According to the decree published in the Official Gazette, Turkey extended the tax advantage in TRY deposit accounts until the end of July. The decree also extends the tax cut on income from mutual funds, bonds and sukuk issued by banks until 31 July.
Tax relief on TRY deposits was introduced on 30 September 2020 to support TRY. The application, which was first extended from March 31 to May 31, will thus continue in June and July.
The tax deductions had been made as follows:
· From 15% to 5% for accounts with a maturity of up to 6 months (including 6 months),
· From 12% to 3% for term accounts up to 1 year (including 1 year),
· From 10% to 0% for accounts with a maturity longer than 1 year.
The most important advantage of tax reduction in TRY deposits was to increase the real return against inflation in TRY deposits and to reduce the dollarization effect. If the tax advantage were not extended, it would be expected to have an increasing dollarization effect, as the positive real return effect of TRY deposits would be erased. This would adversely affect the pass-through effect between TRY deposits and FX deposits and accelerate currency substitution. The extension of the tax cut on deposits would be positive in terms of not decreasing the interest income, otherwise there would be an artificial interest reduction effect. We maintain our view that the need for additional tightening may increase in monetary policy implementation.
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