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

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1 Timur CAKMAK Head of Department Turkish Revenue Administration

2 GENERAL OVERVIEW The beginning of the studies on Value Added Tax (VAT) in Turkey goes back to 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, By the VAT Law, eight indirect taxes on consumption were abolished

3 GENERAL OVERVIEW 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

4 GENERAL OVERVIEW 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.

5 A SYSTEM WITHOUT VAT Purchase price of good Selling price of good The profit is 100 TL 150 TL 50 TL VAT is not calculated on this profit and the final consumer should pay 150 TL

6 A SYSTEM WITH VAT Purchase price of good Input VAT Total amount 100 TL 18 TL 118 TL Selling price of good Output VAT Total Received amount 150 TL 27 TL 177 TL VAT paid to tax office 9 TL (50 x %18 ) Profit 50 TL The final consumer should pay 177 TL.

7 The Turkish tax system levies value added tax on the supply and the importation of goods and services.

8 Liability for VAT arises; When a person or entity performs commercial industrial agricultural or independent professional activities within Turkey and when goods or services are imported into Turkey

9 REVENUE ADMINISTRATION Instutional Structure- Central Commissioner Department of Legal Consultancy Department of Strategic Development Department of Consultancy on Press and Public Relations Vice Commissioner Vice Commissioner Vice Commissioner Vice Commissioner Vice Commissioner Vice Commissioner 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

10 REVENUE ADMINISTRATION Instutional Structure- Local Tax Office Directorates Taxpayer Services Group Directorate Tax Assessment Committees Judgement and Disputed Proceedings Group Directorate Directorships Legal Advisors Local Auditors Offices Audit Group Directorate Tax Office Directorate Support Services Group Directorate Directorships Directorships Strategy Group Directorate Human Resources Group Directorate LTU Istanbul Large Taxpayer s Tax Diroctorate

11 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.

12 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.

13 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.

14 VAT RATES Currently three VAT rates are applied STANDART RATE 18 % CURRENT VAT RATES REDUCED VAT RATES 1 % 8 %

15 VAT RATES 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

16 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

17 TYPE OF EXEMPTIONS 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

18 Purchase price of good Input VAT Selling price of good Output VAT VAT paid to tax office FULL EXEMPTION 100 TL 18 TL 150 TL 0 TL 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. The final consumer should pay 150 TL

19 PARTIAL EXEMPTION Purchase price of good Input VAT Selling price of good (for profit 50 TL) The final consumer should pay 100 TL 18 TL 168 TL 168 TL

20 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. VAT paid for imported goods and services.

21 DEDUCTION MECHANISM 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.

22 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.

23 TAX REFUND 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.

24 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.

25 PROBLEMS Difficulty in voluntary compliance False or misleading invoices Lack of auditing

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

27 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

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

29 DISTRIBUTION PERCENTAGE OF TAX REVENUE COLLECTION IN GENERAL BUDGET ( ) TAX REVENUE DIRECT TAXES (1) INDIRECT TAXES (2) YEARS ( TL) (%) ( TL) (%) ( TL) (%) 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

30 THE SHARE OF VAT IN GENERAL BUDGET REVENUE ( ) (1000 TL.) YEARS COLLECTION OF TAX REVENUES TOTAL AMOUNT OF VAT COLLECTION (INWARD + İMPORT) SHARE OF VAT IN TAX REVENUES (%) , , , , , , , , , , , , , , , , , , , , , , ,7

31 FLEXIBILITY OF VAT COLLECTION ACCORDING TO GDP (BASED ON 1998) ( ) (1000 TL.) YEARS GDP TOTAL AMOUNT OF VAT COLLECTION INCREASE (%) FLEXIBILITY ,81 1, ,22 1, ,44 1, ,00 1, ,50 1, ,98 1, ,52 0, ,02 1, ,34 0, ,30 0, ,17 0,46

32 EU VAT SYSTEM 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 Now EU have 27 Countries

33 EU VAT SYSTEM 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 , there is no check of the goods transported from one member state to another

34 EU VAT SYSTEM 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

35 OECD ANKARA MULTILATERAL TAX CENTER

36 LEGAL BASIS The OECD Ankara Multilateral Tax Center has been established in 1993 based on a Memorandum of Understanding between the OECD and the Republic of Turkey. Other OECD Multilateral Tax Centers : Budapest Seoul Vienna Mexico

37 BUDGET In general, costs of the OECD Multilateral Tax Centers are being covered by the total budget 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.

38 EVENTS 3869 mid and high-level tax officials 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.

39 EVENTS (Cont d) 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.

40 EVENTS (Cont d) Encourage non-oecd economies to adopt taxation practices 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.

41 NUMBER OF PARTICIPANTS Albania 560 Armenia 141 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 Hungary 10 India 12 Indonesia 17 Kazakhstan 156 Kosovo 65 Kyrgyzstan 108 Latvia 27 Lithuania 22 Macedonia 9 Mongolia 383 Moldova 219 Montenegro 3 Morocco 71 Pakistan 41 Poland 39 Romania 63 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

42 NUMBER OF THE PARTICIPANTS IN 2009 ALBANIA 31 ARMENIA 3 AZERBAIJAN 9 BELARUS 8 CHINA 3 CROATIA 2 GEORGIA 8 INDIA 12 INDONESIA 7 KOSOVO 15 MOLDOVO 1 MONGOLIA 8 MOROCCO 7 PAKISTAN 12 RUSSIAN FED. 8 SAUDI ARABIA 6 SIERRA LEONE 3 UZBEKISTAN 11 UKRAINE 1 TOTAL 155

43 TOPICS OF THE EVENTS HELD IN OECD ANKARA MTC Transfer Pricing Tax Incentives Tax Policy-Modeling International Tax Avoidance and Evasion Auditing Multinational Enterprises Tax Treaty Issues Application of Tax Treaties Auditing Small and Medium Enterprises

44 TOPICS OF THE EVENTS HELD IN OECD ANKARA MTC (Cont d) 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 Taxation of Financial Instruments

45 BILATERAL SEMINARS Due to the protocol between the Turkish Ministry of Finance 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 Developing the cooperation on taxation system

46 CERTAIN TOPICS OF THE SEMINARS Tax Procedure Law, Personal-Corporate Income Tax, VAT, Special 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 Restructuring Process of Revenue Administration

47 COUNTRIES INVOLVED IN THE SEMINARS IN A BILATERAL BASIS ( ) Azerbaijan Bangladesh Bosnia Herzegovina China Kosovo Kyrgyzstan Mongolia Morocco Pakistan Tajikistan Turkmenistan Uzbekistan

48 SEMINAR ROOMS International events have been carried out in 2 different classrooms of the center both of which have the latest technological equipment like simultaneous translation facilities for 6 languages: English, French (conditional). Russian, Turkish, Albanian and Arabic (conditional).

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51 OVERLOOK ON MENA PROJECT AND OECD ANKARA MTC Republic of Turkey and OECD have signed a Memorandum of Understanding in order to establish OECD Ankara MTC, for a period of five years in 1993, which can be extended for five-year-periods. A provision adopted at the last extension in 2008 allows the technical facilities of the OECD-Ankara Multilateral Tax Centre to be utilised for MENA project. Turkey s annual in cash contribution to the MENA project is

52 THANK YOU