New tax amnesty expected to boost foreign protfolio investments

The Turkish government expects to boost hot money inflow to Turkey with a newly announced annulment of a tax on portfolio investments. A decision to annul the withholding tax on the trading of investment funds -- more than 75 percent of which comprise equities -- was announced by Deputy Prime Minister Ali Babacan, who oversees the Turkish government's economic policies as the head of its Economy Coordination Board (EKK), at a press conference on Tuesday in Ankara. He was accompanied by Finance Minister Mehmet Simsek, and the two shared with the press the details of an EKK meeting on Monday in Ankara. "We are removing the tax burden on portfolio investments and this, I believe, will be a prominent incentive to attract foreign capital holders to Turkey at a time when EU countries are announcing extra taxes," Babacan explained. According to the new arrangement, the government will not receive withholding tax from the sale or acquisition of investment funds where the share of equities [or stocks traded on the stock market] is not less than 75 percent. Mentioning Turkey's desire to attract foreign portfolio management firms to invest in the country, Simsek said Istanbul could be a leading center for this. "We are expecting to see portfolio management companies established in Turkey for the diversification of capital markets." Simsek said these firms would be closely monitored by the Capital Markets Board (SPK) and the Finance Ministry in order to avoid the risk that such relatively new investments in Turkey could fail. In terms of attracting Muslim investors to Turkey's financial markets, Babacan said the Turkish Treasury could export sukuk, the Islamic equivalent of bonds (or state investment funds) in order to diversify the country's financial investment tools. Encouraged by an improved banking system that has been backed by sustainable economic growth for the past decade, Turkey aspires to turn Istanbul into one of the region's leading financial centers. Sukuk is regarded as one of the major financial instruments that could be used in the country's bid. The government expects the latest revision to Turkey's private pension system to help encourage more Turks to increase their savings. During Tuesday's press conference, Babacan announced that the government will provide a 25-percent increase on assets deposited in the private pension system. In other words, the state will add an extra TL 25 to every TL 100 deposited in the system, creating additional savings for citizens.