The newest rise is the second in a month and brought the pump price of a liter (nearly a quarter gallon) of 95-octane unleaded gasoline in İstanbul up to TL 4.53 ($2.56) from the earlier TL 4.44. The 97-octane unleaded gasoline, intended for vehicles with engines larger than 2000 cc, was being sold for TL 4.63 per liter ($9.91 per gallon). Its price before midnight Thursday was TL 4.54.
Consumers are angry at the country's administration for the world's most expensive fuel prices -- nearly 70 percent of which are taxes paid to the government. Yet the ruling Justice and Development Party (AK Party) advocates that it has been decreasing the proportion of taxes in pump prices ever since it took office in late 2002. However, such reductions have not effectively translated into a downward pressure on what consumers pay for fuel because Turkey imports almost all of its oil in US dollars, and pump prices are therefore also dependent on crude prices and the value of the American currency.
The greenback has strengthened against the Turkish lira from below TL 1.75 on Feb.19 to its present level of more than TL 1.77. The price of a barrel of crude oil, likewise, jumped to over $105 from below $100 in less than a month because of the tension between Iran and the West over the Middle Eastern country's controversial nuclear program, which it insists is only being developed for peaceful purposes. Suspicious of Iran's intentions, the UN has implemented economic sanctions against the country, and the US has even tightened its grip by taking even further measures. The US and Israel also have not ruled out a war with Iran.
Growing weary of Iran's inability to prove to the international community that its nuclear program as peacefully intended as it claims, Ankara has made clear a number of times recently that it seeks a quick resolution of the issue. Yet it also disapproves of a military confrontation with Iran while there is still room for diplomacy.
Turkey's current account balance is highly sensitive to changes in energy prices. The country's dependency on foreign energy continues to increase in parallel with its relatively faster economic growth, and it is not easy for Turkey to alleviate this dependence in the short to medium term. Every $10 increase in crude prices costs Turkey an extra $4 billion per year.
“We are sorry to see external problems hurt Turkey's relatively more profitable oil procurement deals with its trade partners,” Energy and Natural Resources Minister Taner Yıldız said in late February.
The AK Party's Medium-term Economic Program (OVP) envisages 4 percent growth for the economy this year over the preceding year, while the program estimates year-end inflation at 5 percent. With the rise in oil prices due to the issue with Iran, one critical concern for Turkey is that it will also drive up natural gas prices, which are determined accordingly. This could directly increase electricity production costs, putting a burden on the country's industrial manufacturing. At 47 percent, natural gas has the largest share of Turkey's electricity generation costs among other major resources, Energy Ministry data show.
The issue is also troublesome for the country with regards to its fight against inflation, which reached a three-year peak of 10.61 percent in January. Although the annualized rate of consumer inflation slightly eased to 10.43 percent the following month, it was still much higher than the 4-5 percent levels achieved last year, which is also the year-end expectation of the central bank for this year.
Government defends Turkey’s tax regime
Finance Minister Mehmet Şimşek defended the government’s tax regime on Friday, saying Turkey ranks sixth among the Organization for Economic Cooperation and Development (OECD) countries that impose the lightest tax burden on their citizens. Speaking at a meeting in Kahramanmaraş, Şimşek said Turks perceive that they are being “heavily taxed” and that even though some observations support this, a view of the big picture is necessary to correctly understand the situation. He said compared to the OECD average of 34 percent among 34 countries, Turkey had a 26 percent tax rate in 2010, coming in sixth among the least tax paying countries on the list. “This shows the tax burden in Turkey is not as high as thought,” the minister added.
Şimşek explained that, on average, OECD countries impose an income tax that is twice as high as that in Turkey. He noted that the perception of “high taxes” derives from indirect taxes - - which are not directly paid by an individual to the government, such as sales tax - - as these are higher than the OECD average. Noting that indirect taxes make up 47.9 percent of all taxes in Turkey, he said, “In this term, we plan to increase the tax collection rate to reduce tax evasion and to increase our tax income without imposing more taxes on the people.”
Taxes imposed on corporations were reduced to 20 percent during the term of the ruling Justice and Development Party (AK Party), the minister said. Furthermore, income tax was cut from 12.8 percent in 2002 to between zero and 5.3 percent today for people who earn minimum wage, he said. Şimşek said the perception of “high taxes” arises from the rate of the value-added tax (KDV) and the private consumption tax (ÖTV), but noted that the KDV on textile, tourism, health and education sectors was cut from 18 percent in 2002 to 8 percent today. Furthermore, the tax on certain food products dropped from 8 percent in 2002 to 1 percent now, he added. Şimşek also noted that the tax on gasoline had not changed at all since 2009 and added: “In 2002, Turkey imported a barrel of gasoline for $23-24. This figure is now $125-128. Seventy percent of the price of gasoline went to the ministry’s coffers in 2002, but this figure is now 57.9 percent.”