Turkey Raises Withholding Tax on Lira Deposits to Boost Budget Revenues

Turkey has raised the withholding tax on short-term Turkish lira deposits and investment funds by 2.5 percentage points to boost budget revenues and curb dollarisation. The tax on deposits with maturities up to six months increased to 17.5% from 15%, and for those up to one year, it rose to 15% from 12%, while mutual fund earnings are also taxed higher. Economists note the move aims to address weak budget revenues amid rising interest payments, with the government having met 67% of its fiscal target so far for 2025. However, the tax hike complicates efforts by the central bank to de-dollarize the economy and encourage lira savings, as increased withholding taxes may deter investors from lira-based products. Analysts expect the central bank to cut interest rates in July, but larger cuts are now deemed less likely. The hike may push investors toward equities, evidenced by a rise in the Borsa Istanbul 100 Index, but political uncertainty means dollarisation is likely to persist.