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TURKEY: Motor industry warns of tax hike effects - report

By just-auto.com editorial team | 15 October 2003

Turkey said on Tuesday it was hiking taxes on motor vehicles to meet IMF-backed budget targets, prompting warnings from producers that the measure could slash sales and discourage foreign investment, Reuters reported.

The government, holding talks with the International Monetary Fund (IMF) in Ankara, must work hard to meet a headline primary surplus target for the 2003 budget if it is to satisfy the fund that a $US16 billion economic programme is on track, the report added.

But, according to Reuters, car producers say the move, raising a special consumption tax by between three and 25%, could arrest domestic sales growth in the sector, recovering strongly following a financial crisis that peaked in February 2001.

"It's terrible that the market is being hit so hard just when it is recovering so well," Ali Ihsan Ilkbahar, head of the Automotive Producers Association (OSD), told Reuters.

Sales of cars and light commercial vehicles soared a yearly 146% to 220,400 units in the January to September period, according to OSD data cited by the news agency.

Global producers of motor vehicles also could slash investment in Turkey, hardly a haven for foreign capital, if the tax threatens to shrink the domestic market, Ilkbahar told Reuters which noted that Renault, Fiat, Ford, Toyota, Honda and Hyundai are all active in the country.

Reuters noted that recent high inflation, bureaucratic red tape and a swathe of non-tariff barriers have capped investment in Turkey to the advantage of emerging market economies such as Poland, the Czech Republic and Mexico.

The news agency said the hike was prompted by a court decision last week striking down government revisions to a motor vehicle tax law that could have raised a projected 900 trillion lira ($635 million) for Turkey's heavily-indebted treasury this year.

Reuters said it was not immediately clear how much the tax hike would raise but similar measures raising tax on alcohol were expected to earn the government 200 trillion lira in the rest of 2003 and 500-600 trillion lira in 2004, finance minister Kemal Unakitan reportedly said.

The news agency said Turkey must take painful steps to slash spending and raise revenues amid tight budgetary targets agreed with the IMF, which are designed to tackle domestic debt of some $130 billion.

Citing the Official Gazette, Reuters said the move raises special consumption taxes on the cost of vehicles to between 30 and 75%, while taxes had previously ranged from 27 to 50%.

Reuters said that motor vehicles of more than 2000cc will be hit hardest by the tax hike and noted that the government also levies an 18% value added tax on all motor vehicles sold in Turkey.