Tax Hike to Address Budget Deficit

Turkey raised a tax on gasoline on Sunday to help finance a 1.12 trillion lira ($42.2 billion) increase in its budget in 2023 following February’s earthquakes and May’s presidential elections, pushing up spending.

The fuel tax increase will help efforts to tackle the budget deficit, which jumped to £263.6bn in the first five months of the year from £124.6bn the previous year, but it could also spur inflation, which has fallen to 38.21% in June from a 24-year high of 85.51% in October last year.

Factors Contributing to Budget Deficit

The increase in the deficit is largely due to increased spending in the run-up to the May elections, in which President Recep Tayyip Erdogan was elected to a third term, and also because of the reconstruction work after the earthquake in southern Turkey.

High Costs of Earthquakes

Forecasts show that the total cost of earthquakes that have claimed more than 50,000 lives in Turkey will exceed $100 billion.

Tax Adjustments and Price Impact

As the latest step to increase the treasury’s cash reserves, the tax rate on gasoline increased from 2.52 Turkish Lira ($0.1) per liter to 7.52 Lira, while the tax on diesel increased from 2.05 Lira to 7.05 Lira. lyre.

The impact of these tax adjustments, along with the value-added tax, is expected to add nearly 6 lira to the final price, up more than 20 percent per litre, according to Reuters calculations.

Approval of Budget Increase

Parliament on Saturday approved an increase in Ankara’s budget by 1.12 trillion liras, following a series of other recent tax increases to replenish the state treasury, including a two percentage point increase in value-added tax.

Impact on the Lira and Prices

The Lira has lost more than 80% of its value since 2018 and has fallen in price by more than 28% since the beginning of 2023, driving up prices for a wide range of goods, including fuel and food, in import-dependent countries. a country.