The role of domestic politics in the 2006 corporate tax reform in Turkey

Abstract

This thesis examines domestic political factors that made the 2006 corporate tax reform possible by exploring thematic patterns within the political debate around the reform. The 2006 reform decreased the corporate tax rate radically by 10 percent along with other regulations on corporate taxation. While the literature on tax policy changes explains the global trend of decreasing rates of corporate tax based on tax competition as an exogenous factor, this thesis investigates the role of domestic actors in the process leading to a corporate tax reform in the selected country case. The thesis relies on a thematic analysis of the following documents: policy papers published by two key business organizations and the government, media reflections of the discussions around the corporate tax reform between 2001 and 2007, and the parliamentary minutes. This thesis demonstrates that most political parties in the Turkish Parliament and the two business organizations perceived tax competition in their own interest and thus contributed to the 2006 corporate tax reform. There was a political consensus for the 2006 corporate tax reform and the preliminary legislations to ease the tax burden of corporations before the reform. The instrumental power of the selected business associations, MÜSİAD and TÜSİAD, provided them with an opportunity for interest representation during the policy formation process of the reform. This thesis argues that the 2006 corporate tax reform was one of the mechanisms of the governing party to strengthen its alliance with the business world, which sidelined the notion of tax fairness in the policy debates around the corporate tax reform.