New tax amnesty expected to boost foreign 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 Şimşek, 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, Şimşek said İstanbul could be a leading center for this. “We are expecting to see portfolio management companies established in Turkey for the diversification of capital markets.” Şimşek 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 İstanbul 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.

Islamic funds are not exported only by Islamic countries, but also by countries such as Japan and Germany. The UK has introduced substantial changes to its financial legislation to allow sukuk transactions inside the country.

Islamic funds may not invest in interest-bearing instruments such as treasury bills, corporate bonds or in companies working with alcoholic beverages, pork meat production or conventional banks. But they can invest in Shariah-compliant Islamic bonds, or sukuk.

Underlining that the global sukuk export volume has reached $170 billion in 2012, Babacan said Turkey needs to integrate with this market, cementing efforts for the planned İstanbul Finance Center (İFM).

Revised pension system expected to boost savings

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.

A personal savings plan that provides income tax advantages to individuals saving money for retirement purposes, the private pension -- otherwise known as the Bireysel Emeklilik Sistemi (BES) in Turkey -- was introduced to Turkish customers in 2003. The system has seen a steady rise in the number of contributors and the size of total assets. The total fund volume of Turkey's private pension system has grown over the past 12 months to TL 15.7 billion from TL 12.3 billion. The total number of customers also increased to 2.7 million in April, from 2.3 million in the same month of 2011.

Evaluating the new pension system to Today's Zaman, Vakıf Emeklilik General Manager Mehmet Bostan has said the latest updates would help the system grow faster than anticipated in Turkey. “One of the major effects from the latest revisions of the system is that it appeals to a larger number of customers now. …plus, the share of long-term private pension funds will increase; people used to exit the system so frequently due to concerns over future plans,” he explained. Underlining that it is too early to comment on how many new customers could enter the private pension system following the new incentives, Bostan said new promotions by different pension companies will help drive further expansion of the system.

The revised private pension system enables customers to collect the state subsidies deposited into their accounts three years after the implementation of the new system.