All persons domiciled in Turkey, whether of Turkish citizenship or otherwise, are subject to taxation on income. Certain categories of foreigners are taxed only on income earned in Turkey— specifically, foreign business representatives, consultants, scientists, government officials, press correspondents, and others who do not intend to become permanent residents regardless of length of stay. Income tax rates are progressive, ranging up to 55%. The basic corporate tax is 25%; however, a withholding tax of 10% for public companies and 20% for private companies is levied. Furthermore, there is a surcharge of 10% assessed. Thus, the total effective corporate tax rate is 45–55%, A tax law of 1961 required farmers, not previously subject to income tax, to file a return.
A value-added system was introduced in 1985 replacing eight indirect taxes. The standard rate is 15%, but there are two reduced rates: 8% for essential food products and 1% for exported goods. A new law on VAT adopted December 2001 abolished two higher rates of 26% and 40% applied to luxury goods.
Turkish law provides for excise taxes on a very wide range of products. On 6 June 2002, parliament enacted the Special Consumption Tax Law that consolidated various excises and gave the Council of Minister power to set aside the earmarking of excise proceeds. Multiple excises on the same product were consolidated reducing taxpayer compliance costs. The tax reform program aimed at producing a primary surplus of 6.5% but not all the elements designed to increase tax collection have been adhered adequately implemented. The personal consumption tax on items excluding natural gas was increased according to the January wholesale price index instead of being increased 1% in real terms. In March 2002, payroll and personal income tax deferments were introduced to stimulate employment, but contrary to a ban on new exemptions and incentives outside the tax reform plan.
Land and buildings are taxed on the basis of assessed value. Other levies include stamp taxes on documents, vouchers, shares, and securities; fees on legal, bank, and insurance transactions; a 10% tax on interest income on bank loans; output taxes; a petroleum production tax; a sales tax; service taxes; and inheritance and gift taxes. Business establishments are subject to an old age insurance tax and an illness and disability tax, shared by employers and employees.