How not to raise a tax (Turkey edition)

I’ve generally given the benefit of the doubt to the AK Party (Justice and Development Party), the majority party in Turkey.  The party, now led by Recep Tayyip Erdogan, has led years of stable growth, EU accession talks, and increased Turkey’s status as a regional power.  They’ve done all this while avoiding attempts to outlaw it.

Recently, however, the AK Party has started to alarm some of its more moderate defenders.  Most alarmingly, the Tax Ministry has accused Dogan Yayin, a media group whose holdings are the most vocal critics of the government, of owing $2.5 billion in back taxes.   The media group is a subsidiary of a larger group, Dogan Yayin Holding, and the tax bill is roughly equal to the market cap of the holding group itself.  Not surprisingly, this move has alarmed a lot of people, not the least the European Union; a spokesman for the EU said, “When the sanction is of such magnitude that it threatens the very existence of an entire press group, like in this case, then freedom of the press is at stake.”  And the EU won’t look favorably on a state which uses its tax code for political ends.

Using the “tax code” (I put the phrase in brackets because it’s not clear exactly how the media group violated its tax obligations) to settle political vendettas is about the worst abuse of taxes a government can make.  Fears of abuses like this animate a lot of conservative opposition to progressive tax codes and, to a lesser extent, taxes in general. In addition, it’s not without good reason that people are comparing this case to that of Mikhail Khodorkovsky, the Russian tycoon and opponent of Putin who was sent to jail for “tax evasion.” You can try to softly muzzle the opposition, which our previous administration loved to do, but this is equivalent to the IRS fining NBC $156 billion (GE’s market capitalization this morning).  Prime Minister Erdogan insists that the Tax Ministry is an independent agency and that he had no influence on the tax bill, but no one really believes that.  It’s punitive, arbitrary taxes such as these that give taxes and government a bad name.  Though the total bill will probably be negotiated to a lower settlement, the harm to Turkey’s image and free press has already been done.