Turks resist IMF call to raise VAT by 2 percent

ANKARA (Reuters) – Turkey’s government is resisting International Monetary Fund (IMF) pressure to raise value-added tax (VAT) by two percentage points, a Turkish official close to talks with the lender said yesterday. A visiting IMF inspection team is going through the government’s budget plans for 2003, checking that planned spending on pensions and other measures can be matched by revenue sources. Turkish officials say they still need to find some 4,000 trillion lira ($2.42 billion) to meet a target agreed with the IMF for the primary surplus under their $16 billion loan pact. The primary surplus, which measures the budgetary balance excluding payments on debt, is used by the fund and markets as an indicator of Turkey’s determination to reduce a heavy domestic debt burden. An official close to the talks said the IMF had suggested a two-percentage point increase to VAT, which runs at 18 percent on most items, in order to help close the gap. «But a VAT rise is definitely not looked on warmly in the framework of policy,» the official said. The Justice and Development Party (AK) was elected on an agenda of poverty reduction and growth to help those worst hit by a series of economic crises. It says it can meet the IMF target through cost-cutting and a tax plan designed to settle and collect disputed and unpaid tax bills. Analysts have said the plan to earn 2,400 trillion lira through the tax plan is ambitious. The IMF talks are likely to continue over a weeklong public holiday which began on Monday in Turkey. Approval of the 2003 budget would be a major step toward the release of a long-delayed $1.6 billion loan payment. It would also help shore up market confidence in Turkey as a war looms in Iraq that could cut Turkey’s trade and tourism revenues.