New measures revealed, mergers will receive incentives
Posted by meb at November 28th, 2008
The government is planning to bring about a corporate tax exemption for company mergers for up to two years as an attempt to encourage such cooperation in its economic package, which aims to protect the Turkish non-financial sectors from the global financial crisis.
Citing anonymous sources, the Anatolia news agency reported yesterday that the economic package will include a number of radical policy changes and measures. One of the most important steps the package will introduce will be temporarily exempting mergers from corporate taxes. Since the financial structures of many companies have deteriorated greatly due to the financial crisis, the government is aiming to make it easier and more attractive for companies to merge their businesses instead of filing for bankruptcy. In the current system, the collection of the corporate tax is postponed until the bankrupted or merged company is liquidated completely. Economy officials have not determined the duration of the exemption during which the merged companies will not pay corporate taxes, but they are contemplating one-year or two- year options.
The new measures will also include tax exemptions for asset sales, which the companies are performing to find financial resources for their troubled businesses.
Another precaution to relax the non-financial sectors is the undertaking of a part of the interest payments of consumer loans by the Treasury for a temporary period of time to stimulate the markets by standing shoulder to shoulder with consumers. The package also includes steps to support exporters and small and medium-sized enterprises (SMEs) while easing the banks’ work.
The economic package is soon to be announced by Prime Minister Recep Tayyip Erdoğan once bureaucrats from economy-related ministries of the government finish preparations.
The actions being mulled by the government, as reported by the Anatolia, include the following:
* The costs of loans companies get from abroad will be decreased. In the current system, loans obtained through banks already come at a low cost, but the burden on loans extended by non-bank institutions is quite heavy. The government will likely reduce tax rates on such loans. The withholding tax rate on such loans will fall from 10 percent to 0 percent — or at most to 2 percent.
* A part of the Unemployment Insurance Fund, which has a value of close to $37 billion, will be transferred to non-financial sectors as loans with lucrative conditions so long as companies use this money to increase their employment. In the Minimum Wage Determination Commission meeting on Wednesday, Minister of Labor and Social Insurance Faruk Çelik said the decision for this can be made only by a full compromise between employers and workers.
* The economic package is thinking of reducing reserve requirements, the amount banks have to pay to the central bank’s coffers for every deposit they receive from their clients. Turkish Banks Association (TBB) officials voiced this demand during their recent meeting with Finance Minister Kemal Unakıtan. They reiterated the same demand to Economy Minister Nazım Ekren. The central bank currently applies a 6 percent reserve requirement rate for deposits in lira and 11 percent for deposits in foreign currencies. Cutting down the reserve requirement rates will provide more liquidity to the banking business, leading to better chances of extending more capital to the non-financial sectors as loans during the crisis. The bankers also want the government to eliminate completely the reserve requirement rate for resources acquired from banks abroad. This rate is currently 11 percent.
Government bureaucrats have in principle agreed to include these demands in the economic measures package, but note that the final say on this issue belongs to the central bank, the fully independent organ responsible for conducting the country’s monetary policies.
* A discount on long-term deposits will be one of the most significant steps. In Turkey, the average term for deposits was around three months prior to the crisis. This already short term fell further to levels near 2.8 months after the crisis erupted as people’s propensity for savings waned out of a desire to maintain liquidity in hard times. This measure targets to increase the deposit terms again. Lacking enough long-term deposits, banks grew more reluctant to accept long-term loan deals, usually preferred for housing and vehicle purchases. Consequently, the construction and automotive sectors have been shrinking in size, leading to increased unemployment.
* The Treasury will partially subsidize interest rates for consumer loans to encourage consumption and make markets more brisk. “As long as a person gets a loan to purchase domestic articles, a portion of their interest payments, likely to be between 30 and 50 percent, will be paid by the Treasury for nearly a year,” an official told Anatolia.
The government thinks this measure is “reasonable and feasible” but is now conducting an enquiry on whether this measure will clash with rules set by the World Trade Organization (WTO) and the European Union as it covers only goods manufactured inside the country.
* Extra funds will be allocated for Eximbank and the Turkey Development Bank for exporters and SMEs.
source: Today’s Zaman
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