The relationship between tax audit and the informal economy in Turkey

The public sector needs revenue to provide and sustain the production and provision of goods and services, and the most important source of revenue is taxes. In Turkey, the majority of taxes are based on declaration. It is necessary to check whether these statements reflect the truth. In case of lack of control, the decrease in tax revenues may lead to the risk that public revenues will not be able to cover public expenses, and this may push the state into debt. The effect of informality on borrowing, especially in the form of external borrowing, is quite high. The informal economy, which is effective in the inability of tax revenues to cover expenditures, has become a debated problem not only in Turkey but all over the world. The shadow economy, which has reached an international dimension, is defined as activities that exceed the framework of legal standards set by the state, are not included in official records of production and sales of goods or services, and therefore cannot be controlled, and therefore there are difficulties in measuring them. At this point, the effectiveness of the control mechanism becomes important. The existence of an effective control mechanism is important in reducing tax loss and evasion and ensuring a more equitable income distribution in the country. Ensuring a fair income distribution also helps increase social welfare in the country. The aim of this study is, first of all, to talk about the importance of the audit mechanism in reducing the size of the informal economy by clearly revealing the methods and within which rules the state inspects the taxpayer, and to present suggestions to prevent informality by revealing the dimensions of informality in Turkey. The additional importance of the study is to convey the importance of the audit mechanism in preventing informality, which prevents the state from meeting public needs, to take the necessary measures to increase the effectiveness of the relevant mechanism, and to make recommendations for measures to prevent the relevant problem before it reaches larger dimensions.