Turkey will reintroduce a 0.1% tax on some foreign-currency transactions in a move that will increase budget revenue but risks raising concern that the government is taking on a larger role in managing the market. Turkey has resorted to increasingly heavy-handed tactics to steady the lira, even engineering a currency crunch on the Turkish lira before March municipal elections by pressuring local lenders not to provide TL liquidity to foreign investors. Financial markets analysts are worried that this new tax on F/X transactions could send the wrong signal to the markets, since it could deter further appetite from foreigners to invest in Turkey. Turkish officials nevertheless have repeatedly denied any plans to impose capital controls, and have been quoted as saying that the aim of the new tax is to prevent speculation in foreign exchange and bolster tax income.
The F/X tax, which has been lifted for over a decade, has been re-imposed in accordance with a presidential decision published in the Official Gazette on May 15th. The tax will be introduced on foreign-currency sellers, and will not apply to the interbank market and loan transactions.
The Turkish Central Bank data shows that the average trading volume in the local foreign-exchange spot market was USD 3.6 billion in April. It has been estimated that the government could add an estimated TL 200 million (USD 33 million) in monthly revenue to the budget, or about TL 1.5 billion for the remainder of the year. This added revenue will help meet the Treasury’s growing budget deficit. Despite the obvious benefit to the budget, it would however appear that the move is designed more to discourage FX buying than to raise funds.