The Reporter (Addis Ababa)

4 January 2014

Ethiopia: Economic Shadows and Light

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Macroeconomic reforms have also helped to curtail Turkey's shadow economy. In 2006, the corporate-tax rate was lowered from 33 percent to 20 percent, and rates for personal-income tax were also reduced, with the highest rate falling from 49.5 percent to 35 percent, and the lowest rate to 15 percent, from 22 percent. Moreover, in 2008, the income-tax burden on minimum-wage earners was set at a low of 0 percent, depending on marital status and number of children. Further, the rate for value-added tax on health, education, clothing, and tourism was cut from 18 percent to 8 percent, while the VAT on major food items is now 1 percent.

Last but not least, Turkey's authorities have implemented major reforms aimed at improving the business environment. These include a new commercial code and debt legislation. A new income-tax law is currently under parliamentary consideration, and a law on tax procedures will be submitted soon.

Turkish policymakers have also focused on international cooperation and coordination in creating a level playing field globally. Turkey now has double-taxation agreements with 82 countries and information-exchange agreements with five countries.

As a result of these efforts, informal employment in Turkey has declined by 14.5 percentage points since 2002, to 37.6 percent in April 2013. Likewise, the informal economy as a share of GDP declined by six percentage points during this period, to 26.5 percent in 2013.

But these ratios remain too high. The authorities' medium-term objective is to reduce the informal economy's GDP share by five more percentage points and to reduce informal employment in non-agricultural sectors by five percentage points as well.

Determined efforts such as these are indispensable to dispelling the shadows in which informal economic activity exists. But national policymakers cannot hold the light alone.

Ed.'s Note: Mehmet Simsek is Minister of Finance of Turkey. The article was provided to The Reporter by Project Syndicate: the world's pre-eminent source of original op-ed commentaries. Project Syndicate provides incisive perspectives on our changing world by those who are shaping its politics, economics, science, and culture. The views expressed in this article do not necessarily reflect the views of The Reporter.

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