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Taxation challenges in terms of inflation and
recession

Besides the global inflation wave, another problem that
emerged in the second half of 2022 is the fluctuation in
commodity markets due to recession concerns. The risk of
countries' fight against inflation (interest rate increases)
and geopolitical developments dragging their economies
into recession is increasing. “Recession concerns, dollar
demand clamp down on commodity market” according to
the news on AA on 18.7.2022 (https://www.aa.com.tr/en/
economy/recession-concerns-dollar-demand-clamp-down-on-
commodity-market/2639396).

The expectation of recession, price fluctuations and/or
general economic conditions create great depreciation in
commodity prices. This is observed in some commodity prices
by the third quarter of 2022. For this reason, significant
decreases (10% and above) occur in some commodity prices.
Therefore, the “impairment” in the inventories of businesses
causes problems in taxation.
Article 274 of the TPL allows "decreases in commodity value"
to be taken into account in taxation in order to eliminate the
negative effects of the economic recession. According to the
article, "commodity is valued at cost". The above principle
is also applicable for “goods” (including finished or semi-
finished goods. According to the regulation, if the sales price
of the commodity on the valuation day decreases by 10% or
more compared to the cost value of the commodity, taxpayers
can use "arm’s length value determination methods" other
than the "cost basis" method.
Therefore, according to the principles in Article 267 of the
TPL, taxpayers must first identify those with 10% or more
depreciation in their commodity stocks (including semi-
finished products) and taxable income (tax assessment)
should be reached through determining registered values of
depreciated commodity stocks according to impairment.
Despite the regulation in the law, secondary regulations of
Ministry of Treasury and Finance that will guide the relevant
practices regarding this case have not been made. In the
case of price fluctuations in the third quarter of 2022 and
possible recession scenarios, rapid secondary regulation is a
requirement of the "Clarity" principle. Otherwise, taxation of
fictitious income will be inevitable in violation of the principle
of solvency and enterprises may face loss of labor and
working capital.

This is the summary of the article published in the
Ekonomist magazine’s issue 2022/17, dated 21.08.2022.

8 September 2022