Türkiye exempts 1.5M small businesses from inflation adjustments

In response to demands from business organizations, the Ministry of Treasury and Finance has exempted approximately 1.5 million small businesses from inflation accounting during temporary tax periods, aiming to alleviate the tax burden on small enterprises.

What is inflation accounting in Türkiye?

• Historical context: Inflation accounting, which aims to adjust financial statements to reflect the real value of money, was last applied in Türkiye in 2004. Due to the lack of necessary conditions, no adjustments were made until the end of 2021 when these conditions re-emerged.
• Business concerns: In 2021, business organizations, including TURMOB, TOBB, MUSIAD and TUSIAD, requested that the government address the challenges posed by inflation adjustments.
• Delayed action: However, due to unpreparedness and requests from professionals and civil organizations, the application of inflation adjustments was postponed until the end of 2023. As the deadline approached, discussions between the ministry and business organizations led to the decision to ease the burden on small businesses.

Does tax exemption apply to all small business?

• Exemptions: To ease the burden on small businesses, Minister of Treasury and Finance Mehmet Simsek announced that approximately 1.5 million income and corporate taxpayers will be exempt from inflation adjustments during the second and third temporary tax periods of 2024.
• Gross sale limit: This exemption applies to businesses with gross sales under ₺50 million as of December 31, 2023. These businesses will not need to submit adjusted balance sheets, providing them with much-needed relief.
• Extended deadlines: The deadline for filing inflation-adjusted tax returns has been extended to September 6, 2024, giving businesses more time to comply without facing penalties or interest charges.

How small businesses, investors can benefit from inflation reforms?

• Small business relief: The new measures aim to reduce the financial strain on small businesses, particularly those in their early stages or still in the investment phase. These businesses will not need to make inflation adjustments during the specified tax periods, easing their operational challenges.
• Support for investors: The government is also developing new models to prevent inflation adjustments from disproportionately affecting businesses that are currently investing in growth. Proposed solutions include placing profits resulting from inflation adjustments into a special fund, exempt from immediate taxation, and gradually taxing them over five years during the operational phase.

Looking forward: New legislation on the way

• Legislative actions: The implementation of these new models will require legislative amendments, which are expected to be introduced when the Turkish Parliament reconvenes in October 2024. These amendments aim to support broader economic growth by ensuring that inflation accounting adjustments do not hinder businesses from investing in capital-intensive projects.
• Long-term impact: By reducing the tax burden on small businesses and providing targeted relief to investors, these measures are expected to create a more favorable business environment in Türkiye, fostering economic resilience and stability.