TURKISH VAT SYSTEM. Timur CAKMAK Head of Department Turkish Revenue Administration

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Timur CAKMAK Head of Department

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• The beginning of the studies on Value Added Tax (VAT) in Turkey goes back to 1970.

• In 1974, a draft VAT law, which was the result of studies of a technical group, was prepared. The system was inspired by the EU model.

• The 8th draft was enacted on November 2nd , 1984 and entered into force on January 1st , 1985.

• By the VAT Law, eight indirect taxes on consumption were abolished

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VAT ;

• is a general consumption tax

• covers all goods and services

• is applied to all stages from producer to consumer

• is calculated on transaction value with related rate

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• VAT is levied at each stage of the production and the distribution process.

Although liability for the tax falls on the person who supplies or imports the goods or services, the real burden of VAT is borne by the final consumer.

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A SYSTEM WITHOUT VAT

Purchase price of good 100 TL Selling price of good 150 TL

The profit is 50 TL

VAT is not calculated on this profit and the final consumer

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Purchase price of good 100 TL

Input VAT 18 TL Total amount 118 TL

Selling price of good 150 TL Output VAT 27 TL Total Received amount 177 TL

VAT paid to tax office 9 TL (50 x %18 ) Profit 50 TL

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The Turkish tax system levies

value added tax on

the supply

and

the importation

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commercial industrial agricultural

or independent professional activities

within Turkey

and when goods or services are imported into Turkey

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Commissioner

Vice Commissioner Vice Commissioner Vice Commissioner

Department of Legal Consultancy

Department of Consultancy on Press and Public

Relations Department of Strategic Development Dep. of Audit and Management of Compliance Dep. of Revenue Controllers Dep. of Human Resources Dep. of Revenue Management I, II, III Dep. of Taxpayer Services Dep. of EU and Foreign Affairs Dep. of Support Services Dep. Of Implementation And Data Management Dep. of Collection and Disputed Cases Vice Commissioner Vice Commissioner Vice Commissioner

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Taxpayer Services GroupDirectorate LTU Istanbul Large Taxpayer’s Tax Diroctorate Audit Group Directorate Strategy Group Directorate Local Auditors Offices Directorships Directorships Directorships Tax Office Directorate Human Resources Group Directorate Judgement and Disputed Proceedings Group Directorate Support Services Group Directorate Tax Assessment Committees Legal Advisors

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TAXPAYERS

VAT taxpayers are defined in the VAT Law as those engaged in taxable transactions, irrespective of their legal status or nature and their position with regard to other taxes.

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TAXABLE AMOUNT

• The taxable amount of a transaction is generally the total value of the consideration received, not including the VAT itself.

• The VAT Law deals with the taxable amount under four headings, namely the taxable base on supply of goods and services, importation, international transportation and special types of taxable amount.

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VAT RATES

• VAT rate specified on Article 28 of the Law is 10% for each of the transactions that are subject to tax

• The Council of Ministers is authorised;

 To increase this rate up to 4 times, to reduce it down to 1%,

 To specify different tax rates for various goods and services and retail stage for some of the goods.

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VAT RATES CURRENT VAT RATES STANDART RATE 18 % REDUCED VAT RATES  1 %  8 %

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• The standard rate is 18%;

• Reduced rate of 1% is applied certain products such as some agricultural goods, foodstuffs

• Reduced rate of 8% is applied certain products such as textile products, education services

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TYPE OF EXEMPTIONS

Full Exemptions

With right of deduction and with right of refund

– Exportation exemption

– Exemption for sea, air, and railway vehicles

– Services provided to sea and air transportation vehicles – Petroleum explorations

– Exploring, processing, enrichment and refining activities for precious metals

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Partial Exemptions

Input VAT can’t be deducted and refunded, therefore the input VAT charged on invoices is either expensed or “cost of goods”

- Exemption for transitions, transferring, transformation, division transactions of enterprises

- Exemption for participation shares and sales of immovables of corporations

- Exemption for delivery of participation shares and immovables to banks as recompensation claims

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FULL EXEMPTION

Purchase price of good 100 TL Input VAT 18 TL Selling price of good 150 TL Output VAT 0 TL VAT paid to tax office 18 TL

In this situation, taxpayer deducts the input VAT from the output VAT. If input VAT exceeds output VAT, the tax payer can be received this difference from the tax office.

The profit amount doesn’t change.

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PARTIAL EXEMPTION

Purchase price of good

100 TL

Input VAT

18 TL

Selling price of good (for profit 50 TL) 168 TL

The final consumer should pay

168 TL

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DEDUCTION MECHANISM

• VAT is initially computed by applying the appropriate rate of taxation to the taxable amount for goods and services supplied by the taxable person during a taxable period.

• This amount is then reduced by a credit for VAT previously paid on importation and on goods and on services supplied to taxable person.

• VAT represented on invoices or similar documents made out for supplies and services conducted for themselves.

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Taxable persons record VAT seen on the invoices or other relevant documents as input VAT their accounting entries and deduct input VAT from VAT collections (output VAT) from supply of goods or services monthly basis.

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TAX REFUND

• If the sum of the deducted tax exceeds the sum of the calculated VAT, the difference is “transferred to next taxation period” and is not refunded.

• Refund is only possible for some transactions that are stated in the Law and related legislation.

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• Transactions entitling refund right;

– Transactions that are in the scope of full exemptions, – Transactions that are subject to reduced rate,

– Transactions that are in the scope of partial reverse charge application, – Transactions prescribed in international agreements,

– Transactions for which excess and unnecessary tax is paid.

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ACCELARATED VAT REFUND SYSTEM

• Taxpayers who fulfill the certain conditions are given Accelerated VAT Refund Certificate.

• Request in cash and/or on account submitted by taxpayers with AVRC certificate is fulfilled without the request of any guarantee, inspection report or Sworn Fiscal Consultant full certification report.

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• Difficulty in voluntary compliance • False or misleading invoices

• Lack of auditing

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TAXABLE PERIOD AND SUBMISSION OF VAT RETURNS

• The Ministry of Finance has established monthly taxable periods for all taxable persons under the normal VAT regime as of 01.10.1985.

• Taxable persons shall submit their returns to the local tax office within 24 days following the end of each taxable period.

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ELECTRONIC RETURN

The taxable persons of Personal Income Tax and Corporation Tax who have commercial, agricultural and professional activities, are obliged to send their VAT Returns via internet since October of 2007

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VAT payments are made 2 days after submission of VAT returns to tax offices or banks.

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TAX REVENUE DIRECT TAXES (1) INDIRECT TAXES (2) YEARS ( TL) (%) ( TL) (%) ( TL) (%) 2000 26.503.698.413 100 10.849.961.708 41 15.653.736.705 59 2001 39.735.928.150 100 16.058.048.860 40 23.677.879.290 60 2002 59.631.867.852 100 20.060.524.608 34 39.571.343.244 66 2003 84.316.168.756 100 27.780.137.576 33 56.536.031.180 67 2004 101.038.904.000 100 31.147.157.000 31 69.891.747.000 69 2005 131.948.778.000 100 43.081.460.000 33 88.867.318.000 67 2006 151.271.701.000 100 47.334.572.000 31 103.937.129.000 69 2007 171.098.466.000 100 57.473.256.000 34 113.625.210.000 66 2008 189.980.827.000 100 67.240.001.000 35 122.740.826.000 65 2009 196.289.914.000 100 71.478.586.000 36 124.811.328.000 64

NOT : BU TABLODA YER ALAN :

(1) DOLAYSIZ VERGİLER; GELİRDEN ALINAN VERGİLER VE SERVETTEN ALINAN VERGİLER GRUPLARINI KAPSAMAKTADIR.

(2) DOLAYLI VERGİLER; MAL VE HİZMETLERDEN ALINAN VERGİLER, DIŞ TİCARETTEN ALINAN VERGİLER GRUPLARI İLE KALDIRILAN VERGİLER ARTIKLARINI KAPSAMAKTADIR.

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1988 14.232 4.177 29,3 1989 25.550 6.461 25,3 1990 45.399 12.371 27,2 1991 78.643 22.832 29,0 1992 141.602 42.088 29,7 1993 264.273 81.877 31,0 1994 534.888 176.742 33,0 1994 587.760 176.742 30,1 1995 1.084.350 354.980 32,7 1996 2.244.094 743.026 33,1 1997 4.745.484 1.561.562 32,9 1998 9.228.596 2.725.083 29,5 1999 14.802.280 4.164.334 28,1 2000 26.503.698 8.379.554 31,6 2001 39.735.928 12.438.860 31,3 2002 59.631.868 20.400.201 34,2 2003 84.316.169 27.031.099 32,1 2004 101.038.904 34.325.208 34,0 2005 119.250.807 38.280.429 32,1 2006 151.271.701 50.723.560 33,5 2007 171.098.466 55.461.123 32,4 2008 189.980.827 60.066.230 31,6 2009 196.289.914 60.166.409 30,7

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(1999 - 2009) (1000 TL.)

YEARS GDP

TOTAL AMOUNT OF VAT COLLECTION INCREASE (%) FLEXIBILITY 1999 104.595.916 4.164.334 52,81 1,08 2000 166.658.021 8.379.554 101,22 1,71 2001 240.224.083 12.438.861 48,44 1,10 2002 350.476.089 20.400.201 64,00 1,39 2003 454.780.659 27.031.100 32,50 1,09 2004 559.033.026 34.325.208 26,98 1,18 2005 648.931.712 38.280.429 11,52 0,72 2006 758.390.785 50.723.560 20,02 1,19 2007 843.178.421 55.461.123 9,34 0,84 2008 950.534.251 60.066.230 8,30 0,65 2009 953.973.862 60.166.409 0,17 0,46

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• VAT was introduced by the Directive 77/388/EEC, 17 May 1977 (6th Directive)

• From 1st January 2008 a new directive 2006/112/EC

• Each Member State's national VAT legislation must comply with the provisions of EU VAT law as set out in Directive 2006/112/EC

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• Before the abolition of the customs control inside the European Union (1993), the customs officer controlled the physical transport from one country to another

• Since 1.1.1993, there is no check of the goods transported from one member state to another

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• Intra-community supplies/acquisitions = All the transactions inside the Community

• Exports/Imports = All the transactions for or from the countries outside the Community. They can’t use these terms for transactions inside Community

• The customer is registered for VAT in another Member State and has supplied his VAT number to the supplier

• The goods are dispatched or transported by the customer or the supplier or by a person acting on their behalf from member state of the supplier to another member state

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Understanding between the OECD and the Republic of

Turkey.

Other OECD Multilateral Tax Centers :



_Budapest



_Seoul



_Vienna

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composed of voluntary cash and in-kind

contributions of the OECD member countries.

The

expenditures

of

the

OECD

Ankara

Multilateral Tax Center are also being covered

both by cash and in-kind contribution of the

Turkish Revenue Administration.

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

42 countries from 1993 to date



Experienced experts and high level officials from

OECD Secretariat and member countries

Senior officials from the Turkish Revenue Administration

have also been contributing as lecturer in events held in

Ankara and in other OECD Centers.

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Events held in Ankara Multilateral Tax Center are

mostly related to International Taxation System and

current tax topics.

Generally all events include case studies and

workshops where participants from different countries

have the opportunity to present their practices.

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which promote economic growth through the development of international trade and investment.

Aim to associate non-OECD economies with international best practice in taxation and provide a forum for multilateral dialogue between the OECD and non-OECD economies.

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Azerbaijan 339 Bangladesh 10 Belarus 140 Bosnia 13 Bulgaria 15 Cambodia 7 China 122 Croatia 3 Czech Rep. 13 Egypt 55 Estonia 14 Georgia 383 Indonesia 17 Kazakhstan 156 Kosovo 65 Kyrgyzstan 108 Latvia 27 Lithuania 22 Macedonia 9 Mongolia 383 Moldova 219 Montenegro 3 Morocco 71 Pakistan 41 Russian Fed. 317 Saudi Arabia 14 Sierra Leone 3 Slovak Rep. 8 Slovenia 20

South Afr. Rep. 4

Tajikistan 82 Turkmenistan 138 Ukraine 102 United Kingdom 1 Uzbekistan 115 Vietnam 5

TOTAL 3869

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• ARMENIA 3

• AZERBAIJAN

9 • BELARUS

8 • CHINA

3 • CROATIA 2

• GEORGIA

8 • INDIA 12

• INDONESIA

7 • MOLDOVO 1

• MONGOLIA 8

• MOROCCO 7

• PAKISTAN 12

• RUSSIAN FED. 8

• SAUDI ARABIA 6

• SIERRA LEONE 3

• UZBEKISTAN 11

• UKRAINE 1

TOTAL 155

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 _{Tax Incentives}

 _{Tax Policy-Modeling}

 _{International Tax Avoidance and Evasion}  _{Auditing Multinational Enterprises}

 _{Tax Treaty Issues}

 _{Application of Tax Treaties}

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Tax Administration

 Taxation of Non Residents

 Indirect Methods of Taxation

 _{VAT & Electronic Commerce}

 Property Tax

 Exchange of Information and Bank Secrecy

 Bribery Awareness For Tax Examiners

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Revenue Administration and the Turkish International Cooperation Agency (TICA), Revenue Administration arranges seminars up to demand of the transition economies.

 Sharing experience with the officials of the participant country on

tax matters

 Providing legislative infrastructure

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Consumption Tax • Tax Audit

• Electronic Declaration, Risk Analysis and Automation System • Tax Exemptions

• Tax Collection and Administration of Tax

• The System of Documentation, Cash Register Application, Registry and Conveyance of Taxpayer