ABSTRACT

Tax evasion, defined as intentional and fraudulent activities by economic agents to escape paying taxes, has been of great importance to Turkey, bringing about considerable economic and societal costs. It is now clear that both business and households in the country are indeed looking for ways to evade taxes of all sorts, thereby contributing to the shrinking of revenues collected through the tax system. More specifically, collected tax revenues in Turkey barely reach one-quarter of the national GDP (it was 23.7 per cent in 2007), while figures for OECD and EU countries fluctuate at close to two-fifths of their GDPs (the EU15 and OECD figures for 2007 were 38.8 per cent and 35.8 per cent, respectively) (Zenginobuz et al. 2010). This difference comes about not because the state lacks the desire to collect taxes at levels comparable to the EU average, but because it is largely unable to do so. Zenginobuz and Tokgöz offer a striking example of the extent of tax evasion, arguing that in 2008 in Turkey, VAT evasion was at 41 per cent (calculated as the difference between the potential income tax people should normally pay – based on consumption figures revealed in a country-wide comprehensive household survey – and the actual amount of collected taxes) (Zenginobuz and Tokgöz 2010). Furthermore, since income tax evasion seems to be relatively easier than consumption tax evasion in a value-added tax environment, the composition of tax revenues in Turkey hinges on another anomaly: Roughly speaking, only one-third of tax revenue is generated through direct taxes, while the remainder comes from indirect taxation – a picture that is almost completely reversed in most developed countries (Zenginobuz et al. 2010).