New property tax sparks widespread anger in Turkey

The 2020 draft budget that Turkish President Recep Tayyip Erdoğan’s government submitted to parliament passed almost without amendment, despite opposition objections.

With the economy still reeling from the downturn that started in 2018, the government is desperately trying to make ends meet. But its solution, in the form of tax hikes that will target the owners of property over a certain value, looks set to attract widespread resistance.

Nearly 70 percent of the 1.1-trillion lira ($185 billion) budget’s allocations go towards debt, the salaries of the country’s 4 million public workers and to interest payments.

Unemployment is becoming an increasingly dire problem, but the budget does not provide funds for the kind of investment that would solve it or improve the economic situation for the majority of people.

Public servants have been promised a 4-percent pay increase. But even the optimistic targets set in the 2020-2022 New Economic Programme predict the inflation rate in 2020 to be 8.5 percent.

Erdoğan’s government is struggling to find sources of funding, and pushed an omnibus bill through parliament before the budget that include a series of large tax hikes.

These included a new digital services tax, accommodation tax and a property tax, all of which were published in the Official Gazette on Dec. 7 and will come into effect on Jan. 1.

With anger about the taxes rising, politicians from the ruling Justice and Development Party (AKP) are beginning to question whether this was the right move.

Much criticism in parliament and among AKP circles has been directed at Erdoğan’s son-in-law, Treasury and Finance Minister Berat Albayrak, for adding the new tax regulations to the omnibus bill, and many fear it could erode support for the ruling party among the wider public and lead to tens of thousands of court cases.

The property tax on residential houses worth more than 5 million lira ($842,000) starts at 0.3 percent for properties worth between 5 million and 7.5 million lira and rises to 1 percent for houses worth more than 10 million lira.

In other words, property owners will have to pay an additional tax of at least 15,000 lira on top of the real estate tax and other taxes that are already due.

Property owners have been left in a state of shock by the valuations sent them by General Directorate of Land Registry and Cadastre. This has led to criticism of the tax and calls to repeal it even from media outlets that have close links to Erdoğan and the AKP.

Some AKP politicians have opposed the new tax and pinned their hopes on an initiative by the main opposition Republican Peoples’ Party (CHP) to take the law to Turkey’s highest court and have it cancelled. Failing that, they hope Erdoğan will pay heed to the reactions against it and amend or repeal the law before the new year.

Experts in tax law say the new taxes are an unlawful and arbitrary imposition by the government, and point to what they say is the unfairness of punishing owners of valuable residential property, while other properties are not taxed. Moreover, those whose properties only fall slightly under the limit, or who own more than one property that each fall under the limit, will be exempt from the tax.

Many individuals on a low income, including retirees, will be forced to pay between 15,000 liras and 100,000 liras on properties they may have inherited or spent a career saving for, even if they are on a minimum wage. Many will be forced to sell up to avoid large fines.

Opposition lawmakers at the plenary session have accused Erdoğan and the AKP of trying to make people pay the price of their economic and foreign policy mistakes. Others have warned that the government is eroding the protections afforded to private property.

This amounts to another grave mistake for the ruling party, which has already aroused public anger in recent months by attempting to load the baking giant Simit Sarayı’s $500-million debt onto the state-owned Ziraat Bank and trying to postpone regulations on coal plants for 2.5 years.

It is not only the property tax that is a cause for concern. The digital services tax, at 7.5 percent, is among the highest in the world.

And unlike the previous mistakes, the taxes announced this month are sure to impact large segments of the public.