In Turkey, taxes paid to the state are not collected separately as in some other countries; for employees covered by 4A and 4C schemes, taxes are deducted directly from salaries, which means virtually everyone ends up paying taxes. The tax burden on the minimum wage is relatively high when calculated on a monthly basis.
How Are Deductions Taken from the Minimum Wage?
Deductions from the minimum wage vary. For a single employee, the gross minimum wage is reduced by the worker’s share of social security contributions—412 TL—and 29 TL for unemployment insurance. From the gross minimum wage, an income tax of 154 TL and a stamp tax of 22 TL are also deducted, making a total monthly tax deduction of 176 TL. When all deductions from the gross minimum wage are listed, the gross amount equals 2,943 TL. Deductions include 412 TL (14%) for employee SGK premium, 29 TL (1%) for unemployment insurance, 154 TL income tax, and 22 TL stamp tax, totaling 618 TL in deductions. As a result, the net amount received by a worker paid the minimum wage is 2,324 TL.
The net take-home amount includes a 220 TL minimum living allowance. In addition to the gross minimum wage, employers pay 456 TL as the employer’s share of social security and 58 TL for the employer’s portion of unemployment insurance. Consequently, the monthly cost to the employer for a minimum-wage employee reaches 3,458 TL. For every 3 TL the employer pays, approximately 2 TL goes to the worker while 1 TL is taken as taxes and contributions.
What Would It Mean If Minimum Wage Were Exempt from Tax?
If the minimum wage were exempt from tax, questions naturally arise about the fiscal cost to the state. Based on 2020 figures, a single minimum-wage earner pays 154 TL in monthly income tax. Excluding the minimum wage from taxation would effectively require exempting everyone’s income up to the minimum wage level from taxes. In other words, as of September, roughly 20 million people in Turkey work under the 4A and 4C schemes. If taxes on this group’s wages were removed, the state would forgo about 3.1 billion TL per month and roughly 37 billion TL annually in income tax revenue. If stamp tax were also eliminated, the loss would be around 447 million TL monthly and 5.4 billion TL yearly. Removing both taxes would therefore create an annual shortfall of approximately 42.4 billion TL.
Because of these significant revenue losses, the state is unlikely to remove taxes on the minimum wage as a measure to increase take-home pay. Deductions from workers’ wages provide an important source of government income.
Where Does Turkey Stand on Taxation?
The difference between the total cost to employers and the net pay received by employees is referred to as the “tax wedge.” The Organisation for Economic Co-operation and Development (OECD) publishes these figures for countries each year. According to the latest report, the average tax wedge among countries is about 26%. Turkey, however, sits above that average at roughly 39%. The higher this rate, the smaller the portion of gross pay that reaches the worker. In some countries, the tax wedge can be as low as around 3%.
The gap between what employers pay and what employees take home is significantly affected by state taxes and contributions. Because these payments represent a substantial source of revenue for the government, it is unlikely that significant tax policy changes affecting the wage tax burden will occur in the near term.