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Cablegate: Got Rectifies Erroneous Vat Tax Collections From Free Trade

VZCZCXRO0270
PP RUEHDA
DE RUEHAK #0463 0701302
ZNR UUUUU ZZH
P 101302Z MAR 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 5531
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 3972
RUEHDA/AMCONSUL ADANA 2759

UNCLAS ANKARA 000463

SIPDIS

USDOC FOR ITA/MAC/KNAJDI

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EINV ECON TU
SUBJECT: GOT RECTIFIES ERRONEOUS VAT TAX COLLECTIONS FROM FREE TRADE
ZONES

REF: ANKARA 278

1. (U) On February 27, the Ministry of Finance ended the collection
of additional value-added (VAT) tax levied on Free Trade Zones
(FTZs) operating in Turkey. Companies operating in FTZs were
blindsided by a Turkish Customs Undersecretariat circular issued on
January 21 (Reftel) requiring them to pay VAT on goods used for
investment, consumption or internal use. This surprise change
substantially increased production costs for these companies and had
many contemplating leaving Turkey.

2. (U) According to media reports, the Finance Ministry's letter to
Customs stated that all goods delivered to FTZs shall benefit from
VAT exemptions. This directive by the Ministry not only lifted the
additional taxes, but also simplified the process through which
these goods gain VAT exemption. Now, instead of listing the items
in the customs declaration, the companies can fill in a form to
receive tax exemption.

3. (SBU) While companies operating in FTZs were pleased with the
Ministry's intervention, they called for an amendment to the
legislation allowing such collections to ensure that the Customs
Administration cannot begin assessing these taxes again in the
future. Such a change, they argued, would help renew investor
confidence. "Only then can the GOT ensure sustained productivity in
FTZs, which have annual trading volume of $24 billion," said a
sector representative.

4. (SBU) Comment: The Finance Ministry's intervention is a welcome
step in restoring investor confidence. However, the fact that the
Customs Administration surprised other Turkish government agencies,
including reportedly the Prime Minister, with their decision to
begin assessing this tax emphasizes the need for the Turkish
government to streamline its tax code and amend conflicting
legislation. End comment.

WILSON

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