The Turkish government’s new draft plan aims to boost tax revenues by closing current loopholes and cracking down on tax evasion while seeking not to raise the overall tax burden, the country’s economy chief said on Monday.

"We aim to impose taxes not by increasing the burden but by targeting untaxed areas," Treasury and Finance Minister Mehmet Şimşek told an interview with private broadcaster Bloomberg HT.

The comprehensive tax reform package is part of a broader effort to enhance the country’s fiscal discipline and ensure a more equitable tax system.

The new bill includes the imposition of minimum corporate and income taxes and is expected to be submitted to Parliament soon.

The government has already announced major spending cuts as it moves toward stricter fiscal policies. According to officials, the new bill envisages a tax on capital and seeks to increase the share of direct taxes.

One of the core principles driving the overhaul is the fight against tax evasion and the establishment of a fair system, Şimşek said.

"Many segments are trying to avoid taxes, but we will achieve results by tackling the informal economy," he said, stressing that the primary goal is not to increase the overall tax burden but to ensure that all income-generating activities are taxed appropriately.

The nation's budget has been considerably plagued by a sharp increase in spending after devastating earthquakes struck the southeastern region in February last year.

That fueled a budget deficit of about $45.5 billion in 2023, or 5.2% of gross domestic product (GDP). The first five months of this year have seen a gap of TL 472 billion.

The annual shortfall is projected to be TL 2.7 trillion, or 6.4% of GDP, according to the government's estimates.

The new package could mark one of the largest tax overhauls in two decades and its initiatives are expected to generate an additional $7 billion in revenue, according to a Bloomberg report.

Still, Şimşek said the draft under discussion is a collection of various suggestions and not yet a finalized government policy.

"The package circulating in the market has not been filtered through our system; it's a compilation of multiple proposals," he stated.

"We are discussing the minimum corporate tax, income tax, profit tax, combating informality, and tax exemptions."

'All earnings to be taxed'

Şimşek confirmed the plan to impose a minimum 15% corporate tax on multinational companies.

The measure targeting companies with annual consolidated revenue exceeding 750 million euros aligns with similar initiatives implemented by other countries, such as the United States and several European nations, and aims to address concerns about tax avoidance by large corporations.

The plan includes a review of existing tax exemptions, with a particular focus on real estate investment trusts (REITs). "We are considering removing the tax exemption for REITs," Şimşek noted.

Şimşek also confirmed the government's aim to tax stock market gains but said that would not be part of the current draft and rather among future plans.

Instead, the government was mulling "a very limited" transaction levy on stock trading. But Şimşek later said that the study was postponed after receiving feedback from relevant parties.

The package also proposes increasing the corporate tax rate from 25% to 30% on earnings that entities generate within the scope of projects under the build-operate-transfer (BOT) and public-private partnership (PPP) models.

On the issue of the proposed hike in the departure fee, Şimşek clarified that this is still in the draft stage and no final decision has been made.

The new bill has been said to include a proposal to increase the departure fee to TL 1,500. Turkish citizens flying abroad are currently required to pay a TL 150 fee per person.

Şimşek also emphasized efforts to reduce the budget and current account deficits.

"We will likely lower the current account deficit down to around 2% of GDP by the end of this year," he said. He added that the budget deficit is expected to drop below 3% of GDP next year.

"No area will remain outside the system; all earnings will be taxed at reasonable levels," said Şimşek.

"We will improve the budget by combating those who earn but avoid paying taxes."

Türkiye has started attracting greater investor interest after implementing an economic policy reversal following a general election in May 2023, reversing years of loose policy to rein in inflation, curb budget and current account deficits and rebuild foreign exchange reserves.

The country's central bank delivered aggressive monetary tightening to cool growth in price gains, which remains the biggest challenge for authorities.

Since June last year, it has gradually lifted its benchmark policy rate to 50% from 8.5% and has said it would "do whatever it takes" to prevent the inflation outlook from deteriorating.

Aggressive rate hikes are expected to weigh on growth and Şimşek acknowledged that the economy would experience a temporary slowdown.

"We will take necessary measures to minimize the impact on employment," he said.

Funding boost after FATF upgrade

He also underscored the government's commitment to reducing inflation, which reached an annual 75% in May. That is said to mark the peak before rate hikes and relatively stable Turkish lira bring relief.

"The critical goal is to lower inflation to the 40s by the end of this year," said Şimşek, confirming that no value-added tax increases are planned for the current year to avoid exacerbating inflation.

"The first decline in inflation will be seen in June, but the significant decrease will occur in July, August, and September; by October, inflation will drop to the 40s."

Şimşek said the foreign investment could accelerate after Türkiye was lifted last week from an international financial crime watchdog's "gray list."

The Financial Action Task Force (FATF) on Friday removed Türkiye from its list of countries that require special scrutiny, in a boost to the country's economic turnaround plan.

"The inflow of funds may accelerate after Türkiye's removal from the 'gray list,' although it is already very strong at the moment," said Şimşek.

Şimşek also said Türkiye's foreign reserves are no longer a concern after having rebounded this year.

"Since the end of March, the inflow of resources reflected in the central bank reserves has reached nearly $78 billion, an unprecedented figure."