May 10, 2014 - 0 Comments - Data -

Tax Revenues from a Comparative Perspective

Tax revenues constitute a significant share of budget revenues. For instance, in 2010, 82.2% of the budget revenues of  Turkey was received from tax revenues (see Budget Revenues).

However, due to its impact on income distribution, one should pay attention to how tax revenues are collected. As noted before, when compared with direct taxes (e.g., Taxes on Income, Profits and Capital Gains and Taxes on Property), indirect taxes (e.g., Taxes on Goods and Services) tend to undermine income equality. This is the case because Taxes on Goods and Services are levied on all consumers indiscriminately, regardless of their level of income. To put it differently, in this form of indirect taxation mechanism, the tax rate is independent of the income level of the consumer. Technically speaking, indirect taxes like the Taxes on Goods and Services, unlike Taxes on Income, Profits and Capital Gains, is not a form of progressive taxation—the tax rate does not increase as the income level or the wealth increases.

In Table 1, you will see the direct and indirect taxes collected in Turkey from 2006 to 2012 (at 2003 prices). What we note from this table is that both the direct and indirect taxes are rising, even though the indirect taxes have a slower trend. The direct taxes increased by one thirds: from 33.6 billion TL in 2006 to 44.7 billion TL in 2012. On the other hand, the indirect taxes increased by one fourth: From 73.2 billion TL in 2006 to 90 billion TL in 2012.

Table 1

Even though the direct taxes increased faster than the indirect taxes did, the budget revenues of Turkey relies predominantly on indirect taxes. According to the OECD data, Taxes on Goods and Services, which is a type of indirect tax, constitutes the 51% of the tax revenues. Compared to other OECD countries this level is significantly high.

Table 2

As seen below, Taxes on Goods and Sevices constitutes the 29% of Germany’s tax revenues, 26% of Spain’s tax revenues, 27% of Italy’s tax revenues. On the other hand, Taxes on Income, Profits and Capital Gains are 30%, 29% and 32% respectively.

Table 3

Table 4

Table 5

Despite the discrepencies among these countries, we gain a clearer perspective once we look at the ratio of indirect taxes of the selected OECD countries to their overall GDP: Turkey does not collect significantly more indirect taxes than the other OECD countries. The real problem is that Turkey is less successful in collecting direct forms of taxation.

Table 6

The ratio of Taxes on Goods and Services over GDP is 12.6% in Turkey, 10.8% in Germany, 8.3% in Spain and 11.3% in Italy. The ratio of Taxes on Income, Profits and Capital Gains over GDP is 4.9% in Turkey, 14.3% in Germany, 11.85% in Spain ve 13.4% in Italy. To briefly summarize the case of Turkey, while the ratio of Taxes on Goods and Services (which is a form of indirect tax) over GDP is not very high compared to the selected OECD countries, the ratio of Taxes on Income, Profits and Capital Gains (which is a form of direct tax) over GDP is significantly lower.

Many economists who study Turkey note that informal sector constitutes a significant portion of the country’s economic activities. Since it is impossible to tax income generated through informal economic activities, the government of Turkey has chosen to raise tax revenues through sales taxes. The transformation of the composition of the revenue streams from direct to indirect taxes indicates that the government, in order to diminish its budget deficit has chosen the easier route—even though this route has the undesirable consequence of increasing income inequality (see Budget Balance of Turkey).

Sources:

Dataset is retrieved from Undersecreteriat of Treasury website, “Hazine Müsteşarlığı Veri Dağıtım Sistemi” link.

Statistical Table: “Merkezi Yönetim Bütçe (Myb) Dengesi Ve Finansmanı (Milyon TL)”

Note: Data is converted to 2003 basic prices using the inflation dataset.

The inflation dataset is downloaded from The Central Bank of the Republic of Turkey, “GENERAL STATISTICS” link.

Statistical Table: “Consumer Price Index (2003=100) (TURKSTAT) (Monthly)”

Comparative dataset is downloaded from the OECD website, “Revenue Statistics – Comparative tables” link.

Measure: “Tax revenue by sector as percentage of total taxation” and “Tax revenue as percentage of GDP”

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