Turkey Bumps Taxes on Foreign Exchange Purchases By 0.8%
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  • Turkey hikes taxes on foreign exchange trade.
  • The move was with the aim to raise money to tackle the after-effects of the global pandemic. 
  • The tax on foreign exchange was reintroduced in May 2019 from zero to 0.1% – later raised to 0.2% – to discourage locals from selling the lira for other currencies.

It was in December 2019 that the first case of Coronavirus was discovered in Wuhan, China. A few months on and every country worldwide is feeling the harsh consequences of the virus which has already claimed almost 345,000 lives, at the time of writing. 

In the aftermath of the virus, Turkey has reported circa 156,000 positive cases as of now and is inevitably facing an economic slump. To counter the issue and recover from this tumultuous time, the country has increased the tax on foreign exchange purchases, the Official Gazette said.

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In a bid to save the country’s currency lira from falling out, the tax rate has been increased from what was before 0.2% to 1%. Along with foreign exchange, it will will also encompass gold purchases. 

Transactions between banks, with the Treasury, and for those reimbursing foreign-currency loans to banks will be exempt from the tax, as reported by Bloomberg

This would enable the government to have more financial leeway to help local businesses recover from the so-called Corona-induced recession. Additionally, this would also discourage Turks from buying other currencies such as the more stable dollars and euros. 

This will indeed have a massive impact as fewer people might trade foreign exchange. It was only a year ago that a tax of 0.1% was imposed in the first place and later raised to 0.2%. After the tax was levied from last year onwards, the average daily volume was down 40%, according to Central Bank

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Undoubtedly the currency will fall because of the higher tax. However, the question is whether locals will continue to trade in foreign exchange or give in to the government’s wishes.