Turkey increases special consumption tax on gasoline by 200% in one day

Turkey has increased the special consumption tax (ÖTV) on fuel by 200% in one day with a presidential decree. As a result, the price for a liter of gasoline and diesel oil jumped by nearly 21% as of July 16.

Reuters - Duvar English

Turkey raised the special consumption tax (ÖTV) on petrol on July 16 to help to fund a 1.12 trillion lira ($42.2 billion) increase to its 2023 budget after February's earthquakes and the May presidential election sent spending soaring.

The additional fuel tax will help with a budget deficit that jumped to 263.6 billion lira in the first five months of the year, up from 124.6 billion lira a year earlier, but it could also stoke inflation that had declined to 38.21% in June from a 24-year high of 85.51% last October.

The wider deficit was largely because of increased spending ahead of May elections, when President Recep Tayyip Erdoğan was elected for a third term, as well as on rebuilding work after the earthquakes in southern Turkey.

The earthquakes, which killed more than 50,000 people, are expected to cost Turkey more than $100 billion in total.

In the latest step to strengthen the Treasury's cash reserves, the ÖTV for gasoline was increased to 7.52 lira per litre from 2.52 lira ($0.1) while tax on diesel oil rose to 7.05 lira from 2.05 lira.

The impact of the tax adjustments, coupled with value-added tax (VAT), is expected to add about 6 liras to the final pump price, up more than 20% a litre. 

Tax expert Ozan Bingöl tweeted, "The ÖTV which was 2.52 TL for a liter of gasoline has been increased to 7.52 TL; the ÖTV which was 2.05 TL for a liter of diesel oil has been increased to 7.05 TL. Four days ago, we had written and warned that such an increase would happen. The reflection of such increases, together with the VAT, on the pump sale price will be 6 liras." 

The 1.12 trillion lira boost to Ankara's budget was approved by parliament on July 15 and follows various other recent tax increases among efforts to bolster government coffers, including a two percentage point increase to VAT.

The lira has lost more than 80% of its value since 2018 and has shed more than 28% in 2023, pushing up prices of a broad range of goods from fuel to food in the import-dependent country.