Under these new arrangements, the tax incentives aimed at deepening the securities market and encouraging investment in it are of two kinds: - Double taxation of dividends was prevented by raising the corporate income tax rate and making it the only tax on dividend income. In addition, the income tax rate for small shareholders was lowered. - For residents, capital gains on shares became exempt from taxation if the security was listed on an exchange. Capital gains from the sale of through licensed intermediaries were made tax free. Premiums from the issuance of stock are also tax free for stocks listed on a stock exchange that does not distribute dividends to shareholders. There are also tax facilities for government securities. Privatization is an important part of our modernisation and liberalisation effort. Turkey embarked on a privatization program in the 1980s. Turkey’s telecommunications and energy sectors are great targets for global partnership. Despite extensive exemptions from the program, by 1994 total proceeds derived from privatization since it began in 1986 had reached $ billion, which is not so bad. Moreover, 25 percent of this total came from sales on the Istanbul Stock Exchange. More than 60 percent of the sales were direct sales to domestic and international buyers. The main purpose of privatization is to get the government out of the business of business and increase the efficiency of the privatised enterprises.
In addition, the return of the Istanbul Stock Exchange, though volatile, increased substantially this year. Market volatility creates liquidity and great trading opportunities. When I talk about money markets I mean the Turkish lira money market and the foreign exchange cash and deposit market, open market operations, and government securities auction markets. These markets, which were introduced as a part of the financial sector reforms, have increased the effectiveness of the central bank’s control over the liquidity in the financial system, and increased the role of market mechanisms in money management. When market mechanisms began to play a larger part in the allocation of resources, the responsibilities and instruments of the central bank also changed, bringing the issue of central bank autonomy onto the agenda of the Turkish economy. Turkey now has a well established and efficient system of financial markets. The main obstacle at present to the functioning of the financial markets is our large public sector borrowing requirement, which crowds out other demands for financing. The inability of domestic resources to cover the financing needs of the public sector has kept real interest rates very high for over a decade. Bold privatization efforts, broadening the tax base, and reforming the social security system are the best ways to correct this situation, and I may say that they are all under way. Macroeconomic stability and political stability are the keys to achieving sustainable growth in a low inflation environment. BIS Review 42/1997