The Effect of Tax Damages on The Need Borrowing and Its Impact of Cost 

The Effect of Tax Damages on The Need Borrowing and Its Impact of Cost 

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Fiscal Policies and Inflation (Editors: Uyumez, M.E. & Hacikoylu, C.)

36th International Public Finance Conference

ISBN 978-975-8675-84-5

APATumer, O. & Aslan, M. (2022). The Effect of Tax Damages on The Need Borrowing and Its Impact of Cost. Uyumez, M.E. & Hacikoylu, C. (Ed.) Fiscal Polices and Inflation. Nisan Kitabevi. Eskisehir. 336-341.

Ozlem TUMER Memduh ASLAN ORCID 0000-0002-9512-3876

The Effect of Tax Damages on The Need Borrowing and Its Impact of Cost 


The main source of financing of public expenditures that the state is obliged to make is taxes. In cases where public expenditures exceed public revenues, states that need additional income sources may resort to borrowing. It is not possible to earn permanent income from other methods other than these two main sources of income. Public borrowing can also sometimes be used as a fiscal policy. Uncollectible taxes are one of the reasons why public revenues remain insufficient against public expenditures. Failure to collect taxes for various reasons causes tax damage. The state conducts tax audits in order to collect these taxes that it has lost. It also makes audit expenditures for these audits. However, these taxes are tried to be collected through tax structuring at various times. When the estimated and accrued taxes in the initial appropriations cannot be collected, the government resorts to borrowing. As a result of this borrowing, borrowing costs arise. The interest burden to be paid increases. Especially when indexed to foreign currency, the size of the costs becomes even more evident. In our study, the years 2017-2022 were considered, taking into account the statute of limitations. With cross-data evaluation, it has been investigated how much tax collection is, what types of taxes are the most uncollectible, how much expense is made for tax auditing, and how much tax is collected against these expenses. It has been tried to determine how much borrowing was applied due to the taxes that could not be collected as a result of tax destruction and the cost of this borrowing. 

Keywords: Debt Limit, Tax Revenues, Tax Loss, Budget Deficit

JEL Codes: H21, H63, K34 

1. Introduction

Along with the social state understanding, the functional finance understanding has gained importance rather than the classical understanding in state finance. government debts have ceased to be an extraordinary source of income and have become a source of income that is constantly used for countries. Despite the increase in expenditure pressure, especially in underdeveloped and developing countries, these countries have resorted to borrowing because of the difficulties faced by traditional public revenues against these expenditures.

However, due to the increasing debt burden, certain limits have been imposed on government borrowing within the framework of fiscal rules. Although there are differences in implementation, the most common implementation is to li mit the ratio of debt stock to GDP at a certain level.

The borrowing limit in Turkey was introduced with the Law No. 4749 on the Regulation of Public Finance and Debt Management, which was enacted in 2002. According to this law, net debt utilization can be made as much as the difference between the total initial appropriations specified in the budget law and the estimated revenues. However, in parallel with the needs and development of debt management, the borrowing limit of general budget institutions was allowed to be increased by five percent twice, once under the authority of the Minister of Treasury and Finance and the second at the discretion of the President.

A total of 1,893.89 billion Turkish liras appropriation has been allocated for public expend itures in the 2022 Central administration budget. The estimated own income within the scope of the central government is 1.478.63 billion Turkish liras. The net borrowing requirement, on the other hand, is 415.26 billion Turkish liras. Budget tax revenues have been estimated as net 1,253.60 Billion Turkish liras (After deducting 176.44 billion Turkish liras rejections and refunds from the estimated 1,430.04 billion Turkish liras). This amount constitutes 87.66 percent of the total budget revenues. Tax collection rates have been at the level of 80 percent in recent years. Due to these uncollected tax revenues, there is a risk that the net borrowing requirement will increase by approximately 60 percent.

In order to increase the level of cash reserves by the Treasury in order to meet the financing needs within the framework of the budget sizes and budget balance for 2019, the net debt utilization amount determined by the Budget Law at the beginning of the year was increased by 75 billion Turkish liras.

Public revenues that could not be collected are tried to be collected through methods such as tax base increase and structuring in the face of decreasing tax capacity under negative conditions and increasing income need. On the other hand, it is tried to obtain additional tax income by increasing the tax base. In 2018, a restructuring was carried out in this direction with the law numbered 7194 and the tax base increase law was enacted. However, 3 years later, a similar arrangement had to be made with the Law No. 7 236 this time.

According to Article 73 of the Constitution, everyone has to pay taxes for the financing of public expenditures according to ability to pay. Voluntary tax compliance is one of the most important goals of tax psychology. However, the importance of analyzing the consequences of not paying the accrued taxes on time and in full becomes evident. In this study, the effects of tax base increase and restructuring, and the effect of the late fee abandoned on the financing of public expenditure and the measures that can be taken for the timely collection of tax revenues will be discussed.

In the period of time determined in the study, budget revenues, public expenditures, budget estimates and budget realizations, borrowing needs, tax collection realiz ations, base increase and restructuring implementation results will be analyzed together. The cost of uncollectible tax revenues to the public will be calculated and the data obtained will be evaluated with descriptive analysis.

2. Main Text

Governments ne ed various sources of income to finance the public expenditures they have to make. Public expenditures are usually financed by tax revenues. In cases where public expenditures are more than public revenues, borrowing is one of the alternatives. However, government debts can also be defined as the prior use of tax revenues to be obtained in the future, since they will be paid with taxes to be collected in the future (Erdem, 2016: 2; Edizdogan vd. 2021:485)

Although the development levels of the countries differ, government borrowing is also important in public finance in developed, developing or underdeveloped countries. However, which type of obligations will be considered as government debt differs from country to country due to the political and administrative differences of the countries and the different legal status of central administration and local governments (Irwin, 2015: 12)

Tax collection rates in Turkey have been 80% in recent years. There is a risk that the net borrowing requirement will increase by approximately 60% due to uncollectible tax revenues. Uncollectible taxes cause tax damages.

Tax damage is the fact that the tax that the taxpayer does not pay voluntarily even though it is accrued based on the declaration or after the examination, forced follow cannot be collected by up, and which does not benefit from the regulations similar to the tax amnesty that provides more advantageous payment conditions, cannot be collected in any case.

In our study, the 20172022 data were taken into account, taking into account the statute of limitations. Tax collection rates were around 80% in 2017. The collection rates have been gradually decreasing over the years. January is the month with the lowest collection rates every year. In the other months, it is seen that the tax collection and tax accrual rates are very close to each other. The problem with tax collection in January may have arisen from the tax audit, or it is possible that taxpayers prepared documents that they had not fully prepared during the year at the end of December -2022).

In order to understand how much the tax audit has an impact on tax collection, the reports of the tax audit institution between 2016 and 2021 were examined. When the reports are evaluated together, it is seen that the tax assessment proposed after the tax inspection was 6 trillion in 2016, 4.5 trillion in 2017, 7.8 trillion in 2018, 9.5 trillion in 2019 and 22 trillion in 2021 (Vergi Denetim Kurulu  , 2016-2021).

Total tax damage between the years mentioned is 1.5 trillion. The tax assessment is around 67 billion. The ratio of total tax assessment to total tax damage does not exceed 5%. According to this information, it is seen that the effect of tax audit is limited on uncollectible taxes that cause tax damage. The taxes collected after the assessment is 1.6 billion Turkish lira. accordingly, the taxes collected cover approximately 30% of the audit expenditure (Hazine -2022).

Structuring laws are often enacted due to uncollectible taxes. This undermines tax justice. Considering the last 5 years, a total of 180 billion taxes have been collected as a result of the restructuring laws.

When we consider the tax damage in terms of borrowing, the debt stock has been 3.7 trillion Turkish liras since 2017. The total of uncollectible taxes since 2017 is approximately 1.7 trillion. This is approximately half of the gross public debt. The cumulative interest cost of uncollected taxes is 237.8 billion Turkish liras (Hazine ve Maliye Bakanl-2022). When we index this amount to foreign currency, the size of the problem increases. The cumulative damage caused by uncollectible taxes since 2017 reaches approximately 260 billion dollars in foreign currency terms. The interest burden of the gross foreign debt is 30.6 billion dollars. The loss reached in the last 5.5 years due to tax damage is 290 billion dollars. 


When the accrued tax, collected tax, budget balance and external debt statistics for the 2017-2022 (August) period are examined; 

It is seen that only 80% of the levied taxes can be collected. This rate tends to decrease over the years. In terms of months, the month that cannot collect the most taxes is January.

This may be due to the tax audit or due to the previous year’s unregistered documents being submitted in December. The tax assessments made as a result of tax inspections have remained around 10% of the tax damage.  It was concluded that most of the taxes and tax penalties levied after the tax audit could not be collected. It has been observed that the collections made after the penalty tax assessments do not cover the expenses incurred for tax auditing.

Considering the damage in terms of tax types, it is seen that the most damage is in the value added tax, and also tax penalties and default interest cannot be collected. It can be said that the withholding method is beneficial since the losses are less in the taxes collected through withholding.

The tax damage that has occurred since 2017 has caused a borrowing requirement of 1.7 trillion TL or 260 billion dollars. This a mount corresponds to half of the debt stock. Due to the tax damage in this period, a net interest cost of 237 billion TL or 30 billion dollars was incurred.


Erdem, M. (2016).  Devlet Borçları, Bursa. Ekin Yayınevi

Edizdoğan , N. et al. (2021). Kamu Maliyesi

Irwin T. C., (2015). Defining the Government’s Debt and Deficit, IMF workpaper, WP No:15/238.

Hazine ve Maliye Bakanlığı- Muhasebat Genel Müdürlüğü Bütçe Gelir Tabloları (2017-2022),  (20.06.2022)

Hazine ve Maliye Bakanlığı- Vergi Denetim Kurulu Başkanlığı- Faaliyet Raporları (2016-2021), (22.06.2022)

Hazine ve Maliye Bakanlığı- Kamu Finansmanı İstatistikleri (2017-2022), (25.06.2022)