Turkish sales tax cut will have limited impact on inflation

Turkey’s decision to cut sales taxes on a swathe of basic foodstuffs last week will have a positive but limited impact on its battle against inflation, which reached a two-decade high in January, the Diken news website said.

The reduction of the tax by 7 percentage points to 1 percent could ease inflationary pressures by 1.5 percentage points, Diken reported on Monday citing economists.

Consumer price inflation in Turkey hit 48.7 percent in January. That means the country lags only crisis-hit Argentina among emerging markets for the speed of annual price increases.

The impact on inflation of the sales tax reductions will be spread through February and March, Diken said. The measure is expected to cost the government between 25 billion liras and 35 billion liras in lost revenue, it said.   

Retailers who do not reflect the tax reduction on prices will face severe fines, Trade Minister Mehmet Muş said on Sunday. President Recep Tayyip Erdoğan said on Saturday that he expected shops to make the reductions on Monday and the government would set up a special task force to inspect prices.

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