Turkey launches stimulus package amid COVID-19 threat
The COVID -19 pandemic has obliged governments around the world to take measures to protect and support businesses. On March 18, 2020, Turkish President Recep Tayyip Erdoğan announced Turkey’s “Economic Stability Shield Package” (the "Package"), pursuant to which TL 100 billion will be deployed to help provide business continuity and take some of the financial burden off business owner’s shoulders.
Some of the noteworthy measures in the package which are effective immediately are:
Deferred tax payments
- Withholding tax and value added tax (VAT) returns due to be filed in April, May and June 2020, may be filed until July 27, 2020. Payment periods have also been extended by six months and relevant payments may be made within the last week of October, November and December 2020, respectively. These measures are pursuant to the Tax Circular No. 2020/63 made following the announcement of the Package.
- Postponement applies to a broad range of sectors and businesses including retail (in addition to those located in shopping malls), iron and steel, automotive, logistics and transportation (including operators of highways, tunnels, bridges and ground handling companies), accommodation, food and beverage, textile and garment manufacturing, event and organization sectors, health services, mining and quarrying, construction, vehicle lease, to the self-employed and to the sectors whose businesses are shut down due to measures taken by the Ministry of Interior.
Deferred social security premium payments
- Social security insurance premium payments due in April, May and June 2020 will be postponed for a period of six months for certain sectors and businesses, including retail, iron and steel, automotive, logistics and transportation, cinema, theater, accommodation, food and beverage, textile and garment manufacturing, event and organization sectors and shopping malls.
Additional support for the tourism sector
- It is expected that the tourism sector will be hard hit by the pandemic. Additional relief measures include that the accommodation tax (for more information, please see "Turkey introduces valuable residence, accommodation and digital services tax") will not be applicable until November, 2020. Servitude right payments and revenue share payments to be made to the Ministry of Treasury and Finance for hotel leases in April, May and June 2020, will be postponed for a period of six months.
- The VAT rate on domestic flights will decrease from 18% to 1% for a period of three months.
Credits and credit support
- Principal and interest payments for companies whose cash flow has been compromised by various measures taken against the COVID-19 pandemic will be postponed for three months. Additional financial support will be provided if necessary. In addition, a “force majeure due to COVID-19 pandemic” annotation will be made to the credit scores of companies which default on loan agreements in April, May and June 2020.
- Inventory finance support (secured by the inventory) will be provided to exporters to allow them to maintain capacity utilization rates.
- Funding to the Credit Guarantee Fund (Kredi Garanti Fonu), a fund established to guarantee loans to small and medium-sized entities (SMEs) and companies who are denied bank funding due to lack of collateral, will increase from TL 25 billion to TL 50 billion. The Credit Guarantee Fund will give priority to companies with collateral deficits and liquidity needs and to SMEs.
- The amount consumers are allowed to borrow through home equity loans for houses under TL 500,000 will increase from 80% to 90% and the minimum down payment amount will be reduced from 20% to 10% .
- Turkey’s Banking Regulatory Supervision Agency urged banks to promptly address the liquidity needs of their customers with existing credit limits and to avoid calling loans or otherwise tightening lending conditions (through security packages, interest rates, etc.). The Turkish Central Bank also announced additional liquidity support to banks and loosened reserve requirements.
Turkey’s three state-owned banks have followed suit, announcing, among other measures, that they will postpone loan repayments for corporate and individual customers and allow them to restructure their existing facilities under reasonable terms.
- Employers should use flexible and remote working models, already provided for in the applicable legislation, more broadly and efficiently.
- The application process to benefit from a short-time work allowance will be streamlined. For example, the Turkish Employment Agency announced that employers can now apply via email. In the case of general economic, sectoral or regional hardship, a short-term work allowance is a mechanism that allows employers, under compelling circumstances, to reduce working hours and associated employee remuneration for a period not to exceed three months. Accordingly, if an employer reduces working time temporarily by one-third or more, or ceases operations partially or wholly, for at least four weeks, the employer must apply to the Turkish Employment Agency for a short-term working allowance to compensate employees for the reduction in their remuneration.
- The length of time during which employers may request employees to undertake compensatory working will be changed from two months to four months. An employer might request compensatory work time if work was ceased due to compelling reasons. Compensatory work may not exceed three hours per day and must not exceed the maximum daily working time in any case.
The stimulus package aims to soften the blow of COVID-19 on various sectors and businesses. Considering the increasing impact of the disease globally, especially if it lasts into the summer months or even next year as some predict, it remains to be seen if and what additional measures will be taken.