Public Financial Management Reforms in Turkey: Progress and Challenges, Volume 1

Table of Contents

1. Frontmatter

2. Revenue Management

   1. Frontmatter

   2. Chapter 1. Tax System and Tax Reforms in Turkey

      Adnan Gerçek, Feride Bakar Türegün

      Abstract

      Tax systems are shaped according to the economic, social, legal, and administrative structure of a country. For this reason, alteration in any structure causes small revisions or significant changes in tax systems. Tax reforms facilitate the adaptation of the system to innovation. The Turkish tax system has reached its current structure by going through many stages that can be considered both as minor changes and as reform. They have had many effects. In this study, determining these effects and their results, the general structure of the Turkish tax system has been evaluated, problems have been identified and recommendations have been presented. Like the structure of a modern tax system, the Turkish tax system is also based on income, consumption, and wealth taxes. Especially in the period after 1950, many taxes were announced and after 1980, steps were taken appropriate to international policies. Besides the positive developments, due to frequent changes the system has become complicated, unjust, and unenforceable. In this reasons, “New Generation Tax System” should be created for simpler and more understandable tax structure which consists of especially the net accretion theory, the minimum subsistence allowance, fewer exemptions and exceptions, and wide tax base.

   3. Chapter 2. Restructuring of Revenue Administration in Turkey

      Tamer Budak, Serkan Benk

      Abstract

      Although tax systems are devised and guaranteed by laws, they require a well-organized, flexibly-structured and modern revenue administration that can adapt to changes quickly for the purpose of attaining desired goals. In recent years there have been a number of changes in the organizational structure of the Turkish Revenue Administration, whose foundation dates back to the Ottoman Empire. Of all, the most important and influential change was made in the year of 2005. Among the most compelling reasons for this change is the problem surrounding the organizational structure. In general terms, these problems were as follows: provincial units were not directly linked to the central administration, direct and fast communication could not be realized among the units within the organization, resources could not be used productively and effectively, processes of assignment and procedure were disconnected from each other, there was a quality problem in taxpayer services, the existing system did not completely pave the way for a participatory and transparent administration style, the process of creating new tax policies were inadequate, and an objective system of performance evaluation to increase activity and productivity in the system was not adequately formed. Reform efforts in the organizational structure of the revenue administration started with a view to overcoming problems generally associated with traditional organizational structures, to deal with advancement in information technologies, changes in ways of approaching to taxpayers, and largely to keep up with new processes and procedures in revenue streams and administration and their structural reorganization in developed countries. Intended goals are set out in Law no. 5345 published in the Official Gazette dated 16 May 2005. Since then, innovative changes have followed especially towards a new organizational structure, new job descriptions and a new set of functions to create a more responsive and dynamic structure in the revenue administration at all levels including the units in desperate need of overhaul to keep pace with new international developments and challenges especially in the field of technology. The study examines the restructuring of the Turkish Revenue Administration in terms of its organization and management within a historical perspective and through stages in which the proposed changes occured. Within this framework, the study is divided into four main sections: the historical development of the revenue administration is visited briefly in the first place, then the administrative transformation of the Turkish Revenue Administration is studied in detail under the second heading within the framework of the years before and after 2005 when the most important step in transformation was realized, thirdly the paper will evaluate the results of the restructuring/transformation that took place, and finally, it will conclude by addressing the ensuing circumstances in the revenue administration with reference to particular challenges posed by its restructuring process.

   4. Chapter 3. Tax Audit Reform in Turkey

      Neslihan Karataş Durmuş, İmran Arıtı Erdem

      Abstract

      Tax revenue is the largest public revenue obtained by countries using their sovereign powers. It is a fact that there are different functions of taxes besides this financial function. With the expansion of multinational enterprises in the globalized world, tax competition between countries has increased and taxes have now become used as a means to attract foreign investment. Besides, counteracting international tax evasion has been another issue on which countries should take steps and find solutions. For those purposes, countries reform their domestic laws (Tekin 2010), as well as they sign bilateral or multilateral international agreements. The scope of such reforms may be narrow in a way to change several provisions or laws in the domestic tax system or they can emerge as an overall change of the system. From this perspective, it can be seen that different reform efforts have been made at different times in Turkey and some reform efforts are in progress. Reform efforts in the field of tax audit, which is one of the tools to provide the duly collection of taxes on time and without any deficiency, have a particular importance. It is because that performing tax audit efficiently enables countries to eliminate undue reduction in tax revenue.In the first part of this study, which consists of four main parts: aims, functions, features and types of tax audit in Turkey are briefly explained and the efficiency of tax audit is examined. In the second part, besides the analysis of the reform process and also the reform itself, the current situation is determined and it is evaluated whether the expected aim can be reached with this reform.

3. Public Expenditure Management

   1. Frontmatter

   2. Chapter 4. The Experience of a Medium-Term Expenditure Framework in Turkey

      Tolga Demirbaş

      Abstract

      Modern public expenditure management (PEM) is a new budgeting approach that takes into account the preferences and behaviors of the actors in the budgeting process. In this approach, three important budgetary outcomes are desired: aggregate fiscal discipline, allocation of public resources in line with strategic priorities, and effective provision of public services. The main argument of PEM is that changes should be made in the rules of the game in budgeting to gain these outcomes effectively. According to PEM, poor outcomes are unavoidable if the budgetary tools do not produce sufficient information or incentives for the actors in budgeting (Campos and Pradhan 1996; Schick 1999; World Bank 1998).

   3. Chapter 5. An Assessment of the Public Procurement System in Turkey

      Özhan Çetinkaya, Erdal Eroğlu

      Abstract

      Public administrations within the state organization are responsible for meeting social needs. The needs demanded by the society require public production and provision. In line with this requirement, administrations can both accomplish production and provision on their own and may also procure them from the market. The main reason behind this is that producers in the market economy can manage production and provision at lower costs compared to public producers.

   4. Chapter 6. Public-Private Partnership—The Case of Turkey

      Bernur Açıkgöz

      Abstract

      Project Finance can be defined as the creation of an irreversible or partially returnable source of financing, which is based on the cash flow generated by the project in the calculation of loan repayments and capital profitability to finance the economically decomposable investment projects. Project Finance plays a critical role in Public-Private Partnership (P3) models. P3s have become increasingly popular as a means of procuring and maintaining public sector infrastructure. The public sector can use this partnership for social infrastructure projects including projects ranging from schools, hospitals to social housing or government offices or for transportation projects such as roads, tunnels, bridges, railways, airports, or other specialized services such as defense equipment. P3s have been supported by many countries to overcome the traditional drawbacks of public procurement. However, the experiences of developed and developing countries vary depending on existing economic, political–legal, and social environments. P3 model in Turkey has undergone a different evolutionary process when compared to other countries in Europe. Although various legal arrangements have been made since the 1980s, these regulations have been prepared according to specific sectors and projects, and the framework and unfortunately, the laws of P3 legislation have not been clearly defined. There is a need for a comprehensive legal framework for the successful implementation of P3 in Turkey. In addition, a central public institution with competitive and transparent procurement procedures is one of the issues, which needs to be prioritized. Since P3 projects are often long-term projects with very large investment costs, the legal framework of the projects should be clearly defined for projects to achieve the planned success. In addition to that, it is very important that the relevant managers and staff in the public sector, as well as the contractors in the private sector, should develop their institutional capacity in the areas of planning, management and control of projects. Shortly, a strong political commitment is needed to develop the P3 structure. The aim of this study is to give a general understanding of P3 models, to evaluate their applications, and to provide some policy suggestions for Turkey. This chapter will be structured as follows. Firstly, in Sect. 2, the literature review will be given. Subsequently, in section III, P3 will be defined and in section IV, P3 models will be described. In section V, P3 examples around the World will be given and in section VI, P3 in Turkey will be discussed. Finally, some concluding remarks will be added.

   5. Chapter 7. Revisiting Conditional Cash Transfers: General Overview and Its Implementation in Turkey

      Tekin Akdemir, Barış Alpaslan, Halis Kıral

      Abstract

      We first provide a general overview of conditional cash transfers and then review in detail the available information on conditional cash transfers for education and conditional health benefits in Turkey. The program was primarily initiated to alleviate the effects of the Turkish 2000–2001 banking crisis on the poor. In addition, it was aimed at increasing the enrolment rate and duration of schooling for children living in a low-income family as well as ensuring that women during and after pregnancy, and children after birth benefit from basic healthcare and nutrition services. In fact, according to our study, Turkey has overall made significant progress in both health outcomes and access to education at all levels, and this observed improvement in education and health could be attributed to the implementation of conditional cash transfers. However, although the descriptive statistics suggest that there has been a gradual increase in the number of beneficiaries for both conditional cash transfers for education and conditional health benefits over a 16-year period (2003–2018), the total amount of resources allocated to conditional cash transfers in other social protection programs is still limited.

4. Budget

   1. Frontmatter

   2. Chapter 8. Program Budgeting in Turkey

      Ebru Yenice

      Abstract

      Program budgeting delivers information to decision-makers to aid in the identification of spending priorities among a diverse range of programs. Program budgeting comprises three main phases: program classification, program performance identification, and program evaluation. Program classification refers to the modification of the budget coding system so as to include a program budget classification.

   3. Chapter 9. Judicial Review of Budget in Turkish Law

      Nahit Yüksel

      Abstract

      The Republic of Turkey was founded in 1923 and the first constitution of the Republic entered into force the following year. The Constitution of 1924 brought together the legislative and executive powers under the Grand National Assembly of Turkey (GNAT), the only representative of the nation. The legislative power was to be exercised directly by the GNAT. It was adopted as a principle that the laws could not be in conflict with the Constitution, yet no mechanism responsible for inspecting existence of any violation or no sanction against any violation was included in the Constitution. The executive power was to come out from inside the legislature and be responsible vis-a-vis the legislative power. The system established by the Constitution of 1924 also had the characteristics of parliamentary system, as it stipulated that the executive power could be exercised by a separate body headed by the President and the Prime Minister to be determined by him. During this constitutional period, which would remain in force until 1960, multi-party democratic political life was adopted in 1946.

   4. Chapter 10. The Role of Parliament in Budget Process

      Hilal Tezcan

      Abstract

      As is known, parliaments or congresses are one of the three main powers in a democracy and the checks and balances in a government are crucial to control the governmental branches.

   5. Chapter 11. Fiscal Transparency in Turkey: Lessons Learned from International Evaluations

      Ali Yıldırım Eker

      Abstract

      Fiscal transparency ensures the availability, comprehensiveness, timeliness, and clarity of the data produced by public financial management and the comparability of state activities in the international arena, and thus plays an important role in the proper evaluation of the state’s financial status by the electorate and financial markets. The globalized world economy and the financial crisis that broke out in Southeast Asia in 1997 caused some serious consequences in the economic, social, and political areas and led to questioning the structures of international financial institutions and fiscal policies of the countries.

5. Government Financial Management Information Systems

   1. Frontmatter

   2. Chapter 12. Integrated Public Financial Management Information Systems in Turkey

      Habip Demirhan

      Abstract

      The rapid change in technology gives governments an opportunity to develop their financial systems. Governments in developing countries are increasingly exploring methods and systems to modernize and improve their financial systems. Over the years, the governments have aimed at producing an effective, efficient, accountable, transparent, secure, and comprehensive financial reporting and management system. Financial management information systems—the oldest record-keeping methods, dating back hundreds of years—include the recording of financial information based on accounting practices. In other words, it is not a new concept either in the literature or for implementation. However, with the rapid development of information technologies, developed countries have shown an increased tendency to digitize and transfer activities related to public financial management onto the electronic environments. One of the most important activities is the Integrated Financial Management Information System (IFMIS), which allows public institutions to digitize key aspects of budget implementations and accounting procedures. IFMIS is a budgeting and accounting system that manages spending, processing, payment, reporting and budgeting for governments and other entities, based on information technologies. An IFMIS bundles significant financial management functions into one software suite of applications (Chado 2015). The governments implement IFMIS to increase the efficiency and the effectiveness of their financial management. The system helps the governments to facilitate adoption of modern public expenditure’s best practices for keeping with international standards and benchmarks (Chado 2015; International Consortium on Governmental Financial Management 2008).

6. EU and Fiscal Compliance

   1. Frontmatter

   2. Chapter 13. Alignment of Turkey with the European Union in Public Financial Management and Control

      Nihal Samsun Karabacak

      Abstract

      Turkey was acknowledged as a candidate country of the European Union (EU) at the Helsinki Summit of December 10–11, 1999. Later in the European Council meeting of December 17, 2004, it was confirmed that Turkey fulfills the political criteria and on October 3, 2005, the accession negotiations officially started. There are 35 chapters for negotiations that aim at transposing the EU Acquis into national law. So far, 16 chapters were opened to accession negotiations, whereas only one chapter is temporarily closed.

7. Backmatter