• May 13, 2025
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Sustainable Tax Practices In Turkiye And Around The World 02 May, 2025

The concept of sustainability is no longer limited to environmental and economic policies; it has become central to tax policy as well. Sustainable tax practices aim not only to increase public revenues efficiently but also to promote environmental, economic, and social sustainability.

Introduction

Sustainable tax practices refer to tax systems that are environmentally sensitive, equitable, supportive of economic stability, and aimed at enhancing social welfare. These systems go beyond simply generating government revenues and function as policy tools in areas such as resource efficiency, reducing environmental impact, and promoting social justice. Within the limits of environmental sustainability. In today’s world, economic growth and development must be shaped with consideration of their environmental and social effects. At this point, taxes-being the primary instrument of public finance-should be re-evaluated not only as a source of revenue but also as a tool to support sustainable development.

Scope of Sustainable Tax Practices

  1. Definition and Core Principles

Sustainable tax practices aim to go beyond financing public expenditures and pursue objectives such as efficient resource use, pollution prevention, reducing social inequalities, and supporting economic growth. These systems are characterized by the following principles:

  • Environmental Effectiveness: Through instruments such as carbon taxes and energy consumption taxes, environmental costs are internalized under the “polluter pays” principle.
  • Equity: Ensures the tax burden is fairly distributed among different segments of society.
  • Efficiency: Taxation is designed not to hinder productivity and investment.
  • Transparency and Accountability: Tax systems are made understandable, auditable, and legitimate in the eyes of the public.
  1. Examples of Implementation
  • Sweden – Carbon Tax: Implemented in 1991, Sweden’s carbon tax on fossil fuels based on carbon content has significantly reduced greenhouse gas emissions.
  • Germany – Ecological Tax Reform: Between 1999 and 2003, taxes on environmentally harmful activities were increased while social security contributions were reduced, encouraging the use of renewable energy.
  • United Kingdom – Plastic Packaging Tax: Enforced in 2022 to reduce plastic waste by taxing non-recycled plastic packaging.
  • Netherlands – Air Travel Tax: Introduced in 2021 to encourage land and rail transport through a per-passenger air travel tax.
  • Social Taxation in Developing Countries: Countries such as Brazil and South Africa have shifted from consumption-based to income and income and wealth taxation to tackle income inequality.

SUSTAINABLE TAX PRACTICES IN TURKEY

In developing countries like Turkey, the sector-based applicability of these policies has a direct impact on both economic growth and environmental balance. Sustainable tax systems are critical in improving income distribution and accelerating sectoral transformation.

Examples from Turkey

1. Environmental Cleaning Tax (ÇTV):

  • Collected by municipalities via water bills.
  • Aims to finance solid waste collection and environmental protection services.

2. Motor Vehicles Tax (MTV) – Emission-Based Tariff:

  • Since 2018, emissions have been included in the assessment criteria along with engine size.

3.Energy Efficiency Incentives (Indirect Tax Advantages):

  • VAT and SCT exemptions or reductions for energy-efficient products and renewable energy investments, especially solar and wind.

4.Plastic Bag Fee (Indirect Tax Measure):

  • Since 2019, plastic bags are sold for 0.50 TL to reduce single-use plastics.

 

5.Sustainable Finance:

 

In the Official Gazette dated April 11, 2025, an amendment to the Regulation on the Organization of the Banking Regulation and Supervision Agency (BRSA) introduced the term “sustainable finance” into the regulation for the first time.

  • Green Asset Ratio: The Green Asset Ratio is calculated by dividing the eligible assets on banks’ non-consolidated balance sheets by the total assets within the scope of the green asset ratio. Eligible assets are those that make a substantial contribution to environmental objectives, do not cause significant harm to the environment, and comply with minimum social safeguards. This ratio is considered the primary key performance indicator for measuring banks’ contribution to environmental sustainability. The primary key performance indicator for banks’ contribution to environmental sustainability is the green asset ratio. The green asset ratio is calculated by dividing the eligible assets on banks’ non-consolidated balance sheets by the total assets within the scope of the green asset ratio. The purpose of this Communiqué is to determine the procedures and principles regarding the calculation and reporting of the green asset ratio and other key performance indicators established to measure banks’ contribution to the financing of environmentally sustainable economic activities. Working capital loans and other similar types of loans extended to undertakings that have generated at least ninety percent of their turnover in the last financial year from eligible assets and have not derived any income from non-renewable energy sources in the past year, where the use of proceeds cannot be identified, shall be considered eligible assets in the calculation of the green asset ratio.

 

6.Mandatory Sustainability Reporting:

According to the criteria set by the Public Oversight Authority (KGK), sustainability reporting has become mandatory for certain public companies of a specific size. Companies that exceed at least two of the following thresholds for two consecutive reporting periods are required to prepare sustainability reports:

  • Total assets: 500 million TRY
  • Annual net revenue: 1 billion TRY
  • Number of employees: 250

 

This requirement applies to fiscal periods starting on or after January 1, 2024, and companies must report their sustainability activities for the year 2024 during 2025.

  • Cash Capital Increase Deduction Scheme: A portion of the interest calculated on the amount of capital increased in cash can be deducted from the corporate tax base in the tax return. This deduction rate is set higher for publicly listed companies.
  • Sustainable Tax Governance: Companies are expected to manage their tax policies transparently and fairly in line with sustainable development goals. This approach ensures that companies fulfill their societal responsibilities within the framework of corporate social responsibility.
  • Publicly listed companies must prepare their sustainability reports in accordance with the Turkish Sustainability Reporting Standards (TSRS). These reports should include indicators of economic, environmental, and social performance. Additionally, companies are required to have these reports independently audited and publicly disclosed. These regulations aim to enhance the transparency and accountability of publicly listed companies in Turkey regarding sustainability issues. Furthermore, tax incentives are provided to encourage companies to engage in sustainability-related activities.

Evaluation and Recommendations for Turkey

Turkey’s tax structure heavily relies on indirect taxes, which place a disproportionate burden on low-income groups and undermines social justice. Compared to OECD countries, Turkey is more dependent on indirect taxes. VAT and SCT account for more than 65% of total tax revenues (Revenue Administration, 2023). Environmental taxes represent only about 1.2% of total taxes, well below the EU average of 2.4% indicating significant room for improvement.

Recommendations

  • Increase in Environmental Taxes: Implement new tools such as carbon taxes and energy efficiency taxes to promote environmental protection.
  • Shift Toward Direct Taxes: Increase income and wealth taxes to ensure tax justice.
  • Tax Incentives for Green Expenditures: Offer tax reductions for investments in renewable energy and the transition to green economy.
  • Combat Informality Through Digitalization: Use e-invoicing and e-audit systems to reduce tax evasion.
  • Emission Trading Systems: Develop emission trading systems. Turkey’s draft Climate Law (Ministry of Environment, Urbanization, and Climate Change, 2024) aligns with the EU Emission Trading System.
  • Reducing Fossil-Based Energy: Introduce high taxes on fossil fuels and exemptions for renewable energy investments; implement progressive energy consumption taxation.
  • Sustainable Agriculture: Apply environmental taxes on pesticides and fertilizers; provide tax reductions for organic farming and water-efficient irrigation systems.
  • Transport Sector: Restructure MTV based on emissions; reduce VAT on public transport and electric vehicles; offer tax incentives for green transport infrastructure.
  • Construction and Real Estate: Offer tax reductions (e.g., lower VAT) for energy-efficient buildings, property tax discounts for projects with green building certification, and tax incentives for urban transformation projects.
  • Finance and Services: Broaden the scope of the digital services tax; encourage carbon footprint tracking for remote-working firms; provide tax benefits to banks funding sustainable investments; offer tax advantages based on carbon risk evaluations.

Conclusion

An increasing number of countries are aligning their tax policies with environmental and social priorities to achieve sustainable development goals. Instruments such as carbon taxes, taxes on harmful products, green tax reforms, and incentive mechanisms play a significant role in preventing environmental degradation and encouraging clean technologies. Countries like Sweden, Germany, and the UK set examples through their pioneering efforts. However, the success of sustainable tax policies relies not only on legal frameworks but also on public support, transparency, consideration of distributional effects, and channeling revenues into environmental investments. For developing countries, implementing such policies with a focus on social justice is critical.

While Turkey has taken some steps toward sustainable tax practices, its efforts remain limited compared to many European countries. However, future developments are expected within the scope of green transformation strategies. For Turkey to achieve its sustainable development goals, it is vital to restructure its tax system accordingly. A long-term, inclusive, and equitable tax regime is essential for economic, social, and environmental sustainability.

Sector-based expansion of these policies in Turkey would contribute to:

  • Achieving climate targets,
  • Improving income distribution,
  • Combating the informal economy.

Policy recommendations:

  • Increase the share of environmental taxes,
  • Base sectoral incentives on performance,
  • Strengthen transparency and accountability mechanisms.

In conclusion, sustainable tax practices should be considered a strategic tool not only for a green economic transition but also for long-term fiscal balance. Global cooperation and knowledge sharing in this area should be encouraged and expanded.

 

REFERENCES

  1. Turkish Revenue Administration. (2023). 2023 Tax Revenue Report.
  2. OECD. (2023). Environmental Tax Statistics.
  3. Ministry of Environment, Urbanization and Climate Change. (2024). Draft Climate Law of Turkey.
  4. International Energy Agency (IEA). (2023). Turkey Energy Policy Review.
  5. Food and Agriculture Organization of the United Nations (FAO). (2022). Sustainability Report in Turkish Agriculture.
  6. Turkish Statistical Institute (TurkStat). (2023). Transportation Sector Statistics.
  7. OECD. (2022). Tax Challenges Arising from Digitalisation.
  8. Turkish Green Building Council (ÇEDBİK). (2023). Green Building Report.
  9. Banks Association of Turkey. (2023). Sustainable Banking Guide.
  10. OECD. (2022). Tax Policy and Climate Change.
  11. International Energy Agency (IEA). (2021). Turkey Energy Profile.
  12. Economic Policy Research Foundation of Turkey (TEPAV). (2020). Carbon Pricing and Policy Options for Turkey.
  13. Turkish Industry and Business Association (TÜSİAD). (2021). Green Transformation Report.
  14. FAO & Turkish Statistical Institute (TurkStat). (2022). Sustainable Agriculture Indicators in Turkey.
  15. Directorate General of Civil Aviation (SHGM). (2021). Transport and Logistics Strategy Document.
  16. United Nations Development Programme (UNDP). (2020). Social Entrepreneurship and Impact Investment in Turkey Report.
  17. Central Bank of the Republic of Turkey (CBRT). (2023). Green Financial Policy Framework.

 

 

For further information please contact:

Mustafa Bulut, CPA, Partner, ECOVIS DİPLOMAT DENETİM VE YMM A.S., Izmir, Türkiye

Email: mbulut@diplomatymm.com.tr

 

Efil Çetin, CPA, ECOVIS DİPLOMAT DENETİM VE YMM A.S., Izmir, Türkiye

Email: ecetin@diplomatymm.com.tr