Just 8 hours after the President Erdogan stated “We have good news. Hopefully, in very near future, don’t be surprised if you hear news on the discovery of oil and natural gas resources. The world is jealous of Turkey,” he increased the cost of oil products by 54%, 78%, and 188%.

The rule of AKP, in the current economic and pandemic crisis, once again, put its hand into the pockets of the citizens. While energy monopolies have been complaining about the oil prices being low, it elevated the SCT rates on oil,  therefore prices at pump were increased. With an excessive increase of Special Consumption Tax (SCT), gas price was increased by 55, that of diesel fuel by 67, and that of LPG by 35 kurus. With the abolishment of price ceiling and cost-of-living clause regulations, the prices are now completely at the mercy of the companies. From now on, every increase in the foreign exchange rate will get reflected on the oil prices.

Following the SCT increase, in a statement, the Union of Employers of Energy, Oil and Gas Supply Stations announced an increase in oil prices based on SCT elevation, as of May 20th. According to this, the amount of special consumption tax on 98 octane unleaded gas has been announced to be 1.58 Lira per litre.

Price ceiling regulation adopted by Energy Market Regulatory Authority to prevent the speculations over oil prices had been terminated on May 17th.

WHAT HAPPENED IN OIL SECTOR, WHAT IS THE GOVERNMENT’S TAKE?

Prof. Hakan Kara, previous head economist of the Central Bank, responded to the question of “Why have the prices  been kept levelled for a long time, and why were they set free now?” as follows: “Generally the foreign exchange rate and oil prices and taxes determine the prices of oil products. In the recent period, the increase in foreign exchange and oil prices were compensated with the reduction in taxes at the pumps. By doing so, 1 additional point increase in inflation rate was avoided.  This was done during October-April period when there were negative base effects on inflation. In other words, the increase in annual inflation rate was levelled off.

GOVERMENT SAW AN OPPORTUNITY

But, as it resulted in serious losses in tax collection, it was not sustainable. Hence, the rates of taxes were increased. Why now? Because the base effects on inflation are taking a turn during May-June period. There is this point : Inflation will fall per base effects. So, it is an opportunity to increase the taxes. They can get two birds with one stone: both increase the budget funds and keep the inflation view unchanged. Well, would this strategy work? There might not be any issues emerging in May-June months, because the price increases slowed down , and specifically in June, positive base effect is visible. For this reason, there may not be much increase in the annual rate of inflation. Let’s look at it with concrete figures: The direct effect, of 55-67 kurus increase in the oil prices, on inflation is roughly 0,1 points in May, it could be 0,2 points in June.

The base effects in May-June could be enough to offset these increases. However, it’s not known what will be done after July. If the Central Bank does not interfere, the inflation view could get changed for the worse.

THE EFFECT ON INFLATION COULD REACH TO 0,5 POINTS

The effect of price increase in oil on CPI (Consumer Price Index) could reach up to 0,5 points taking into account of indirect effects. Inflation could still rise per accumulated foreign exchange rate and cost effects. When the inflation starts to rise again in July, there would have to be a necessity to bring out new bunnies from the hat. The Central Bank seems willing to try all the side ways in order not to raise the interest rates. We will once again observe the impossibility of fighting the inflation by doing last what is to be done first.”

21,6 BILLION ADDITIONAL ANNUAL TAX BURDEN FOR CITIZENS

Assessing the increase in the SCT charged on the oil products, CHP member of parliament of Hatay, Mehmet Guzelmansur said : “With this increase, the government has taken the easy way out to collect taxes. With this increase, the government once again has focused his eyes at the pockets of citizens. With this increase, the citizens will pay 59,3 milion TL more daily, and 21,6 billion TL more annually, in SCT.”

TAX AMNESTY FOR HOLDINGS, TAX INCREASE FOR CITIZENS

Emphasizing that the tax policies have been completely wrong and unjust, Guzelmansur made statements as follows “The government is introducing tax amnesty, tax exemption for some privileged. It is trying to close the deficit it created in public funds, by increasing the tax on the products that citizens have to consume. This is neither just,  nor sustainable, nor logical. Because increasing the tax on essential products by taking that easy way out creates inflation. It increases the interest rates. Isn’t it this government complaining about high interest rates, if so, why  is it undersigning such decisions that are to increase the interest rates? This does not make any sense at all. These increases must be taken back at once. It must take its eyes off of the pockets of the citizens.” (EVRENSEL DAILY)