The Turkish government will extend tax exemptions on state-backed bank accounts aimed at cutting demand for foreign currency until the end of 2023. This move is aimed at supporting the government's efforts to stabilize the country's economy by boosting the value of the lira. The extension of the tax break provides an incentive for investors to stay invested. The regulation on withholding tax, which is a levy on interest earned on bank deposits, has been sent to President Recep Tayyip Erdogan for approval.
FX-protected accounts are a key program in the government's action plan, which guarantee savers' local-currency holdings against depreciation. The accounts currently hold 2.63 trillion liras ($101 billion). Despite criticism from the opposition over the financial burden imposed on the state budget, the government plans to phase out the accounts gradually. This will happen if the authorities can attract foreign capital by the end of this year.
According to sources, a technical team from a Persian Gulf country recently arrived in Turkey to discuss potential investments. The visit follows Treasury and Finance Minister Mehmet Simsek’s trip to the UAE last week, where he met investors and senior government officials.
The Turkish government will also increase the withholding tax rate on all foreign-exchange time deposits. Currently, the withholding tax on these deposits is 18% and 20%. The rate will increase to 25% under the new rules.
The Treasury and Finance Ministry declined to comment on the matter, and no official statement has been released yet by the government. The extension of the tax exemption on state-backed bank accounts is expected to have a positive impact on Turkey's economy. The move will encourage investment in local currency and, as a result, support the lira. As the government looks to attract foreign capital, it remains to be seen if these measures will be successful in stabilizing the country's economy.