Renowned economist and writer Meriç Köyatası explores the shocking reality of Turkey’s tax system in his latest piece, delving into how 88% of potential revenue remains uncollected and its implications for the economy.
How Much Tax Will We Evade in 2025?
When the new year’s budgets are finalized, experts in public finance often produce reports titled, “How much tax will we pay this year, item by item?”
Most people believe that there is significant tax evasion and an extensive informal economy in Turkey. However, the actual scale of this issue is rarely discussed. On June 23, 2024, I estimated the amount of tax loss and evasion for the year, publishing an article on 12 Punto titled “They Pay 1, They Evade 10!”
For 2025, I estimate that tax loss and evasion will amount to approximately 13.4 trillion liras.
On January 10, Friday, Nedim Türkmen, a respected tax expert, wrote in Sözcü newspaper: “I continue to argue in my articles that the informal economy in Turkey is larger than the formal one.”
I share this perspective with Mr. Türkmen. While I am not specialized in public finance, I evaluate the matter from a macroeconomic perspective. Without differentiating between the formal and informal sectors, I make a bold claim about Turkey’s tax potential: those paying taxes based on declarations are only paying 12% of what they owe, while 88% goes unpaid.
To make this estimation, I rely on two key data points, which both lead to similar results:
- The share of direct and indirect taxes in total tax revenues.
- The ratio of total tax revenues to GDP.
Taxes to Be Collected in 2025
In 2025, the total projected tax revenue is 11.139 trillion liras.
- Corporate Tax: 1.637 trillion liras (15% of total tax revenue).
- Income Tax: 2.130 trillion liras (19%).
- Combined, direct taxes account for 3.767 trillion liras (34% of total taxes).
- Indirect taxes, such as VAT, special consumption taxes (ÖTV), and customs duties, account for 7.372 trillion liras (66%).
This imbalance is where Turkey’s inequality lies. In developed countries, direct taxes make up 70% of total taxes, while indirect taxes account for 30%. Turkey, however, is the opposite, with a ratio of 34/66.
If Turkey’s economy generates 7.372 trillion liras in indirect taxes, then, based on the golden 70/30 ratio, the direct tax potential should be 2.3333 times this amount. This calculation yields 17.2 trillion liras in direct tax potential.
Instead of collecting 17.2 trillion liras, Turkey collects only 3.767 trillion liras in direct taxes. This means the tax loss and evasion amount to 13.4 trillion liras.
88% Vanishes, Only 12% Paid
When we examine Turkey’s tax structure, 93% of income tax is deducted at source (e.g., payroll taxes), leaving only 7% to be paid through declarations. This small percentage, approximately 150 billion liras, is paid by 2.5 million self-employed professionals, such as jewelers, contractors, lawyers, and doctors.
Adding the declared income tax and corporate tax amounts, declaration-based taxes total 1.787 trillion liras. Yet, 13.4 trillion liras in taxes go unpaid.
GDP and Taxes
Let’s validate this with another data point: the ratio of total tax revenues to GDP.
- In 2025, Turkey’s GDP is projected at 61.5 trillion liras.
- Taxes account for 18% of GDP.
In developed countries, this ratio is 40–55%. At 40%, Turkey’s tax potential would be 24.6 trillion liras—consistent with my earlier estimate of 24.5 trillion.
Who’s Not Paying Taxes?
The title asks, “How much tax will we evade in 2025?” but I intentionally use “not paying” instead of “evading.” Here’s why:
Of the 13.4 trillion lira tax loss:
- 3 trillion liras are foregone by the state as tax expenditures.
- 800 billion liras of this is due to minimum wage tax exemptions.
- 2.2 trillion liras result from incentives and forgiven taxes for favored companies.
The remaining 10 trillion liras is split between informal religious groups and outright evasion.
Religious foundations issue receipts to companies for donations, enabling full tax exemptions. However, how much actually goes to these foundations versus how much is pocketed by intermediaries is unclear. This system raises serious questions about accountability, especially given the opulent lifestyles of certain religious leaders.
Meriç Köyatası