Nicosia, Cyprus —

Turkey’s Plan to Scrap Tax Exemption Set to Hit 84 Equity Funds

Turkey’s proposal to end a key tax exemption on certain equity-dominated mutual funds is set to hit 84 funds managing about 71 billion liras ($2.1 billion), according to an impact analysis reviewed by Bloomberg.

By Panagiotis Kountouriotis • Published: Oct 21, 2025 • Tags: Bloomberg, Markets, TRY/USD

Funds in Focus Investor Impact Market & Fiscal Effects Winners & Losers Outlook

The ruling Justice and Development Party (AK Party) submitted the bill to parliament on Friday. The proposal would end the withholding tax exemption on capital gains from fund units held for more than one year in portfolios dominated by domestic equities. Officials say the move targets investors who have used the exemption for tax-planning purposes beyond its original intent of promoting long-term investment in Turkish stocks.

Funds in Focus

The change would apply to funds restricted to qualified investors, not traded on Turkey’s Electronic Fund Trading Platform and not subject to portfolio composition limits. Other equity-heavy funds that meet the domestic exposure criteria will continue to benefit from the exemption.

Read more: Impact analysis reviewed by Bloomberg • Currency equivalent: 71bn TRY → USD

Investor Impact

Ending the tax break will raise the effective tax burden on long-term investors, lowering net returns and undermining incentives for extended holdings. Portfolio managers expect capital outflows from affected funds as investors seek vehicles that still qualify for tax relief or alternatives such as government bonds or foreign investments.

Market and Fiscal Effects

The proposal could bring short-term volatility to Turkish markets while bolstering government revenues. The move aligns with Ankara’s push to tighten fiscal discipline amid persistent inflation and exchange-rate pressure on the lira.

"The policy aims to curb tax-driven investment behaviour while widening the tax base — but it may test market liquidity in the near term."

Winners and Losers

Group	Impact	Comment
Specialized / private funds	Negative	Loss of investor inflows and management fees.
High-net-worth investors	Negative	Higher taxes on long-term capital gains.
Government finances	Positive	Stronger tax revenue inflows.
Equity funds retaining exemption	Positive	Likely beneficiary of redirected capital.
Turkish capital markets	Mixed	Temporary liquidity dip; potential medium-term stabilization.

Outlook

The proposed reform represents a structural shift in Turkey’s investment environment. While intended to enhance fiscal fairness and curb tax-driven behaviour, it risks reducing investor confidence in the short run. If implemented effectively, the change could mark a new phase of fiscal normalization for Turkey’s financial system — though markets may feel strain before benefits materialize.

Disclosure: This article is based on an impact analysis reviewed by Bloomberg and publicly available information. Links provided for convenience and further reading. For publishing attribution or data corrections, update the article metadata prior to posting.