Incentive package to foster investments
Posted by meb at August 20th, 2008
New incentives for encouraging job creation and helping Turkey’s poorest regions could be implemented by as early as 2009.
In addition to the already announced 5 percent cut in payroll taxes, the government is also planning to cover training costs and help companies with investment and borrowing. There will also be assistance for textiles companies that want to relocate their production to Turkey’s east and southeast.
The investors that create employment with new or additional investments will be supported in seven categories as of 2009. These categories will include additional reductions in social security premiums, corporate tax reductions, the covering of training costs, allocations of investment, interest returns, customs exemptions and exemptions from value added tax, or VAT.
Several options
The Cabinet will decide the incentives to be implemented for regional, sectoral and large investments. For investments that are not within the regional and sectoral incentive scope, there will be aid in the form of customs and VAT exemptions. With the new incentive system, which will not feature factors harmful to competition, the investors will benefit from government support if they create new job opportunities. The only sector exempt from this rule will be textiles, which will be provided instead with incentives for moving to the eastern and southeastern regions of the country.
In regional incentives, in order to monitor local development programs, the “NUTS2” system, which divides Turkey into 26 regions, will be used.
When investing in a area that does not qualify for regional or sectoral incentives, investors will still be able to benefit from customs and VAT exemptions.
This means customs tax exemption and VAT exemption will be implemented nationwide.
However, not all investors will be able to benefit from these opportunities. In principle, certain sectors are not provided with incentives, according to anonymous sources. The clustering of the sectors at certain places is among the basic targets in the new incentive system.
Energy support not included
The incentive package will not include factors such as energy support, which is currently effective within the scope of Law 5084. The current implementation is harmful for competition, according to resources, while the new incentive system will feature arrangements to reduce investment costs.
Contrary to the system in place, the new incentives package will not require the creation of a new law. There will be a small change to existing law that will allow the Cabinet to introduce reductions in corporate tax rates, authorities say. The package will also need to be negotiated with the European Union within the scope of Customs Union commitments.
Employment crucial
In principle, a business will not be able to benefit from the incentives without investment and employment. The textile sector is the only exception to this rule. Among textile companies, those that want to open facilities in eastern and southeastern regions will be encouraged. However, there will be no arrangement to increase production capacity in conventional textile areas. Besides, the sector’s desire for energy assistance is not approved due to competition-related issues.
Large investments in petrochemicals, the automotive industry or in the production of LCD screens will also win government incentives. Moreover, stock breeding, fruit-vegetable production and paper production from cellulose will be within the scope of the incentive program.
According to the arrangement concerning large investments, petrochemical investments over YTL 1 billion, automotive investments worth YTL 250 million and investments of YTL 1 billion in LCD production will be encouraged.
Seven items in the incentive package:
1) Reducing social security premiums beyond the already announced 5 percent cut
2) Covering training costs for employees
3) Allocating land for investment
4) Refunding interest on loans for investments
5) Reducing corporate tax for eligible investments
6) Exempting eligible imports from customs
7) Exempting machinery and equipment purchases from VAT
Basic principles of the new package
- Must create new investment and employment opportunities
- Must not be harmful to competition
- Must be negotiated with the European Union
- The textile sector will be offered incentives to move production to the southeast
source: Turkish Daily News
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