Turkey raises special consumption tax on cigarettes by 16.5%, which is expected to boost cigarette prices by 3%-17%

January 2, 2014 () – Special consumption tax (SCT) on new cars, tobacco products, alcohol and cellular phones has been raised.

The government decree on the SCT hike was published on the official gazette. SCT adjustment is likely to lead to increases in prices of these items, certainly negative for inflation outlook and may adversely affect demand for these products especially for cars. Depending on the size of engine, the consumption tax on passenger cars will be ranging between 45% and 145% (previously between 40% and 130%).

The STC on beer was raised by 15% and hiked by 10% on other alcoholic beverages. The minimum tax on a packet of cigarettes was raised to TRY 3.75 (EUR 1.27) from TRY 3.22, while the tax on cell phones was lifted to TRY 120 from TRY 100.

As a result of the STC hike, passenger car prices are expected to rise 3.5-4%, cigarette prices 3-17% and alcoholic beverage prices 8-15%.

The government is concerned about the country's widening current account deficit, which stands around 7% of the national income, and it tries to take credit-fuelled domestic demand under control. But at the same time, the central bank is struggling to curb inflation which currently hovers around 7%, well above the official target of 5%. The banking watchdog BDDK prepared several new legislations on credit cards and loans to curb excessive credit cards use and loan growth.

The government did not say how much additional revenue this SCT hike is expected to generate. The government targets TRY 83bn in SCT revenue in 2013 and it has collected TRY 78bn in SCT in the first eleven months of 2013. The 2014 budget foresees TRY 89.4bn in SCT revenue.
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