The International Monetary Fund has advised the Turkish government against further cuts in value added tax, warning that such tax cuts cannot be accommodated in the government's budget.
"There is no way to cut VAT without a cost to the budget. Selective VAT cuts are in general we think very distortive and not good policy," IMF representative in Turkey, Hugh Bredenkamp, informed Reuters on Friday.
Bredenkamp's remarks came after Turkish Finance Minister Kemal Unakitan revealed that the government could afford to cut VAT on clothing and textiles without a resulting loss in revenues.
However, Bredenkamp noted that: "The Turkish government has told us that they have no intention of making further cuts in VAT under the new programme. We hope that they will stick firmly to that policy."
The Turkish government is currently under pressure from the country's textile firms to cut VAT on textile products to 8% from 18% in response to growing competition from China.
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