Turkey increases fuel tax as it bolsters stretched budget

Turkey raised tax on petrol on Sunday 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 percent in June from a 24-year high of 85.51 percent last October.

The wider deficit was largely because of increased spending ahead of May elections, when President Recep Tayyip Erdogan 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 tax rate for gasoline was increased to 7.52 lira per liter 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 percent a liter, Reuters calculations show.

The 1.12 trillion lira boost to Ankara’s budget was approved by parliament on Saturday 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 percent of its value since 2018 and has shed more than 28 percent in 2023, pushing up prices of a broad range of goods from fuel to food in the import-dependent country.