The Decline of the Middle Class in Turkey: Need for a Tax Reform

If asked who had the biggest financial blast in the last twenty years in Turkey, it is safe to say that it was the middle-class. Having never been strong in Turkish history, the middle-class lost further power with the neoliberal-populist policies of recent years. These policies, focused on gaining the consent of the upper and lower income groups, routinely placed their costs on the middle class. One of the issues that is least talked about in our country for some reason, but needs to be talked about first and foremost, is the tax system that breaks the middle class while protecting the upper class in various ways, and how it should be changed. This should be a priority of the future government that will come to power in 2023.

Turkey has a welfare state, and low-income groups are supported by various channels such as direct financial aid, free health care, zoning peace or cheap housing, even if not sufficiently. But instead of “taking from the rich and giving to the poor”, which should be the case in a welfare state, Turkey has a system that takes from the middle class and gives it to the lower and upper classes, favoring the upper class extensively. While the middle class, that should be the pioneer of the social development but is traditionally weak in Turkey, becomes weaker this way, the lower class cannot be adequately supported either. What should happen in a welfare state is to transfer resources from the upper class to the lower class while providing the circumstances for the middle class to be self-sufficient. There are three issues in the taxing system in Turkey that prevent this from happening.

Income tax burdened the middle class

The first and most fundamental problem is about the way the income tax is stratified. To put it more precisely, in Turkey, the tax brackets are arranged in a way to the detriment of the middle class and in favor of the upper class.

It is possible to see this by taking a brief look at the 2022 tax brackets. [1] In our tax system, which consists of only 5 brackets, a citizen with a monthly gross income of 21 thousand TL and a monthly income of approximately 74 thousand TL are placed in the same 35 percent higher tax bracket. It gets even more strange beyond the monthly gross income over 74 thousand TL as then there is no more brackets anymore and all earnings after this threshold are subject to the highest tax burden of 40 percent. So, theoretically there is only 5 percent tax burden difference between someone with millions of TL income and 21 thousand TL income.

In other words, income tax is burdened disproportionately placed on the middle class. However, tax systems in many countries comprise many more brackets. In this way, serious tax differences are created between the middle class, middle upper class, and the upper class. In other words, a white-collar employee and a millionaire are not treated alike.

The government cannot collect taxes

In addition to the injustice in the income tax brackets, in our country, tax evasion is very common and the only economic group that pays full income tax is waged workers, who make up the majority of the middle class. Saying that, it can be clearly stated that the only way that the middle class can have a breath is passing through a tax reform.

Secondly, for a fairer society, most of the tax revenues should be collected from direct (income tax) and less from indirect (VAT, SCT, etc.) taxes, because income tax is gradual. However, today Turkey is among the countries with the highest indirect tax rate.[2] The main reason for this situation is the state’s inability to collect income tax. This is a common feature of the weak state type: makes the law but cannot enforce it. The state, which cannot depict those who evade income tax, collects the tax revenue it needs by collecting them from the citizens when they are spending. Thus, it tries to compensate the income taxes that it cannot collect by raising indirect taxes such as VAT and SCT. However, high indirect taxes increase income inequality. If the rich, middle-class and low-income people who buy the same washing machine pay the same tax, there is an injustice here.

Income transfer to the upper class

The third channel in which the tax system is shaped in favor of the upper class in Turkey is corporate tax. Thanks to the corporate tax, it is possible to transfer income from the capital groups with income above a certain level, that is, the highest earners of the system, to the lower income groups. As the high cost of living and social injustice has become the main agenda of the world with the consequences of the pandemic and the Russia-Ukraine war, increasing the corporate tax is one of the most talked about issues. However, in Turkey, corporate tax was reduced from 30 percent to 20 percent in 2006. This radical reduction of 10 points meant a direct transfer of income from the treasury, that is, from other economic classes, to the upper class. Yet, little has been said about it. A decision that would create a major reaction from the middle class in many countries was met with silence in our country. Undoubtedly, this silence was the result of having a weak middle class.

In 2022, the corporate tax is expected to be 23 percent. Considering how during the pandemic period the corporate tax was increased to 28 percent in a country like USA, which represents the “small government” model, 23 percent remains very low in our country where the need for social justice is much deeper and poverty is much more common.

Strong middle class, the driving force

In sum, for all these three reasons, Turkey’s tax burden of today is disproportionately placed on the middle class, although makes the least use of government expenditures.

However, a strong middle class is the driving force of social development. It has historically formed the basis of world democracies, bargaining for the right to political representation in return for the tax it paid. In our country, the middle class constitutes a segment with a high tax burden but less political power.

We have elections ahead of us. Let’s see who will prioritize the agenda of re-strengthening the middle class and restoring the tax system accordingly? Finally, let’s have some self critique as well and ask if middle class voters will be demanding such a change from the candidates when it is so directly related to their interests.

Finally, I would like to underline the following. We may be advocating for low taxes and low spending, that is for a liberal economy, or vice versa, for a high taxes and high state aid, that is for a social economy. However, in our country, there is an approach that approves government expenditures on the one hand, but excuses tax evasion on the other hand, and the waged middle classs pays the price for this. This is not healthy and needs to be changed first. 

Notes:

1 “2022 Gelir Vergisi Oranları Belli Oldu,” TRT Haber, 29 Aralık 2021,

2 “Revenue Statistics 2021: TURKEY,” OECD