Business representatives, who have just grasped the fact that the inflation adjustment, which the EKONOMİ newspaper brought to the agenda in full detail in October and November, will not result in positive results in terms of data for every business, have started to express their demands for postponement or adjustment again.
The inflation adjustment (inflation accounting) practice, which is based on the correction of balance sheets in order to disable the damage of high inflation on balance sheets, will come into effect as of January 1, 2024, if there is no postponement. Inflation accounting, which should have entered into force last year, was postponed to 2024 upon the demands of the business world. The fact that the correction process has different results in each business, that is, it has a tax-increasing effect in some and a tax-reducing effect in others, has brought the postponement demand of some segments to the agenda again.
They met with President Erdoğan and Hisarcıklıoğlu
According to information obtained by the ECONOMY, a group of chamber presidents went to TOBB President Rifat Hisarcıklıoğlu to convey the reactions of their members. The presidents stated that in a period of difficult economic conditions, inflation accounting will have a negative impact on businesses and that they will be in an even more difficult situation. It was learned that some business people resorted to President Recep Tayyip Erdoğan and requested a new postponement in inflation accounting. In response to these voices from the business world, it is noted that the Ministry of Treasury and Finance insists on implementing the regulation and does not favor a postponement.
Taxes to be paid by banks will not change
Inflation accounting normally means that banks pay less tax. In order to prevent this, the Ministry of Treasury and Finance wants to exclude some institutions, including banks, from the scope of inflation accounting. In this context, a special provision has been included in the omnibus bill, which is expected to be finalized in a few days. In the proposal, profit/loss differences arising from inflation adjustment of banks, companies within the scope of the Financial Leasing Factoring Financing and Savings Financing Companies Law, payment and electronic money institutions, authorized foreign exchange institutions, asset management companies, capital market institutions, insurance and reinsurance companies and pension companies will not be taken into account in the determination of earnings in the 2024 and 2025 periods. The President may extend this exception for one more accounting period. While banks reacted to this regulation, it is reported that the issue can be brought to the judiciary if necessary.
No tax in the first year
Businesses within the scope of the scope will make inflation adjustment for the balance sheet of 2023. Profit or loss differences that will arise as a result of inflation adjustment will be shown in the retained earnings account. The resulting profit will not be subject to tax, and the previous year’s loss will not be considered as loss. In other words, the tax to be paid in the first year of implementation will not change. If inflation accounting conditions are met in the following years, the potential profit will be subject to tax.
Inflation accounting requirements
Inflation accounting is applied if the Domestic Producer Price Index (D-PPI) exceeds 10 percent in the current year and 100 percent in the last three accounting periods combined. The conditions for inflation accounting, which was previously applied only in 2004, were met last year, but the implementation was postponed for one year with a legal regulation to be applied to the balance sheets of 2023.
Who will apply and who is exempt?
Inflation accounting will be applied to income or corporate taxpayers and businesses that keep books on a balance sheet basis. However, not all businesses within this scope are subject to inflation adjustment. The Ministry of Treasury and Finance will determine a certain amount for net sales or asset size, and the balance sheets of those above this limit will be subject to inflation adjustment. Commercial income taxpayers who keep books according to the business account basis, self-employed people such as lawyers, doctors, certified public accountants, those who earn agricultural income, those who earn rental income, those who earn securities income such as interest, dividends, etc. and those who earn wage income will not be subject to inflation adjustment.
“Adjustment is not an inflation adjustment of profit or loss”
Nazmi Karyagdi, Co-Founder of Yeni Ekonomi Danışmanlık AŞ and Strategy Head of E.Gelir Administration, reiterated his view that inflation adjustment is not something that will have the same effect on all businesses. Karyagdi said that inflation accounting is generally known in the public as “the calculation of real profit or loss by adjusting the commercial profit or loss for inflation”, whereas this is to bring non-monetary assets (raw materials, prepaid expenses, land, land, building, machinery, debts….) to their current values. Karyagdi underlined that the effect of inflation adjustment, which does not mean that all businesses pay less or more tax, may vary depending on the structure of the balance sheet.
