Excise Taxes Below Inflation: Turkey Adjusts Its Tax Policy

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Turkish authorities have raised fixed excise taxes on fuel, tobacco products and alcohol, setting the increase below the pace of producer price growth, reports Bloomberg. The decision was taken as part of a strategy to slow inflation and is aimed at supporting the policy of the central bank. This approach makes it possible to limit the scale of tax indexation without increasing pressure on the consumer market and while maintaining the current economic course.

Fuel and alcohol

The fixed excise tax on gasoline and diesel fuel was increased by 6.95%. Rates on cigarettes and alcoholic beverages rose by 7.95%. The scale of the increase was below the growth of the producer price index over the previous six months, reflecting an effort to soften the impact of tax adjustments on the economy. Special consumption taxes in Turkey are revised twice a year — in January and July — taking into account changes in producer prices. At the beginning of 2026, the adjustment was carried out in a more restrained format.

The measures taken fit into a broader fiscal line. Earlier, Bloomberg reported on Turkey’s plans to limit itself to modest tax increases on key goods and services, including motor fuel. Treasury and Finance Minister Mehmet Simsek noted that increases in certain taxes and fees would be based on targeted inflation indicators rather than on the revaluation coefficient tied to producer price dynamics. In this context, tax policy is viewed as an auxiliary tool that helps reduce the risk of secondary effects linked to the pass-through of higher costs into final prices.

Overall trends

Annual inflation in Turkey has been slowing since reaching peak levels in 2024, when consumer price growth stood at 75.5%. In November 2025, the figure declined to 31.1%, and in December to 30.9%. Monthly inflation remained at 0.9%. The published data came in slightly better than analysts’ expectations.

The improvement in December’s figures was driven by lower prices for clothing and transportation. The food segment, by contrast, exerted upward pressure, with food prices rising by 2% over the month. The target benchmark предусматривает bringing inflation down to 16% by the end of 2026 and returning it to single-digit levels in 2027.

The Central Bank of Turkey has cut its key interest rate at its last four meetings, and in December increased the scale of the reduction amid easing inflationary pressure. Market reaction was positive: yields on five-year government bonds declined, while the benchmark BIST 100 index reached a record high.

Macroeconomic risks

Analysts nevertheless point to persistent vulnerabilities. According to Bloomberg Economics, key risks remain the trajectory of the lira exchange rate, volatility in food and energy prices, as well as the impact of administratively regulated prices and wage growth. Turkey’s minimum wage for 2026 was increased by 27%, in line with investor expectations, but this may limit the pace of further inflation slowdown.

Economists warn that even in the absence of sharp external shocks, inflation in 2026 may slow only to levels above the official target. Against this backdrop, cautious tax policy and restrained excise tax growth are seen as an important element of the overall strategy, helping to preserve the progress achieved and maintain room for moderate easing of monetary conditions.

Analysts at International Investment note that with inflation still running at elevated levels, real returns on a range of financial and investment instruments in Turkey continue to erode. This increases risks for investors, particularly in fixed-income segments and for long-term strategies. An additional source of uncertainty is the gradual tightening of regulatory requirements and rules for foreign investors, which calls for a more balanced approach to risk assessment, currency exposure and the real purchasing power of income in the Turkish economy.