Author:M. Bahri Oktem

Background. Tariff Structure. Relations with the World Customs Organization and Other International Organizations. Membership in the World Trade Organization and Customs Valuation. Revenue Importance of Import Taxes. The Modernization Program. New Customs Code and Simplified Trade Procedures. Reorganization of the TCA. Improvement of Physical Infrastructure with Private Sector Support. Human... (see full summary)


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This chapter reviews recent reforms undertaken by the Turkish Customs Administration (TCA) since 1993. The findings are based on a series of interviews with individuals who participated in the reform process from its outset, customs officials and other government officials who implemented it and were affected by it, and representatives of the trading community.

The reform was initiated as a result of both external and internal forces. They included the association agreement between Turkey and the European Union (EU), which required that Turkey's trade legislation be aligned with European practices. In addition, in the early 1990s Turkey's customs services were generally perceived as inefficient and corrupt. Public officials and traders alike viewed the situation as a major handicap to business that had to be eliminated in order for the country to integrate better into the world economy and benefit from international trade.

Government officials saw customs reform as part of a broader process of modernizing public sector management, and they included it in a request for support from the World Bank. The World Bank began preparation to provide such support in 1993, an effort that eventually resulted in the Public Financial Management Project.

The International Monetary Fund was closely associated with the reform process and periodically sent missions to monitor its progress.

The broad objectives of the customs reform were to ensure that Turkey had modern customs laws that conformed with the EU's requirements, to simplify customs procedures, to adopt modern information and communication technology (ICT) that would help make customs clearance more efficient and predictable, and to ensure faster and more efficient production of trade statistics.


Turkey's customs modernization initiative complemented its overall policy ambition of greater integration into the world economy, particularly into the EU.

Tariff Structure

Before 1992, Turkey levied multiple import taxes and surcharges. In addition to customs duties and value added taxes (VATs), those taxes included municipal charges; stamp duties; Promotion Fund, Mass Housing Fund, and Price Stability Fund taxes; and duties for transportation infrastructure.

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Levying the additional taxes was complicated, and the government abolished them in 1992.

Turkey's policy of moving toward trade integration with the EU required that it adopt the EU's common external tariff. In 1995, the European Community-Turkey Association Council committed Turkey to adopting an entire body of legislation in the field of trade and adhering to conventions in the fields of intellectual, industrial, and commercial property rights. In 1996, Turkey entered into a customs union with the EU and incorporated the basic rules of the European Community's Customs Code into its customs legislation. At that time, the government removed all customs duties and quantitative restrictions on industrial products imported from EU countries. The EU-Turkey Customs Union currently covers industrial and processed agricultural products. After a five-year transition period, the government introduced the EU common external customs tariff in early 2001. Turkey's coding, description, and classification of goods became harmonized with the EU's system of combined nomenclatures. Turkey also implements the EU's preferential trade regimes, adheres to the Common Transit System and Single Administrative Document conventions, and signed the relevant protocols with EUROCUSTOMS. The application of the single administrative document was initiated unilaterally on January 1, 1996.

In addition to the EU-Turkey Customs Union, Turkey entered into free trade agreements with the European Free Trade Area, Bulgaria, the Czech Republic, Estonia, Hungary, Israel, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Poland, Romania, the Slovak Republic, and Slovenia.

The import duty regime is still rather complicated, because the TCA also administers the VAT and a series of other taxes that are intended for earmarked funds. The regular VAT rate is 18 percent, but basic goods are taxed at 1 percent or 8 percent and luxury goods at 26 percent. In addition, some excise taxes and earmarked taxes benefit the Agricultural Fund, the Tobacco Fund, the National Education Fund, the Fund for Promoting the Defense Industry, and the Price Stability Fund. The TCA also levies two lump-sum taxes per declaration: a charge contributing to education, which raises approximately US$2.7 million per year, and a special transaction tax, which raises approximately US$7 million per year.

Relations with the World Customs Organization and Other International Organizations

Turkey belongs to a number of organizations that seek to facilitate trade and strengthen customs operations. In 1953, Turkey became a member of the World Customs Organization, and it is a signatory of its major conventions and declarations. Turkey has also entered into mutual administrative agreements with many countries. Those agreements are based on the model bilateral agreement of the World Customs Organization.

With the EU, Turkey signed the United Nations-European Economic Council Convention on the International Carriage of Goods by Road, the 1954 Tourist Facilitation Convention, the Convention for Temporary Importation of Private Motor Vehicles, the Transport International Routier Convention, the Container Convention, and the Pallet Convention.

Turkey also participates in activities under the aegis of the South East Cooperation Initiative, the Economic Cooperation Organization, and the Regional Intelligence Liaison Office.

Membership in the World Trade Organization and Customs Valuation

Turkey became a member of the World Trade Organization (WTO) in 1994 and thereby accepted the WTO valuation principle, according to which imports are to be valued on the basis of their transaction value unless reasonable doubt permits the use of secondary valuation rules. Before 1994, the TCA used the Brussels definition of value and relied heavily on reference prices. Customs officials state that they are using the WTO definition of value for 99 percent of import transactions, an estimate confirmed by traders, who mentioned that this new valuation practice initially caused some delays and difficulties, but that those difficulties appear to have subsided substantially. Manufacturers, by contrast, are not pleased with this valuation system, because it deprives them of the protection granted under the prior system.

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TABLE 8.1 Revenue Importance of Customs Duties and Taxes, Selected Years (percent)

Category 1994 1997 1999 2000 2001
Duties and taxes, collected by the TCA as a share of total tax revenue 15.25 17.41 13.36 16.18 13.96
Custom duties as a share of total tax revenue 3.73 2.61 1.62 1.46 0.96
VAT on imports as a share of total tax revenue 11.20 14.76 11.69 14.68 12.95
Customs duties as a share of the value of total imports 3.50 2.00 1.70 1.37 0.94

Source: TCA data.

Revenue Importance of Import Taxes

The importance of customs duties as a source of budgetary revenue has fallen considerably in recent years. By 2001, duties raised less than 1.0 percent of total tax revenue, down from 3.7 percent in 1994 (see table 8.1). That decrease is the result of the trade liberalization policies of the 1990s. By contrast, the revenue contribution of VATs on imports rose slightly, from 11.2 percent in 1994 to 13.0 percent in 2001. Because the TCA also levies VAT at the importation stage, the TCA remains responsible for about 14 percent of total tax revenue. Nevertheless, the share of total budget revenue managed by the TCA is much lower than that in most developing countries. Without neglecting its revenue mobilization role, the TCA could increasingly look for ways to enhance the efficiency of its operations and to manage its processes so as to reduce the burden that paying import taxes imposes on traders.

The Modernization Program

At the outset of the reform, the TCA prepared a four-year action plan that presented in chronological order the various interconnected activities that it intended to undertake to achieve the reform objectives. Those objectives focused on bringing customs practices in line with those prevailing in the EU and on easing the burden of customs operations on trading activities. The achievement of the objectives was to benefit substantially from the introduction of an up-to-date computerized import and export processing facility. Table 8.2 sets out the components of the four-year action plan.

The Reform Steering Committee, chaired by the deputy undersecretary of the TCA, was established to implement the program, but until 1997 it made virtually no progress. In 1997, the reform program was relaunched and a project unit staffed with customs employees was established to manage the reform and accelerate the decisionmaking process. The deputy undersecretary of the TCA was designated as the project coordinator.

The remainder of this section discusses the reforms as they affected customs law and...

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