Significant changes in VAT rates

Adjustments have been made in VAT rates in order to reduce the effect of price increases experienced in the last months. Still, it would be useful to publish a communiqué to address the reservations regarding the definition of certain products subject to low rates.

Dear Fortune readers, I would like to hereby share with you my assessments regarding the results of the changes in VAT rates.

In order to reduce the impact of the price increases in the last months on the consumer, the VAT rates of various goods and services have been reduced. This time, with a similar VAT rate reduction regulation, the regulation on which certified seeds and sapling are subject to 1% VAT rate has been revoked and the VAT rate for the delivery of all seeds and saplings certified by the Ministry of Agriculture and Forestry was determined as 1%.

Likewise, the VAT rate was reduced from 18% to 8% for services provided in places with first-class restaurant license or operating certificate and in restaurants within three star hotels, holiday resorts and similar facilities; deliveries of certain machinery in the dairy and agriculture industry, deliveries of some medical devices, and some cleaning materials and hygiene products.

However, the Decree regarding said discounts uses broad and unclear terms in defining the products subject to low rates, especially for cleaning and hygiene products, which has caused reservations in the public about which products are covered by the discounts. For example, while shampoo is subject to low VAT, it is not clear at all what rate applies to shower gels. To address these reservations, the Ministry of Treasury and Finance should promptly issue a communiqué on this subject and clearly define the cleaning products subject to the discounts.

On the other hand, we see that important regulations have been made in the real estate sector. For example, in order to increase production in the housing sector, the VAT rate on land and land deliveries was reduced from 18% to 8%.

In addition, while in estate deliveries, VAT rates are differentiated according to various criteria such as the date of the building permit, whether they are within the boundaries of the metropolitan municipality and the unit m2 values of the land; as of 1.4.2022, the VAT rate will be 8% for deliveries of estates smaller than 150 m2 and 18% for estates larger than 150 m. However, the old VAT rates are applied for estates that have a building permit dating before April 1, 2022. In the deliveries of estates built for urban transformation, 1% VAT will be applied for estates smaller than 150 m2 and 18% for estates larger than 150m2. Thus, the VAT rate confusion in house deliveries was tried to be eliminated and a relatively simpler rate application was adopted.

While VAT reductions were made for certain goods and services, the VAT rate was increased from 1% to 18% in vehicle deliveries made according to the special tax base procedure by taxpayers who trade in second-hand vehicles.

Another important regulation was the re-increase of the VAT for foreign-flagged yachts, cruise lines, boats and cruise ships transitioning to the Turkish flag, which was reduced to 1% in 2017, to 18% The 2017 regulation allowed many boat owners to change their boats from a foreign flag to the Turkish flag. Raising the VAT rate to 18% again will certainly lead to an increase in the number of foreign-flagged boats, as it did in the past.