Inflation accounting - POSTPONED

In detail

In our tax bulletin of 16 December 2021 we informed you that the conditions set out in the Tax Procedural Code for the application of inflation adjustment for tax purposes were likely to be met by the end of 2021, and hence taxpayers would be obliged to restate their 2021 financial statements for inflation unless a legislative change was introduced to the contrary. 

The data announced by the Turkish Statistical Institute (TUIK) on 3 January 2022 did indeed show that the inflation rate exceeded 10% in 2021 and exceeded 100% in the last three years (including 2021), thus making inflation adjustment for tax purposes obligatory in 2021. 

In response to the demand from businesses for more time to prepare, a draft bill was submitted to Parliament on 10 January 2022. The draft bill proposed the postponement of the implementation of inflation accounting until the end of 2023. The proposal was accepted by Parliament and was published in the Official Gazette on 29 January 2022.

According to this legislative change:

• No inflation adjustment will be made to the financial statements of 2021.
• No inflation adjustment will be made to the financial statements of 2022. 
• The financial statements of 2023 will be restated for inflation, regardless of whether the conditions prescribed in the Tax Procedural Code for inflation accounting exist or not in 2023. 
• Net gains from the restatement of 2023 financials will not be included in taxable income. Likewise, if the restatement of 2023 financials result in loss, such losses will not be taxdeductible. That is, the inflation adjustments in 2023 will have no effect on the tax calculations of 2023. The net result (gain/loss) will be posted to balance sheet under prior years’ gains/losses account.

With the postponement of inflation accounting until 2023, the revaluation opportunity provided under Temporary Article 31 and Temporary Article 32 of the Tax Procedural Code (the possibility of revaluing depreciable assets in 2021 and 2022 in return for payment of a one-time 2 percent tax) reemerges as a potential tool for businesses for evaluation.