New Omnibus Law Amending Tax Laws

Recent Development

The Law No. 7194 on Digital Service Tax and Amendment of Certain Laws and Law Decree No. 375 (“Law“), published on the Official Gazette dated December 7, 2019 and No. 30971, introduced important amendments to various tax laws.

What Does the Law Say? 

1. Important amendments to the Income Tax Law

• New income tax brackets
  • The Law added a new tax bracket. Accordingly, the new income tax tariff is the following:

• Salary income derived in 2019 is subject to the previous income tax tariff. For income other than salary, the new tariff will be applicable for the income derived in 2019.

• New income tax return declaration obligation
  • Those who receive salary income that is subject to withholding tax by their only employer and more than the amount stated in the fourth income tax bracket (TRY 500,000) are required to file an income tax return.
  • For salary income received from more than one employer within the same year and that is subject to withholding tax, those who receive salary income are required to file an income tax return if the total yearly salary income exceeds the amount stated in the fourth income tax bracket (TRY 500,000) and the total salary income received from the first employers exceeds the amount stated in the second income tax bracket (TRY 40,000).
  • This provision will apply for income received as of January 1, 2020.

• Transportation expense deduction
  • If an employer does not provide transportation services to its employees but provides a daily transportation stipend that does not exceed TRY 10 in the form of a public transportation card, ticket or other payment instrument used for this purpose, an income tax exemption is provided for the transportation stipend.
  • If the transportation stipend exceeds this amount or is made in cash, the exceeding amount or the cash payments are taxed as salary.
  • This exemption will enter into force in the beginning of the month following the publication of the Law.

• Limit on the deduction of automobile expenses from commercial income
  • A maximum of 70% of automobile expenses can be considered a deductible expense. For leased automobiles, a monthly lease of up to TRY 5,500 can be considered a deductible expense for each automobile. Up to TRY 115,000 of the total of the special consumption tax and VAT relating to the acquisition of the automobile can be considered a deductible expense.
  • If the automobile’s first acquisition price, excluding the special consumption tax and VAT, exceeds TRY 135,000 or if these taxes are added to the automobile’s cost or a second hand automobile is purchased, the depreciable amount exceeds TRY 250,000, the depreciation amounts up to these amounts can be considered as deductible expense.
  • The automobiles used by those entirely or partially engaged in the leasing of or operation of automobiles for these purposes are not subject to those limitations.
  • The limitations are applicable for the income derived as of January 1, 2020.

• Amendment on the conditions for the tax reduction reward for compliant taxpayers
  • The amendment to Article 121 bis. of the Income Tax Law altered the conditions required for the tax reduction reward for compliant taxpayers.
  • Per the original Article 121, taxpayers must have filed all tax returns for the years they request the tax reduction, as well as for the two preceding years, within the statutory period and paid the related due taxes within the statutory period.
  • The amendment narrowed down the tax returns to annual income tax returns and corporate income tax returns; advance tax returns; withholding tax returns; withholding tax and premium returns; VAT returns; and special consumption tax returns. In addition, taxpayers must pay the due taxes by the submission date of the income tax and corporate income tax returns.
  • This provision will enter into force on the publication date of the Law, and will be applicable to annual income tax returns and corporate income tax returns submitted as of January 1, 2020.

2. Important amendments to the Tax Procedural Law

• Deduction in case of settlement
  • If a taxpayer settles with the tax authority and pays the settled amount within the legal deadline, they may receive a 25% discount on the settled penalty amount.
  • This provision will enter into force as of the publication date of the Law.

• Withdrawal from legal remedy
  • If a taxpayer launched a lawsuit against the tax authority and the taxpayer withdraws from its lawsuit pending at the first appeal stage or second appeal stage (except for decisions upon the Council of State’s decision of reversal), a certain portion of the tax and/or penalty may be written off.
  • Accordingly, if the taxpayer withdraws from its right to appeal for the decisions rendered by the first degree tax court that are open for appeal before the Regional Administrative Courts and the decisions rendered by the Regional Administrative Courts that are open for appeal before the Council of State, the taxpayer is required to pay only:

(1) 60% of the tax cancelled by the court, the entire tax approved by the court and 75% of the tax loss penalty approved by the court; and
(2) 25% of the tax loss penalties where the relevant original tax was not subject to litigation and 25% of the tax loss penalties imposed due to the acts described in Article 359, as well as 25% of irregularity penalties cancelled by the court and 75% of the amounts approved by the court.

• If the taxpayer pays the tax and/or penalty accrued within the scope of this article plus delay interests within one month, a 20% discount will be made on the tax and penalty amount.
• This provision will enter into force as of the publication date of the Law.

3. Important amendment to the Expenditure Taxes Law

• The banking and insurance transactions tax rate of 0.1% under Article 33 of the Expenditure Taxes Law for foreign exchange transactions was increased to 0.2%. This provision enters into force as of the publication date of the Law.

Conclusion

The tax law amendments aim to increase tax collections.