Chapter 6: Fiscal Law

Introduction

Today every nation, every organized political community, every country in the world is considered as an economic unit which is called as the national economy. In the national economy the production of various kinds of goods and services are realized in different sectors. National economy consists of two main sectors: the public sector and the private sector.

Public sector in the national economy includes mainly the economical activities of the government and the other public authorities. Public sector, therefore, is also called as the public economics. Public economics studies the role of the governments in the national economies.

The provision of public goods and services requires certain financial activities from the government. The government must collect and spend revenues and real sources to realize the production of public goods and services.

Public finance is a field of social sciences which studies the role of the government in the national economy, in other words, it studies how the governments raise and spend money for the provision of the public goods and services together with the effects of these activities on the economy and on the society.

Fiscal Law

All the activities of the government in the field of public finance whether in regards collection of public revenues or making of the public expenditure must be in strict adherence to due process of law. The rules that must be obeyed by the government and the other public authorities in all their activities in the field of public finance are called as fiscal law .

Fiscal law is considered as a branch of public law while it governs the relationship between the individuals and the government regarding public finance and regulates the operations of the government in the field of public finance.

Fiscal law consists of two branches: public revenue law and public expenditure law.

Public Expenditure Law

Public expenditure can be defined as the spending made by the government of a country on collective needs and wants. All the administrative units must make public expenditures within the budget appropriations allocated to them, in other words, their expenditures should not exceed the amounts released. Also, such expenditure should conform with the provisions of the legislation on public expenditure.

Public Revenue Law

Governments need to perform different functions in the field of political, social and economic activities to maximise social and economic welfare. In order to perfom such duties and functions, the government requires large amount of resources. These resources are called as the public revenues. Public revenue is defined as the total income of the government and the other public authorities from all sources.

Today public revenue in the modern state can be divided into two major sources: taxes and public borrowing.

Taxes are the first and foremost sources of public revenue. In the second place of the public revenue comes the public borrowing.

Whether the public revenue is raised from taxes or borrowing it should comply with the provisions of the public revenue law. Public revenue law refers to the legal rules and procedures regulating the collection of public revenue.

Public revenue law can be divided into two subbranches: The law relating to public borrowing and debt & tax law.

Law For/About Public Borrowing and Debt

With the Presidential Decree No:1 on the Organization of the Presidency of the Republic published on 10th July 2018 of the Offical Gazette No 30474, the Ministry of Finance and the Undersecreteriat of Treasury of the Prime Ministry are unified under one institution which is the Ministry of Treasury and Finance. Thus, today the institution which is authorized for public borrowing and debt is the Ministry of Treasury and Finance.

Tax Law

In modern economies taxes are the most important source of governmental revenue. Taxes differ from other sources of revenue in that they are compulsory levies and are unrequited i.e., they are generally not paid in exchange for some specific things, such as a particular public service, the sale of public property, or the issuance of public debt.

Taxation is generally defined as the power of the state to demand enforced contributions for public purposes.

The primary purpose of taxation (the revenue or fiscal purpose of taxation) on the part of the government is to provide funds or property with which to promote the general welfare and the protection of its citizens and to enable it to finance its multifarious activities.

Tax law is defined as the body of rules which the government or any other public authority has a claim on tax payers, requiring them to transfer to the government or to the relevant public authority part of their income or property.

Tax law falls in the domain of public law and it is concerned with legal aspects of taxation rather than its financial, political or economic aspects.

Tax law can be divided as general tax law and special tax law (national taxation system), also as material tax law and formal tax law, international tax law, tax procedural law, criminal tax law, etc.

Tax administration is authorized for administration of the tax laws. That means the tax administration of a country (in Turkey the Presidency of Revenue Administration and Tax Office Directorates) is the responsible governmental authority for the assessment, computation, collection and enforcement of the taxes.

Tax System and Basic Concepts of Taxation

Tax System

Tax system is defined as the legal system for assessing and collecting taxes. It is a system created to administer, collect, integrate, improve, change and manage methodically the local tax law and national tax legislation.

Basic Concepts of Taxation

As a requirement of the principle of “the legality of taxation”, all the essential elements of a tax such as the taxpayer, taxable event, tax object, tax base, tax rates, and tax exemptions, which are also called as “the basic concepts of taxation”, must be explicitly included in a tax law.

Turkish Taxation System

In Turkish taxation system, rights, burdens, ways of implementing mandates and carrying out duties along with principals of accrual are regulated by the Tax Procedures (TP) Code No. 213. This Law comprises procedural and formal provisions of all tax laws.

Turkish taxation system is a multi-tax system for it consists of different taxes on income, property or expenditure.

Taxes on Income in the Turkish Taxation System

Taxes on income are the taxes imposed on individuals or entities that vary with their respective income or profits. Turkish taxation system consists of two main taxes on income: personal income tax and corporations tax (corporate income tax).

Although personal income tax and corporations tax are identical with respect to tax object, they differ from each other with respect to their tax payers and tax rates.

Taxes on Property in the Turkish Taxation System

Taxes on property are the taxes on the use, ownership or transfer of property. These ad valorem taxes are usually levied on the value of real estate. Property taxes include the taxes on immovable property or net wealth, the taxes on the change of ownership of property through inheritance or gift and taxes on financial and capital transactions. There are three kinds of tax on property in the Turkish Taxation System. These are real estate tax, motor vehicle tax and inheritance and gift tax.

In comparison with the motor vehicle tax and the gift and inheritance tax, which are collected by the central government, the real estate tax is a municipality tax collected by local authorities.

Taxes on Expenditure in the Turkish Taxation System

Taxes on expenditure are the taxes levied on the total consumption expenditure of an individual. Turkish taxation system comprises several indirect taxes, such as value added tax, special consumption tax, stamp tax, banking and insurance transactions tax, special communication tax, fees, etc.

Value Added Tax

Value added tax is one of the most important taxes in the Turkish Taxation System. VAT can be considered as an indirect tax levied on consumption spending on goods and services. VAT is a universal general tax on consumption while it levies each stage of the production and the distribution process.

Special Consumption Tax

Tax Special consumption tax is another important indirect tax in the Turkish Taxation System. Unlike VAT, special consumption tax is levied only for once at one stage of consumption process of the goods within the scope of four lists annexed to the Special Consumption Tax (SCT) Law No. 4760.

Stamp Tax

In the Turkish Taxation System, stamp tax is a duty imposed on the expenditures relating to legal transactions.

Banking and Insurance Transactions Tax

Another indirect tax levying the expenditures related with to legal transactions in Turkish Tax System is the banking and insurance transactions tax.

Special Communication Tax

Special communication tax is also a special indirect tax imposed on some communication expenditures and regulated in article 39 of Expenditure Taxes Law No. 6802 with the amendment in 2004.

Fees

Fees regulated under the Law No. 492 are also considered as a special duty related to legal transactions in Turkish Tax System.

The fees which are collected by the central government are in different types such as Judgment Fees, Notary Fees, Tax Judgment Fees, Title Deed Fees, Consulate Fees, Ship and Harbor Fees, Permit of License and Certificate Fees, Traffic Fees, Passport, Visa and Ministry of Foreign Affairs Certification Fees.

The above-mentioned fees are taken at different rates or in fixed amounts from the ones who benefit from the services which are liable to the relevant fees.

Unlike many other taxes on expenditure such as value added tax and special consumption tax, stamp tax, banking and insurance transactions tax and fees are indirect taxes imposed on the expenditures relating to legal transactions.