilitate trade will be implemented. A regulation will be made to eliminate unfair trade practices in retail trade and to create a better functioning and fairer supply chain, in line with the European Union (EU) legislation.

By developing digitalization applications in trade registry services and company transactions, company establishment and registration procedures will be completed quickly and safely and companies will be able to make quick decisions.

Taking into account national and international developments, Turkey’s electronic commerce legislation roadmap will be drawn up and regulations will be made in this area.

The Cooperatives Law will be amended in order for the cooperatives and their higher organizations to have a more transparent, efficient and professional management structure.

In order to improve fair competition in digital markets, steps will be taken in line with free market principles and EU regulations. A bill for the regulation of digital markets will be prepared. A competitive and fair environment will be created in these markets, and strong platforms will be prevented from abusing their power.

Market surveillance and inspection

Market surveillance and control will be strengthened in order to protect consumers, increase registration and effectively prevent unfair competition in the market.

An independent Market Surveillance and Inspection Agency will be established in order to consolidate the structure operating through different administrations, to ensure uniformity of implementation and to prevent duplications.

Market Surveillance and Inspection Advisory Board, in which the private sector and consumers are represented, will be established under the roof of the Authority, which will effectively apply against the introduction of products that do not meet the minimum safety conditions in terms of human health, life and property safety, animal and plant health, environment and consumer protection.

Source: AA / Translated by Irem Yildiz

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