Erkan Kumcu: Tax cuts on housing loan interest rates

In some countries, individuals are allowed to deduct their housing credit interest rates from their taxes. There are a few reasons for this, the first being based in the very mentality involved in taxation. This stance is based on the idea that spending on investments can be encouraged through tax incentives. At the same time, as a part of this mentality, spending by individuals on items meant for their own personal development (this includes course fees, books, and items like this) can also be deducted.
 
The second reason for why some countries allow the deduction of housing credit interest rates from personal taxes is based on society itself. Allowing people to deduct such a factor from their taxes encourages families to live in houses they own themselves. In a sense, this means that the government, in such a situation, is bringing about a social security. This then reflects itself onto encouraging the housing-construction sector.
 
We are not prepared for this situation

What lies behind the resistance to embracing the housing loan interest rate deduction from taxes is the desire to avoid upsetting the balances of public finances through the reduction of tax income to the government. In this sense, both the Treasury Ministry and the economic leadership cadre of Turkey are correct. And it also seems that the IMF is opposed to such tax deductions at this stage of things.Â
 
For in the end, a possible deduction in housing loan interest rates from personal taxes would in fact open the way to a reduction in tax income for the government. It would also open one more loophole for escaping the payment of taxes. In the current atmosphere of rampant uncharted income and insufficient tax reporting, a law like the one discussed above could be very dangerous.

In short, for as long as the general rules are not heeded, it won't be possible to implement systems which require a foundation of laws. A new housing loan interest rate tax deduction law could easily be applied to everyone in Turkey who took out housing loans. This would not be surprising or difficult. What would be tricky would be that the state, which already has difficulty collecting taxes, would have even less coming in to them.
 
In a systen which is effective in its controls, which implements rules without making concessions, and which is well explained to everyone, a tax break rule for people with housing laws would in fact be beneficial for both the economy and the society. In the future, when we become a society which respects the laws and refuses to make concessions on rules, this subject will definitely rise to the agenda again. If, however, before that time it comes onto the agenda, all it will mean is that we are once again putting our public financing at risk.