1 / 24

Jorge Martinez-Vazquez

European Union Indirect Tax Requirements and Implications for the Harmonization of Turkey’s Tax System. Jorge Martinez-Vazquez Conference on Tax Options in the Wake of EU Accession for Turkey, Ankara, January12-13, 2009. Indirect Taxation Regime in the EU. The indirect taxation acquis 

jheidenreich
Download Presentation

Jorge Martinez-Vazquez

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. European Union Indirect Tax Requirements and Implications for the Harmonization of Turkey’s Tax System Jorge Martinez-Vazquez Conference on Tax Options in the Wake of EU Accession for Turkey, Ankara, January12-13, 2009

  2. Indirect Taxation Regime in the EU • The indirect taxation acquis harmonized legislation in VAT and excise taxes as in the Sixth Directive (of 1977 and codified in 2006 for VAT) and Council Directive 92/12 for excises • VAT non-cumulative general proportional tax on consumption prices, on all stages on production and distribution, providing equal treatment for domestic and import transactions • Excise taxes duties to be charged, with minimum rates, on domestic and import transactions for energy products, tobacco products, and alcoholic beverages.

  3. Customs Duties • Customs tariffs • The tariff is common to all EU members, although the rates of duty differ from one kind of import to another. • The Customs tariff will not be discussed any further in this presentation

  4. Degree of Alignment for the Value Added Tax (1) • Overall, Turkey is largely aligned with the EU in the field of VAT • But some issues remain: On tax rates -- Turkey applies one standard rate (18%) and two reduced rates (8% and 1%). By EU standards, the standard rate may not be less that 15% and the one or two reduced rates can not less than 5% -- So, usage of the 1% rate is not in line with the EU acquis and part of thebasefor the 8% rate as applied to supplies of textile products prior to the retail stage is not in compliance either

  5. Value Added Tax

  6. Degree of Alignment for the Value Added Tax (2) • Other issues: -- Differences remain in the usage of some deductions, exemptions (for small enterprises), etc. -- Streamlining definitions for “taxpayer,” “economic activity” and using the acquis “place of supply” as opposed to “place of delivery” (this latter is also an issue for excise duties)

  7. Degree of Alignment for Excise Duties • Important issues stand with regard to the taxation of “alcoholic beverages” and “tobacco products” • Some less difficult issues remain in the alignment for the taxation of “energy products”

  8. Issues with the taxation of “alcoholic beverages”(1) • Main issue is that Turkey’s current structure results in higher taxation on those alcoholic beverages that are “mainly imported” and on lower taxation on “mainly domestic” products, which represents a breach of the Customs Union

  9. Specific Rate Ad Valorem Rate Total Excise Tax VAT EU (minimum) 4 euros /liter 4 euros/liter 15% EU (average 6.2 euros /liter 6.2 euros/liter 19.4% Turkey Raki 35,848 YTL 275.6% max[35,848 or 275.6%] 18% Whiskey 70,926 YTL 275.6% max[70,926 or 275.6%] 18% Comparison of EU and Turkey: Taxation of Typical Alcohol Products

  10. Issues with the taxation of “alcoholic beverages”(2) • Other less difficult issues: -- The EU only applies specific duties while Turkey applies an ad valorem duty replaced by a specific duty only when the ad valorem duty yields a lower tax -- For certain alcoholic beverages Turkey’s duties are based on “type of product” as opposed to the EU’s “ alcoholic content” -- In Turkey, all alcoholic beverages are subject to tax regardless of alcohol content… not so in the EU (de minimis strength of 0.5% for beer and 1.2% for other beverages -- Turkey does not tax pure ethyl alcohol; the acquis provides no basis for this exemption but for some isolated cases (denatured alcohol, etc)

  11. Issues with the taxation of “tobacco products”(1) • Main issue is that Turkey’s currently applies a specific duty on imported tobacco and cigarettes to finance the “Tobacco Fund. The application of the specific duty only to imported products represents a breach of the Customs Union

  12. Retail Price/ Pack Specific Excise Tax Ad Valorem Excise Tax Total Excise Tax/ Pack Total Excise as % of Retail Price VAT Tobacco Fund Total Tax as % of Retail Price EU Criteria 5-55% NA 57% of Retail Price 57% 15% (min.) NA EU Average 3,13 Euro 30% 61% 59% 0,5Euro** 75% Turkey 1,4YTL/pack 58% Max[1,4YTL, 58%] 18% 0,12YTL NA Samsun 2,17YTL 1,40YTL 1,26YTL 1,40YTL 64,5% 0,33YTL 80% Marlboro 4,68YTL 1,40YTL 2,71YTL 2,71YTL 73% 0,71YTL 0,12YTL 76% Different Taxation of Imported Tobacco Products and Domestically Produced Tobacco

  13. Issues with the taxation of “tobacco products”(2) • Other less difficult issues: -- Turkey defines the cigarettes on the basis of the CN code (Combined Nomenclature of Customs) which is not in line with the acquis -- The minimum excise levels for cigarettes in Turkey are not established with reference to the “Most Popular Price Category”which is not in line with the acquis -- To bein compliance, Turkey needs to levy a specific duty (between 5% and 55%) in addition to the current ad valorem rate so the levy is at least 57% of the retail selling price and come to a total of minimum levy of 64 Euros (VAT inclusive) per 1,000 cigarettes

  14. Issues with the taxation of “energy products” • Turkey still applies excise duty on fewer products( e.g., coal and coke are excluded.) Current legislation will need to be enlarged in the coverage of energy products • Turkey’s Council of Ministers is authorized to either increase the highest duty rate on gas and diesel by 50% or decrease down to 0%. This latter may imply that the EU required minimum rate is not applied • There are several definitional issues: -- Need to distinguish taxation on the basis of final use (e,g, heating, motor vehicle final use versus as an input of production , etc), although this is done in Turkey for electricity -- Currently some energy products still defined in an “unclear manner,” (‘petroleum products,’ ‘solvents,’ etc) not in line with the acquis

  15. EU Minimum Excise Duties for Energy Products

  16. Summary: Main Issues for Harmonization Reform • Address the different taxation treatment of imported tobacco products and domestically produced tobacco • Address the differential treatment of Raki relative to other alcoholic beverages of similar alcohol content

  17. Recommendations for Tobacco (1) • Tobacco Fund has to be eliminated • However, there are possibilities for: • A graduated phase-in approach to eliminate the Tobacco Fund. • Control impact on relative prices facing domestic consumers by introducing differential excise rates for tobacco products by type of blend.

  18. Revenue Impact (as of 2006-07) of Eliminating Tobacco Fund Elimination of the Tobacco Fund = -260 million YTL. Change in Excise Tax Due to Increase in Imports of Tobacco Products= 101 million YTL. Change in VAT Due to Increase in Imports of Tobacco Products= 2.2 million YTL, Change in Excise Tax Due to Decline in Consumption of Domestic Tobacco Products = -43 million YTL. Change in VAT Due to Decline in Consumption of Domestic Tobacco Products = -12 million YTL. Net Change in Tax Revenues = -212 million YTL.

  19. EconomicImpacts of Eliminating the Tobacco Fund • Production: Reduction in domestic production would be by 1.52% or 615 tons based on production levels in 2006. • Employment: A decline in 2,547 jobs based on number of farmers employed in 2007. • Income loss: 6.4 million YTL (2,500*2,547).

  20. Recommendations for Tobacco (2) • Introduce a program for income maintenance and crop substitution that would soften the blow on the poor population in the East and the Southeast of Turkey. As part of the negotiations with the EU, ask for cost sharing in this income maintenance and crop substitution program up to 5 years or until accession of Turkey to the EU. • In the medium term for Turkey to reform the structure of its excise tax on tobacco by adopting a tax structure that includes both a specific in rem tax component and an ad valorem component according to EU rules.

  21. Revenue Impact of Increasing Excise on Raki • Increase excise tax on Raki from 35.848YTL to 70.962YTL. • one hundred percent increase in the excise tax, would imply a 38% decrease in the consumption of Raki • Doubling the excise tax on Raki would approximately double its price. • The excise tax revenues would increase by 62% or by 404 million YTL.

  22. Economic Impact of Raising Excise on Raki • Production of Raki would decline by 12.54 million liters. • Decline in employment in Raki production would be 954 jobs. • The welfare impact would tend to be more on low income consumers (?).

  23. Recommendation on Raki • Another feasible choice is to lower the taxes on similar (mostly imported) spirits at a revenue loss of about 20 million YTL. • However, the current tax structure is not similar to the EU and it would be necessary to adopt a structure similar to that in the EU. • There is the possibility of negotiating for a transition period.

  24. Thank you

More Related