A New Tax On Property Value Gains?

It is becoming difficult to understand the system of laws in Turkey.
I really wonder if there is an educated background to some laws requiring specialist knowledge. It seems that the government is willing to impose new taxes on property value increases, and I am not sure if the market will react to this law in a positive way. If the owner of a property is asked to pay a tax apart from property tax, just because his property gained value for this or that reason, then people will avoid buying properties in Turkey. If the government has the idea of making a law that would ask property owners to pay additional taxes, then the opinion of market players should also be consulted, since this kind of tax will definitely harm the market, especially for overseas investors.

For several years the transfer tax for a property was only 3 percent of the value of the property. The value of a property was even declared freely by the parties to avoid the tax burden, and the government made a regulation to limit the minimum value that could be declared during the transfer of a property. With this new regulation, the municipalities determined the minimum values for properties, and all transactions were made on these values if the parties did not wish to state a higher value.

The 3 percent transfer tax became significantly higher than that of other countries' transfer tax rates once this new regulation had been made, and people were pushed to declare higher values. There is nothing wrong with taking measures to ensure the declaration of the correct value of a property, but the impact of the regulation made it less feasible to make property investments in Turkey at that stage. Following this regulation, the rate for transfer tax was increased from 3 percent to 3.3 percent, again based on the value of the property.

Increasing the rate was, in my opinion, an extra burden on people, since the value of the property was already increasing and people were paying more tax anyway because the tax was directly related to the value of the property. Finally the government made a new increase last year by making the transfer tax rate 4 percent, again based on the value of the property.

When we inform foreign clients about the transfer tax, we usually receive a serious reaction about the rate of transfer tax applied to the transaction. In some cases the deal fails only due to the matter of transfer tax, since none of the parties want to pay the transfer tax.

Finally, I read the summary of an interview with the minister of development, who says the government is working on a new regulation about buying in Turkey. According to this regulation, “The public will be a partner to every property that gains value.”

The minister, speaking to the Hurriyet daily, said: “We are working on a system that means the public gets its share from the gains in urban development. For instance, if you have a house and the value of the house jumps to TL 200,000 from TL 100,000, then the gains should be shared with the public. This will be a new source of income for the public and a fair regulation.” In this case, whether you sell your house or not, you will be required to pay tax? This is very scary…

The minister also added that these kinds of creative works aim to support an increase in the per capita income of Turkey.

I would like to ask the government to also think about the properties that have lost value due to changes in zoning and help the owners be compensated for their losses.

NOTE: Berk Çektir is a Turkish lawyer and available to answer questions on the legal aspects of living and doing business in Turkey. Please kindly send inquiries to b.cektir@todayszaman.com. If a sender's letter is published, names may be disclosed unless otherwise is expressly stated by the sender.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not rely solely on the information in this column.

BERK ÇEKTIR (Cihan/Today's Zaman)