Question

How can we Eliminating Tax Evasion in VAT Turkey?

define it in details

Answer 1

Turkey VAT compliance and rates

Turkey VAT compliance

There are detailed rules controlling the recording and processing of Turkish transactions. These include guidelines on:

• Turkish invoice requirements;
• Foreign currency reporting and translation;
• Credit notes and corrections; and
• What accounting records must be maintained.

Turkish VAT returns

Periodic VAT returns must be submitted by all companies with a Turkish VAT number, detailing all taxable supplies (sales) and inputs (costs).

Returns are generally filed monthly. Returns are due by the 24th of the month following the period end, and any associated liability by the 26th.

Companies can opt to file VAT returns online or on paper.

Vat refunds in Turkey

In certain circumstances, is can be possible for a non-resident company to apply for a VAT refund in Turkey. From 2003, Turkish VAT Law states that an application can be made for the recovery of VAT incurred on purchases of the following:

• goods and services relating to transportation activities; and
• goods and services relating to participation in fairs and exhibitions.

In order to apply for a VAT refund, the country of residence of the company must have a reciprocal agreement in place with Turkey. However the Turkish Tax Authorities have not published which countries this applies to, and there is no certainty that a claim will be accepted.

VAT rates in Turkey

The standard rate of VAT is 18%. There is also a reduced rate of 8% applied to: basic foodstuffs; medical products; books; and other, and a super-reduced rate of 1% applied to: agricultural products; certain residential properties; newspapers & periodicals; and other.

How VAT Works

To see how VAT works, follow this example of the production and sale of a coffee mug.

• A manufacturer purchases the raw material, clay, and shapes the material into mugs. This manufacturer sells the blank mugs for $3 each plus a $0.30 VAT to a design company.
  
• The design company paints the mugs and imprints them with images, logos and messages as requested by its customers. The mugs are sold for $6 each plus a $0.40 VAT to a chain of retail stores. The design company applies to the government for a credit for the $0.30 VAT that it paid when it purchased the blank mugs.
  
• The retailer sells the mugs for $12 plus a $1 VAT, a total retail price of $13, to the consumer. At the same time, the retailer applies to the government for a credit of the $0.40 VAT that it paid to the design company.

Advantages of VAT

Supporters of the VAT system claim that VAT offers several advantages, including:

• VAT is simple to administer compared to other tax systems because it has one tax for everything.
  
• It reduces many problems related with tax evasion. VAT is a transparent tax system, which tends to minimize tax evasion. It encourages payment of taxes and discourages attempts to avoid them.
  
• VAT rewards tax compliance and discourages black market operations because it is charged at each stage of production.
  
• It is a broad-based tax covering all products and commodities.
  
• It is neutral and does not discriminate one economic activity from another.
  
• VAT minimizes the burden to consumers because it is collected in small amounts at various stages of production and distribution.
  
• It does not cascade taxes because it is calculated on value added, not on total price.
  
• It encourages manufacturers and suppliers to collect VAT on the products and services they sell. They need to submit these documents to receive credit for VAT taxes they paid on purchases