CUSTOMS DUTIES RIDDLE?

Article 73 of the Turkish Constitution stipulates that:
"Taxes, duties, fees, and similar financial obligations shall be imposed, amended, or abolished by law. The authority to make changes within the upper and lower limits prescribed by law regarding exemptions, exceptions, and discounts concerning such taxes, duties, fees, and similar financial obligations may be delegated to the President."

This principle, known as the legality of taxation, has an exception set forth in Article 167 of the Constitution, which states:
"For the purpose of regulating foreign trade in favor of the national economy, the President may be authorized by law to impose or remove additional financial obligations other than taxes and similar charges on imports, exports, and other foreign trade transactions."

This provision grants faster and more flexible decision-making powers concerning foreign trade-related additional financial obligations compared to ordinary tax regulations.

In recent years, this authority has frequently been used in various contexts to impose non-tax financial burdens. As a result, it has become increasingly unclear which financial obligations qualify as charges equivalent to customs duties, and under what circumstances exemptions or penalties should apply.

Scope of Customs Duties

Customs duties include not only the basic import or export duty but also all other taxes, levies, and financial charges imposed due to import or export activities. In this sense, the term customs duties encompasses all payments imposed on goods due to their importation, regardless of name, provided they have the same effect as customs duties.

Taxes with equivalent effect refer to charges that produce the same result as customs duties — creating a price difference between imported and domestically produced goods. Therefore, if a tax is only levied on imports or the rate applied to imports is higher than that applied to domestic goods, it is considered a tax with equivalent effect.

Accordingly, Value Added Tax (VAT) and Special Consumption Tax (SCT), although collected during imports, should not be considered taxes with equivalent effect — and thus not included in the scope of customs duties — because they are equally applied to both imported and domestically produced goods at the same rate.

From this perspective, all public charges — taxes, funds, levies, contributions, etc. — imposed solely on imported goods should be treated as customs duties under the Customs Law if they are not also imposed on domestic goods.

Why the Term “Customs Duties” Matters

The Customs Law serves as both a substantive and procedural law. It determines the conditions under which customs duties are imposed. However, the amounts of such duties are defined in Law No. 474 and the Import Regime Decision. These legal texts together form a coherent whole, clearly answering questions regarding:

• Conditions for customs duty exemption,
• Circumstances and amounts of applicable penalties,
• Applicability of such provisions to all forms of customs duties.

So, what's the problem?

When the Customs Law was first enacted, the structure of import taxation was relatively simple. The issue arose later, with the increasing imposition of new taxes, funds, and charges lacking detailed legal frameworks. This has made it unclear whether such obligations fall under the scope of “customs duties.”

This classification matters: being considered a “customs duty” brings with it both the application of penalties and potential exemptions. Yet, in practice, while penalties are often enforced strictly under the Customs Law, the same cannot be said for exemptions — leading to inconsistent and sometimes contradictory outcomes.

Taxes and Charges with Equivalent Effect

Currently, 14 types of taxes and financial charges are levied during importation, excluding VAT and SCT. The Additional Customs Duty (ACD) is the least controversial among them. According to the Presidential Decree No. 3351 on Additional Customs Duties, ACDs are explicitly subject to the same procedures and rules as regular customs duties.

The status of other equivalent taxes and charges, especially the Additional Financial Obligation (AFO), remains ambiguous. Based on the wording of the Customs Law — which includes taxes collected due to importation and having the same effect as customs duties — these should arguably be considered customs duties. This interpretation is supported by Article 5 and the annex of the Customs Reconciliation Regulation, which lists 15 public receivables under the umbrella of customs duties.

However, the Ministry of Treasury and Finance does not consider the Resource Utilization Support Fund (RUSF) part of customs duties, citing the absence of the term "fund" in the definition. As a result, goods exempt from customs duties may still be subject to RUSF. Interestingly, if RUSF is underpaid, a fine is imposed under the Customs Law, further deepening the inconsistency.

The Additional Financial Obligation (AFO) is particularly problematic, as it includes eight distinct types of public revenues with various legal bases and objectives. Some are meant to offset losses from Free Trade Agreements (FTAs) or Generalized System of Preferences (GSPs), others serve as retaliatory tariffs (e.g., against the U.S.), and some function as industry-specific duties (e.g., on jewelry or Chinese electric vehicles).

In one notable case, the Ministry of Trade reversed its position on whether pharmaceutical raw materials should be subject to AFO. While under Law No. 2976, underpayment of AFOs is penalized with a twofold fine, the same AFO may also be treated as a customs duty, triggering a threefold fine under the Customs Law — revealing a serious contradiction in enforcement.

The Magnitude of the Problem

Although the issue may seem technical or minor, it poses a significant risk to both importers and customs brokers. If a financial charge, initially deemed outside the scope of customs duties, is later reclassified as such — all past transactions may suddenly be deemed non-compliant, resulting in retroactive tax collection plus triple fines.

Even if one tries to act cautiously, the three-year retroactive application of taxes and penalties underscores how serious and far-reaching this issue is.

So, what exactly constitutes customs duties?

And what happened to the principle of legality in taxation?