Analyses
8 nov 17

Turkey’s car taxes add huge costs to fleets

Extreme purchase taxes can more than double the pre-tax price of cars, and there may be more pain to come as the government reviews annual motoring tax.

 

Local taxes make Turkey one of the most expensive countries in which to operate cars. And those costs could increase significantly depending on the outcome of current debates in the country’s parliament about the annual circulation tax.

 

The acquisition of a new car in turkey is subject to a one-off ‘Special Consumption Tax’ (SCT), based on the vehicle’s engine size and pre-tax price. For example, a car with a pre-tax price below ₺40,000 (€9,000) and an engine smaller than 1.6-litres faces an SCT of 45%. This rises to 50% for cars of this size that cost ₺40,000 - ₺70,000 (€9,000-€15,500); and 60% for cars costing more than ₺70,000 (€15,500).

 

For cars with an engine sized between 1.6 and 2.0-litres that cost less than ₺100,000 (€22,300), SCT rises to 100% (see panel). The same percentage applies to cars with engines larger than 2.0-litres if they cost less than ₺100,000.

But cars with a pre-tax price in excess of ₺100,000 and an engine larger than 2.0-litres, face an eye-watering SCT of 160%.

 

VAT of 18% is then applied to the combined figure of pre-tax price plus SCT. This means the effective tax rate on the purchase of a car ranges from 71.1% to 206.8%.

 

Tax breaks are available for hybrid cars, depending on their pre-tax price, engine capacity and the size of their electric motor.

 

Pure electric cars qualify for substantial tax advantages, with the total tax (SCT and VAT) levied on their pre-tax price as low as 21.25%.

Vehicles in Turkey are also subject to an annual vehicle tax, Motorlu Taşıtlar Vergisi (MTV). Earlier this year the Government announced plans to raise MVT by 40% from January 2018, but has since stepped back from this scale of increase, instead suggesting that MVT will go up by a ‘reasonable level’.

 

A 40% increase would have a serious impact on fleet running costs, pushing up the MVT on 1300-1600cc engine cars to ₺1449 (€345); 1601-1800cc engine cars to ₺2558 (€609); and 1801-2000cc engine cars to ₺4,290 (€1,000).

The issue is currently being debated in parliament, with commentators expecting a new MVT system based on both the engine size and pre-tax price of cars.

 

“The passenger car MVT is expected to rise by 15% and 25% depending on the engine size (15% for below 1300cc engine size vehicles, 25% above 1300cc),” said Tolga Özgül, general coordinator of TOKKDER, the Turkish vehicle leasing association.

He added that the increase in MVT, which will drive up total costs of ownership, will increase demand for operational leasing as fleets seek to manage their operating costs and reduce their risk exposure.

Leasing companies can recover the VAT on cars acquired to lease to customers, but outright purchase fleets cannot recover the VAT paid on the purchase of cars. However, a VAT rate of 18% is charged on operating lease rentals, according to PWC’s Global Automotive Tax Guide (2016).

 

This same guide explains that in terms of company car tax, all benefits either in form of cash or benefit in kind should be considered as salary and be subjected to income taxation. As a result, the private use of a company car should be subject to income tax.

However, there are no concrete rules, methods, guidelines or lump-sum ceilings provided by the tax authorities to help employers calculate what this should be.

 

Authored by: Jonathan Manning