Ministry of Finance rejects request for “inflation accounting” from banks

The Ministry of Treasury and Finance rejected the banking sector’s request to be included in inflation accounting so as not to be evaluated based on “non-real profits”, citing the loss of tax revenue estimated at up to 80 billion lira.

Two banking sources who gave information to Reuters said the sector made a request to the Treasury not to be excluded from inflation accounting, but did not receive a positive response to its latest requests.

Inflation accounting, which will be implemented after high inflation in Turkey, which has reached more than 85 percent in the last two years, aims to correct the deterioration caused by inflation in companies’ financial statements.

MOVING TO INFLATION ACCOUNTING

The inflation adjustment will be implemented nationwide at the end of the year and will be in effect between 2024 and 2026. The Treasury anticipates that inflation accounting will not be necessary starting in 2027.

However, Minister of Treasury and Finance Mehmet Şimşek said they planned to move to inflation accounting excluding the financial sector at the end of last month.

Following this statement, banks asked the Treasury to apply inflation accounting to their own balance sheets to avoid being assessed on “unrealistic” profits in the face of high inflation.

TAX LOSS OF UP TO 80 BILLION

If banks apply inflationary accounting, the estimated tax loss of 70 billion to 80 billion Turkish lira is considered the main reason why banks are not included in this practice.

A banking source who provided information on the issue said: “We ask the Treasury to move to inflation accounting in 2024, like other sectors, but; “We have not been able to get a positive response due to the loss of tax revenue,” he said, with the Treasury telling the sector: “We cannot ignore the 70 billion lira tax waiver.” He said he responded: “Therefore, it is not possible for banks to apply inflation accounting.”

Another source close to the matter stated that the loss of tax revenue, estimated at around 78 billion Turkish lira, was the main reason for the decision not to move to inflation accounting in the financial sector.

The Ministry of Treasury and Finance left unanswered questions on the subject.

While inflation exceeded 85 percent in October 2022, the Turkish banking sector announced historic profits in this environment, and the sector’s net profit increased by 366 percent to 433.46 billion lira at the end of 2022.

In its previous statement to Reuters, the Treasury stated that, considering the inflation forecasts in the Medium Term Program, it was concluded that the inflation correction would be carried out in 2024-2026, and that it was estimated that the necessary conditions would not be met. . after 2027 and the correction would not be made. (REUTERS)