New Regulations Exempt Small Businesses from Inflation Adjustments in 2024, Easing Tax Burdens for Over 1.5 Million Enterprises
Inflation Accounting Relief for Small Businesses in 2024
The Turkish Ministry of Treasury and Finance has introduced significant relief for small businesses concerning inflation adjustments. As the deadline for the submission and payment of income and corporate temporary tax returns for the second quarter of this year approaches, a new regulation has been enacted to ease the burden on small enterprises.
Key Takeaways from the New Regulation
- Exemption for SMEs: Businesses with gross sales under ₺50 million as of the end of 2023 are now exempt from inflation adjustments for the second and third temporary tax periods of 2024. This move is expected to benefit around 1.5 million taxpayers, according to Minister Mehmet Şimşek.
- Positive Reception: The decision has been welcomed by the business community, providing much-needed relief amid economic fluctuations. This article outlines the essential details of the regulation, addressing frequently asked questions about inflation accounting and its impact on businesses.
What is Inflation Accounting?
Inflation accounting is a method used to adjust financial statements to reflect the true economic situation of a business. It ensures that the financial data presented in the statements is accurate and represents the current purchasing power of money, which is especially crucial during periods of high inflation.
Implementation and Scope
The regulation primarily affects large and medium-sized businesses, public companies, and those engaged in export and import activities. All taxpayers who maintain their accounts on a balance sheet basis will be subject to inflation accounting, except for those specifically exempted under the new rules.
- Who is Exempt? Businesses that operate under a simple accounting method, such as professionals, farmers, rental income earners, and those who earn interest or dividend income, are not subject to inflation adjustments. Small enterprises with annual revenues below the ₺50 million threshold are also exempt for the specified periods.
Timing and Application
The inflation adjustment will be applied to tax returns filed for the second interim tax period of 2024, which are due by September 13th. Companies that have already filed their returns can submit revised declarations without incurring penalties or interest, provided they do so by this date.
Special Provisions for Investments
For taxpayers involved in ongoing investments, the Ministry is developing formulas to ease the impact of inflation adjustments. Minister Şimşek has indicated that these provisions may include placing profits from inflation adjustments into a special fund, which could be tax-exempt and considered in taxable income over a five-year period.
- Future Legislative Actions: The Minister also mentioned that the government is working on legal amendments to address this issue, with discussions expected to commence when the Turkish Parliament reconvenes in October.
Foreign Currency Assets and Inflation Accounting
Foreign currency assets will not be subject to additional inflation adjustments, as they will be revalued according to the exchange rate at the time of the correction. Companies holding foreign currency-denominated shares, participations, and advances will adjust these items based on the current exchange rate on the adjustment date.
Impact on Corporate Valuation
The impact of inflation adjustments on corporate valuation varies. Companies with strong asset bases financed through equity will likely benefit from reduced tax burdens. Conversely, firms with substantial debt may face additional tax liabilities, as their debt is not subject to inflation correction.
This regulatory change marks a significant step in supporting small businesses amid challenging economic conditions, ensuring that they can navigate inflationary pressures with greater ease.
Source: AA / Prepared by Irem Yildiz