Turkey to Restrain Excise Tax Hikes to Support Inflation Target
tax hikes
Summary:
Turkey’s government is preparing to limit increases in excise taxes on fuel and other administered prices in 2026, aiming to support the central bank’s disinflation efforts and align fiscal policy more closely with the inflation target, according to people familiar with the matter cited by Bloomberg.
Fiscal Policy Shift to Support Disinflation
As Turkey approaches a critical phase in its fight against inflation, the government is refining its fiscal policy stance for 2026. According to Bloomberg, which cited sources with direct knowledge of the discussions, Ankara plans to keep tax increases on key goods and services — particularly fuel — at “moderate” levels next year.
The move is seen as one of the most concrete fiscal supports yet for the Central Bank of the Republic of Turkey’s (CBRT) disinflation strategy, at a time when monetary policy alone is carrying much of the burden of stabilising prices.
Excise Taxes to Be Aligned With Inflation Target
According to the sources, the government intends to limit hikes in special consumption tax (ÖTV) on fuel and other state-controlled prices in line with the CBRT’s inflation target for 2026, rather than allowing automatic increases based on past inflation.
Under existing rules, fuel excise taxes are adjusted every six months in line with the previous six-month producer price index (PPI). The new approach would represent a departure from this formula, resulting in smaller increases than those implied by historical inflation data.
The Treasury and Finance Ministry has not issued an official statement, but sources said the policy aims to ease pressure on the central bank as it seeks to anchor inflation expectations.
Bond Market Rallies on Bloomberg Report
Financial markets reacted swiftly to the report. Turkish lira–denominated government bonds rallied, with yields falling across the curve.
The two-year government bond yield declined by 26 basis points to 37.09%, while the benchmark 10-year yield fell 17 basis points to 29.74%, reflecting improved expectations for inflation and fiscal discipline.
Administered Prices in Focus
The measures, expected to be announced in the first week of the new year, are set to cover not only fuel prices but also other “administered prices” — including tobacco, alcoholic beverages and energy — which are either directly set or heavily influenced by the government.
Treasury and Finance Minister Mehmet Şimşek has previously signalled a shift in approach, stating last month that some taxes and fees would be adjusted based on targeted inflation rather than the official revaluation rate of 25.5%, which is derived from past inflation.
Inflation Target: 16% by End-2026
The planned restraint on tax hikes is widely seen as reinforcing the CBRT’s commitment to its end-2026 inflation target of 16%. Inflation was running near 31% in recent months and is expected to end 2025 at around 30%.
Bloomberg’s survey of economists suggests inflation could ease to slightly above 25% over the next 12 months. Fuel prices remain a key focus for investors and policymakers alike due to their broad and persistent impact on consumer inflation.
Source: Gazette KARAR, Bloomberg
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