The Turkish budget for 2005 came into force on January 1. The budget fixes expenditure for 2005 at about NTL154 billion ($115 billion), against expected revenues of about NTL124.3 billion ($93 billion). The difference between expenditure and revenue will be funded through borrowings.
According to the budget, scheduled projects for 2005 can only begin if at least 10% of the feasibility amount is allocated in the budget for the project concerned. This excludes certain hydroelectric power plant and dam construction projects, which are financed by foreign funding through bilateral cooperation agreements.
The budget stipulates that the total amount of Treasury guarantees cannot exceed $2 billion. It also states that Treasury guarantees against financing instruments issued by public entities cannot exceed $2 billion, but that the Council of Ministers is authorized to increase this amount to $4 billion. Agreements entered into by public companies to procure services and good using foreign financing must first be approved by the Ministry of Finance.
The Investment Plan for 2005 has been announced in the Official Gazette. It states that public sector investments in agriculture will be NTL1.3 billion ($1 billion), in mining NTL506.2 million ($380 million), and in manufacturing NTL614.9 million ($460 million).
On May 11, the executive board of the IMF approved Turkey's letter of intent dated 26 April. Thus Turkey will have access to $10 billion over the next three years. The IMF and the Turkish government had reached an understanding on the programme and the principles of the new standby arrangement in December 2004, but the Turkish government has been reluctant to issue the letter of intent. The IMF's executive board requested progress on key pieces of legislation, including: restructuring the tax administration and tax policy reforms - the president had vetoed only one article of the law; the new financial services legislation (sent to the sub-commission for review by parliament); and social security reform (which has been postponed for two to three weeks).
The government is committed to the economic programme, maintaining the primary surplus target 6.5% of GNP and to harmonizing Turkish legislation with EU legislation, but authorities need to reach a consensus about certain outstanding issues. One of these issues is the draft financial services legislation, which has been long discussed but does not yet represent a strong consensus by the relevant parties. The Banking Regulation and Supervision Agency, Banks' Association and the government reportedly fail to agree on several issues, including monitoring authorities over banks.
Stamp tax developments
Amendments have been made to the Stamp Tax Law, effective January 1 2005. The method of affixing stamps for the payment of taxes has been abolished. Taxpayers will have to submit monthly declarations of stamp tax on the 20th of the following month and pay the accrued amounts on the 26th.
In addition to the procedural changes, certain documents are exempt from stamp tax, such as letters of credit, loan letters, telegrams and advance receipts. Stamp tax duties have been abolished for contracts, letters of conveyance and commitment letters, surety, guarantee and collateral bills that do not bear monetary value, proposal letters, and transfer, payment, delivery, dispatch and collection orders between banks and undertakings.
Contracts between real persons not related to business or professional activities are exempt from stamp tax. However, if any of these documents are submitted to public offices or notaries, stamp tax will accrue as of the submission date and the submitting party will pay tax.
Because the envisaged dates will be the same for stamp, VAT and withholding tax declarations and payments, the tax burden of companies and cash outflow will inevitably increase in the last weeks of each month.