Discussions on fiscal transparency were held in Ankara during May 20–June 3, 2005. The Fiscal Affairs Department (FAD) mission team, comprising Messrs. Jesús Seade (Head), Luc Leruth, Brian Olden, Mark Flanagan (all FAD) and Paul Bernd Spahn (IMF panel expert), was supported by the IMF resident representative office in Turkey. The staff team met with officials from the Treasury, Ministry of Finance, Ministry of Interior, State Planning Organization, Ankara Municipality, some members of Parliament; Budget and Finance Committee, and independent observers.
Revolving funds are extrabudgetary accounts of line ministries and other budget and annexed agencies which collect revenues in return for services.
Foundations solicit public donations (often at the time the service is provided). Resources are used to supplement line ministry activities (for instance, by purchasing vehicles).
A subsidiary is an SEE wholly owned by another SEE
A valuation committee communicates a minimum value to the tender committee in advance of the sale.
World Bank, “Turkey: Doing Business in 2005,” Washington: World Bank, 2004. To the extent businesses avoid this quasi-fiscal burden, the informal economy grows, undermining a key government objective.
The tax pool for subnational governments is closed and well defined. Two sub-pools are formed for provinces (they obtain 1.12 percent) and municipalities (6 percent).
Iller Bank does not take private deposits nor take loans from the capital market, but is in the process of finalizing a $275 m World Bank loan for water projects. Its capital stock is accumulated through compulsory annual equity contributions by all members, corresponding to 5 percent of their respective current revenues—both tax shares and own revenue (Iller Bank Law #4759).
These “claw backs” are activated in accordance with Law #6183 on the collection of government receivables.
The lack of a hierarchical structure to primary legislation is not uncommon. In other countries, such as France, the primacy of the Organic Budget law is embedded in the Constitution. Many countries do however have procedural rules that prohibit consideration in the legislature of laws that include an amendment of a principal law in that area. With such a rule, an inconsistent law put to a vote could be subject to a point of order (by a single member) and ruled out of order by the chair of the legislature.
Until the adoption of the 2005 budget, management procedures outlined in the General Accounting Law of 1927 and associated government regulations have been used as the basis for budget formulation. The procedures outlined in the PFMCL are due to be adopted for the 2006 budget.
In 2000, there were 81 EBFs and over 3,000 revolving funds.
The five EBFs are established under separate legislation. These are the Privatization Fund Law (4046), the Defense Industry Support Fund Law (3238), the Social and Solidarity Support Fund Law (3294), the Promotion Fund Law (3230), and the Savings Deposit Insurance Fund Law (3182).
Foundations are institutions established to improve the welfare of public servants. Their legal basis is derived from the Law on Foundations (5072). Traditionally, the foundations have been attached to central government institutions or agencies although the PFMCL appears to try to disassociate the foundations from the public authority to which they have been attached. The foundations collect revenue through requests for “voluntary” contributions from the public for providing public services associated with the underlying central government agency. Donations to the foundations tend to speed up delivery of such services. Expenditures of the foundations are mainly related to improving the working conditions and benefits of the staff of the underlying government agency.
See paragraph 5.
Section 2.43 of the GFS2001m permits the classification of social security funds as a separate sub-sector of general government
Article 40 provides that all donations and grants related to delivery of public services should be recorded as revenues in the budget.
See footnote 13
The major tax laws include the: Income Tax Law (193), Corporate Income Tax Law (5422), VAT Law 3065, Special Consumption Tax Law (4760), and the Tax Rebates Law (2978). The PFMCL provides that the legal grounds of the revenues of the public administrations be indicated in their budgets. Similarly, policy and objectives are to be published.
The Law on Taxpayer Identification Numbers (4358) establishes their use, and about 35 million of them have been issued to taxpayers. The tax identification number (TIN), however, is not used for the collection of social contributions (which is separately undertaken by the social security organizations).
The tax collection regulations are established in the Tax Procedure Law (213), and the Public Receivables Collection Law (6183).
Law 2531 in general limits the jobs which former civil servants can undertake, but it is superseded in the case of former tax auditors by the Chartered Accountants Law (#3568).
As the PFMCL has not yet been fully implemented, the existing budget preparation procedures were used for the 2005 budget. Commencing with the 2006 budget three year estimates are being produced for the 2006-2008 period.
With investment projects the large impacts of investment projects on recurrent budgets tend not be felt in the current year but rather in future years as maintenance and other recurrent costs need to be factored in as the investment projects come on stream.
The say2000i web-based automation system is capable of recording transactions on a cash or an accrual basis although the coverage of the system is limited to the general and annexed budget government agencies at present.
Articles 9 and 16 of the PFMCL.
These include the medium-term fiscal strategy, annual economic report, schedule of revenues foregone due to tax exemptions, debt management report, details of previous two years budget outturns and two year forward estimates, budget of central government agencies and a list of institutions deemed outside the scope of general government. These documents are expected to be included with the 2006 budget.
For example, Brazil.
Quantitative conditionality under the IMF program focuses on a narrower and more monitorable definition comprising the central government (including annexed agencies); the social security institutions; the defense, privatization and social aid funds; and 25 major state enterprises.
The compensation for loss of real principal value provided by nominal interest payments blurs the distinction between the above and below the line items. It is possible to correct for this problem by cleansing data for the impact of inflation, but such adjusted data are not published in Turkey.
The debt management report is one of the documents that should be included in budget documentation in accordance with Article 18 of the PFMCL.
Following on from the recommendations of a report by an FAD technical assistance mission on “Implications of State Bank Reforms for Government Debt and Cash Management and for Central Bank Operations” (2005), a working group, representing relevant parties has been established, as at end June 2005, which includes in its remit a requirement to examine the issue of multiple bank accounts of spending agencies.
The joint FAD/MFD TA mission on “Implications of State bank Reforms for Government Debt and Cash management and for Central Government Operations” –Diamond et al., estimated that average weekly balances of central government bodies accounts in Ziraat bank exceeded YTL 2.8bn in 2004.
The ex-ante control function of the TCA is due to be abolished in 2005 in line with the move towards development of internal financial control and audit systems in the individual spending agencies
Articles 54-60 of PFMCL.
The IACB was established on June 30, 2004 in accordance with Article 66 of the PFMCL.
An extensive training program is currently underway whereby the MOF is training spending agency trainers to assist with the capacity development effort in this area.
For example, through Law No. 4964 (Law on the amendment of some laws) of July 2003.
Contract workers are also regulated by Law 657 (Article 4-B). They are supposed to be employed to fill temporary needs, and receive one-year contracts. However, the courts have ruled that, by virtue of the “civil service” positions that they occupy, they enjoy all benefits and protections of civil servants.
Various laws determine the structure of and eligibility for allowances. The average employee receives about 7 or 8 allowances, which typically correspond to between 25 and 75 percent of total compensation.
Tansel, Aysit “Public employment as a social protection mechanism.” ERF WP 0104, Middle East Technical University, 2001.
Compression can also be severe: while the ratio of the highest to the lowest civil service wage in Turkey is about 7½, the ratio of the average public worker wage to the average civil servant wage is about 1½.
Since the mission visited Ankara, the General Directorate of Revenues (GDR) in the MOF has been renamed as the Revenue Administration and its institutional status was changed to a semi-autonomous institution under the MOF.
The General Government Accounting Regulation, which is the framework regulation for all general government entities classified in charts I-IV of the PMFCL, is currently being reviewed by the Prime Minister’s office. For units outside the central government sector similar accounting regulations will be prepared, subject to MOF approval. For local governments, a standard accounting regulation based on the State Accounting Regulation is being developed by the Ministry of the Interior, in consultation with (and subject to approval by) the MOF.
In particular, the transactions of the extra-budgetary funds, revolving funds and regulatory agencies were recorded on a net basis, as indicated earlier.
Article 164 of the Turkish Constitution.
The final accounts are presented to Parliament in the form of a Final Account Draft Law which is considered by Parliament together with the Draft Government Budget Bill which contains details of the budget for the following year. Both the previous year’s accounts and the following year’s appropriations are approved by Parliament at the same time.
The say2000i web-based automation system is capable of recording transactions on a cash or accrual basis although the coverage of the system is limited to the general and annexed budget government agencies at present.
The PFMCL also provides for a number of documents to be provided with the budget including a medium-term fiscal strategy, annual economic report, schedule of revenues foregone due to tax exemptions, debt management report, details of previous two years budget outturns and two year forward estimates, budget of central government agencies and a list of institutions deemed outside the scope of general government. These documents are expected to be included with the 2006 budget.
Once the accounting policies outlined in footnote 40 are approved and in place it is intended that all general government entities will report quarterly to the General Directorate of Public Accounts in the MOF, to fulfill the general government reporting requirement in the PFMCL. The current expectation is that reporting of general government will commence in fiscal year 2007. Whether capacity to do so is in place, particularly in the smaller municipalities, is open to question.
Information on local governments’ enterprises, which are growing in number and size, is scarce.
Although it is true that any published estimates would likely be extremely tentative given the assumptions that underlie such costings
Article 8 of the “Law on Regulating Public Finance and Debt Management -2002 (law number 4749) forbids the granting of guarantees by the Treasury on domestic borrowings. Domestic guarantees were granted in the past but there are no outstanding domestic guarantees on the books of the Treasury.
Supplementary budgets were passed in 2001, 2003, and 2004. In the latter case, the supplementary budget came two weeks after adoption of the initial budget.
These tend to be largely quantitative with no explanation of the methodology used in compiling the accounts.
Taxes are recorded on a cash basis.
The practice of permitting advance payments is a legacy of the high inflation era, where budget agencies frequently used up their allocated appropriations due to higher than estimated costs for delivery of goods and services. The practice serves less purpose in a period of relative price stability and could in fact be considered a weakness of fiscal discipline.
Articles 26-28 of the PFMCL outline the requirements for entering into commitments and the possibility for carry-over of commitments to subsequent fiscal years. The say2001i system appears to have the functionality to record contractual commitments but their functionality is currently not being utilized as the spending agencies are not recording this information in the system.
Currently fifty-four spending agencies within the General Budget sector (previously the general and annexed budget entities) are direct users of the government’s say2000i financial management system. Within the other three central government sectors, only the universities are current users of the system while the others maintain their own systems for budgeting, accounting and financial reporting. There are no current plans to expand the coverage of the system to include additional entities within these three sectors. The say2000i system has the capacity to produce transaction based data on accounts due for payment. Details of debt management related transactions are generated by the debt management system and then forwarded to the say2000i system for inclusion in the public accounts data.
The authorities explained that one of the main reasons why it has not been possible to link the system is due to the need for physical sign –off on the details of debt service transactions by the Treasury. There is currently no legislation in place to allow for digital signatures which would allow for electronic transfer of data between the systems.
Law on the Court of Accounts –Law No. 32 –enacted February 21 1967.
Decision Number 20-11-1996-E.1996/58,K.1996/43
In accordance with the provisions of the General Accounting Law of 1927.
Law No. 5018 legislates for the inclusion of the Social Security Institutions and Regulatory Bodies in the TCA remit by January 1, 2006. Draft law is also being considered to include foundations.
A twinning project funded by the EU is currently operational in the Court of Accounts. The UK’s National Audit Office is assisting with training, preparation of audit manuals and development of auditing standards. The TCA currently has 540 auditors, of whom approximately half are trained. The long-term objective is to increase professional auditor number to 900 over a 10 year horizon. Efforts to build up the performance audit capacity have been hampered by the slow progress in development of strategic plans and performance based budgeting systems in budget institutions. As this capacity is developed it is likely to be accompanied by an increase in the number of performance audits being carried out by the TCA
Aspects of this implementation are therefore imminent: the 2006 budget is due to be presented to Parliament in October 2005, but guidelines to the spending agencies are prepared considerably in advance of this date (typically May-June).
Such as Law on Amendments to Other Laws (Law No. 4964), whose diverse provisions may contain amendments incompatible with sound international practice.
The Constitution, however, was amended to give a special legal status to Turkey’s international treaty obligations, between the Constitution and other laws.
But even if it were feasible only for the life of this parliament, such a rule would be a step in the right direction, which could begin to create a culture of legislative restraint.
A thorough review of all fiscal incentives and disincentives should also be made, with the aim of strengthening the former and eliminating the latter. It could comprise the right of municipalities to levy local surcharges on the personal income tax for instance. Smaller local taxes and fees should also be eliminated.
More generally, move towards increased linking of expenditure and revenue functions at the local level to support fiscal incentives. Fees such as parking violations should be passed on to municipalities.