Turkey Declares Amnesty in Bid to Reclaim $100 Billion of Offshore Wealth

Turkey’s government Thursday submitted a new bill to parliament seeking to lure more than $100 billion of Turkish assets held abroad in the latest bid to shore up local funding sources and curb rising foreign-financing needs that’s widely seen as the economy’s Achilles’ heel.

By Yeliz Candemir
Associated Press

If approved by the national assembly in Ankara, the bill will cut taxes on Turkish citizens and firms declaring foreign-held assets from as high as 35% to just 2% with no questions asked about how the money was earned. The condition is that they declare all foreign assets — ranging from properties and cash to currencies, stocks, bonds and other capital market investments — by July 31. The proposed law would also protect businessmen from tax probes on newly declared assets, and exempt them from corporate and income levies if they chose to transfer their assets to Turkey by the end of the year.

With the proposed legislation, Prime Minister Recep Tayyip Erdogan seeks to tap Turkish wealth abroad to help underwrite the country’s economic growth with domestic funds instead of its current, heavy reliance on international cash. Turkish firms and individuals had as much as $138 billion of assets abroad at the end of last year, according to London-based research firm Wealth Insight. Previous government efforts to repatriate cash and bring to fore undeclared domestic wealth in 2008 and 2009 resulted in the declaration of 48 billion liras ($27 billion) of assets, just more than half of which was abroad.

Turkey’s current account deficit shrunk to 6% of its $786 billion gross domestic product last year after ballooning to 10% in 2011, which triggered a sharp drop in the lira that helped push inflation to double digits for the first time in three years. Most economists argue that Turkey can’t sustain short-term foreign-funding needs of more than 5% of GDP because it leaves the economy vulnerable to external shocks

“Even though there are no official forecasts on how much in foreign asses will be repatriated or how much that might generate in taxes, if this legislation passes, it would have a positive impact on both tax revenues and the financing of the current account deficit,” said Ozlem Derici, chief economist with Istanbul-based brokerage Ekspres Invest. “The government also aims to reduce the size of the unregistered economy. So, the fact that officials may provide an assurance that there won’t be tax investigations on newly declared assets is an appealing offer as well,” Ms. Derici said.

The previous wealth amnesty came in two rounds starting November 2008 and ending December 2009 as part of Turkey’s efforts to alleviate the spillover from the global financial crisis. After Lehman Brothers collapsed in September 2008, Turkey’s economy nearly ground to a halt and contracted by 4.8% in 2009. At the time, the government imposed a 5% tax for previously undeclared local assets and 2% levy for foreign assets that were repatriated.

Turkey’s current-account deficit is overwhelmingly financed by short-term portfolio flows, or so-called hot money that often leaves a country’s economy if investors get skittish because of either a global or local deterioration of risk appetite. Meanwhile, foreign direct investment in Turkey dropped 23% annually to $12.4 billion in 2012, according to the Economy Ministry, meaning that only a quarter of the current-account gap if financed by safer, long-term international money.

Officials in Ankara engineered an economic rebalancing last year, curbing credit-fueled consumer spending and relying on exports to expand Turkey’s economy. The country’s GDP grew by a respectable 2.2% in 2012, but missed initial government forecasts of as high as 4% and fell sharply to a quarter of the pace the previous year.

Analysts said that as Mr. Erdogan seeks to accelerate economic growth to 4% in 2013, attracting Turkish investments back home would help meet some of the country’s funding needs. They added that it would also reduce Ankara’s dependence on international investors as the prime minister seeks to triple Turkey’s GDP to $2 trillion and join the world’s top-10 economies in the next decade.