The effect of export VAT refunds on the financial structure oflocal governments in Turkey: Sakarya example

Countries apply various incentive policies in order to bring competitiveness to national market products in the international market and to include foreign investors in the national market. One of the most important types of incentives applied to increase exports is the exception in exports. In Turkey, within the framework of Articles 11 and 12 of the Value Added Tax Law, the amount of VAT they paid on their purchases is refunded to the exporting companies in cash or by deduction. The most important financial resource for the financing of the public service provided by the local governments, which are involved in the provision of local public goods and services, consists of the shares transferred from the central government over the general budget tax revenues. The shares of local governments from the central government in Turkey constitute 60% to 70% of the total budget revenues. Tax shares transferred from the central administration are made over the net amount remaining after deducting the tax refunds from the tax revenues collected throughout the province. The implementation of the export exemption in Turkey and at the same time transferring shares from the central government to local governments on a net amount basis cause financial problems for local governments with high refund amounts. In this context, in the thesis study, "What are the effects of tax refunds arising from exports on the financial structure of local governments? the answer to the research question was sought. The most important result obtained in the study is that tax refunds made within the scope of export exemption do not have a direct effect on the financial resources of local governments. However, in provinces where VAT amount based on declaration is higher than other tax revenues, especially in Sakarya province, tax refunds based on export exemption reduce the level of net tax collection. The decrease in net tax collection, on the other hand, causes a decrease in the share of general budget tax revenue from the central government. In order to eliminate the negative effects due to the decrease in the share amount, various policy suggestions are presented in the conclusion part of the study.