Turkey cuts taxes on staple foods to fight high inflation | business news

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By ZEYNEP BILGINSOY, Associated Press

ISTANBUL (AP) – Turkey’s president on Saturday announced a significant cut in taxes on staple foods as the country faces rampant inflation and numerous protests over eroding living standards.

President Recep Tayyip Erdogan said VAT on grocery purchases will be cut from 8% to 1%. His decision will be published in the Official Journal and will come into effect on Monday.

Erdogan said that in addition to the tax break, the government “expects” food companies to cut their prices by 7%. He said these foods play a significant role in inflation.

Official data for January showed inflation rising to a staggering 48.69% annually, although independent experts say the true figure is much higher, more than 115%.

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“We will not allow inflation to crush our nation,” Erdogan said.

However, critics say the country is suffering from high inflation as Erdogan insists on interest rate cuts. He believes that contrary to mainstream economic theory, inflation is caused by high interest rates.

The central bank, whose independence the government has undermined, had cut interest rates by 500 points to 14% since September but suspended rate cuts in January.

The cuts triggered a currency crisis and the Turkish lira hit record lows in December. Since Turkey is dependent on imports for its energy needs as well as raw materials and many foodstuffs, prices have skyrocketed.

The government insists Turkey’s economic downturn was caused by foreign interference and external factors. Erdogan said on Saturday that Turkey would fight the “threats to destroy our economy” with all available means.

The lira closed this week at 13.49 against the dollar. The record low in December was 18.36. The currency has hovered around 13.5 since that record low after the government introduced a new financial tool to discourage savers from buying foreign currency and encourage them to convert their dollars into Turkish liras with a currency-protected deposit system.

Households and companies suffer from sharp increases in energy prices. Authorities hiked electricity tariffs on January 1, raising prices by more than 50% for many households and by up to 127% for businesses and high-consumption households. Some protests have erupted and many small businesses like restaurants have shared their utility bills on social media to show how close they are to being put out of business.

Turkey’s Finance and Finance Minister Nureddin Nebati said on Saturday that rising global electricity and natural gas prices have remained below real prices thanks to government subsidies in Turkey. He urged critics to “be fairer.”

Strikes are also taking place in Turkey as inflation erodes the value of workers’ paychecks. Freight, food delivery, factory and warehouse workers have all halted work at scores of companies, and social media campaigns to boycott companies that don’t raise salaries continue.

Thousands of healthcare workers went on a day-long strike on Tuesday, demanding better working conditions and pay and measures to protect against mounting verbal and physical attacks on patients or their loved ones.

Also on Saturday, Nebati announced a move to encourage people to bring in the gold they have been saving. He said 1,500 gold dispensaries would be operational on March 1 to bring the precious metal into the financial system as deposits.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed or redistributed.

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