MUNICIPAL REVENUES
Throughout the history of the Republic, various laws concerning municipal revenues have been enacted. Today, the legal bases of municipal revenues include:
Law No. 2464 on Municipal Revenues
Law No. 5393 on Municipalities
Law No. 5216 on Metropolitan Municipalities
Law No. 1319 on Property Tax
Law No. 5779 on the Allocation of Shares from General Budget Tax Revenues to Special Provincial Administrations and Municipalities
Law No. 6360 on the Establishment of Metropolitan Municipalities in Thirteen Provinces and Twenty-Six Districts and Amendments to Certain Laws and Decree Laws
Law No. 3194, which regulates the Environmental and Cleaning Tax
According to the Municipal Law, municipal revenues consist of:
Municipal taxes, duties, fees, and participation shares prescribed by law;
Shares allocated from general budget tax revenues;
Payments to be made by general and special budget administrations;
Revenues obtained from the leasing, sale, or other evaluation of movable and immovable properties;
Service fees to be collected according to tariffs determined by the municipal council;
Interest and penalty revenues;
Donations;
Revenues generated from all kinds of enterprises, participations, and activities;
Other revenues.
Before proceeding to evaluations concerning the Electricity and Gas Consumption Tax (ECT), it should be noted that municipal revenue sources differ in structure and may be classified as own-source revenues, transfers, and borrowing.
In Türkiye, municipal own-source revenues consist of tax revenues, fee revenues, participation shares in expenditures, enterprise and property revenues, donations and aid from private persons and entities, capital revenues from immovable and movable assets, interest revenues, administrative fines, collections from receivables, and various other revenues. Among these, taxes are expected to constitute a significant proportion of municipal revenues.
As shown in Table 6 below, enterprise and property revenues rank first with a 26% share within total municipal own-source revenues, while tax revenues rank second with a 24% share.
On the other hand, revenues in municipal budgets are generally classified under the headings of “Tax Revenues,” “Enterprise and Property Revenues,” “Grants and Aid Received,” “Other Revenues,” and “Capital Revenues.”
In order to shed light on our subject, it is useful to concretize the matter by reflecting the budget realizations of a sample municipality. The “Final Budget Revenue Account” of Municipality X for the period covering 01.01.2020–31.12.2020 is as follows:
At first glance, it is striking that within approximately 110 million TRY of collected revenue, tax revenues amounting to 33 million TRY correspond to only 30% of total revenues. Another notable point is that out of 59 million TRY of accrued tax, only 33 million TRY — that is, 56.49% — could be collected.
LEGAL BASIS OF TAX REVENUES COLLECTED BY MUNICIPALITIES
In Part One of Law No. 2464 on Municipal Revenues, the types of municipal taxes are specified. These taxes are as follows:
Advertisement and Announcement Tax (Articles 11–16)
Entertainment Tax (Articles 17–22)
Various Taxes
Communication Tax (Articles 29–33)
Electricity and Gas Consumption Tax (Articles 34–39)
Fire and Insurance Tax (Articles 40–44)
Environmental and Cleaning Tax (Provisional Article 44, repeated)
Since our subject concerns the Electricity Consumption Tax (ECT), the discussion will proceed specifically on the basis of the ECT, without elaborating on the other types of taxes.
LEGAL BASIS OF THE ELECTRICITY CONSUMPTION TAX
The principle of legality in taxation is a fundamental principle. Article 1 of the Tax Procedure Law No. 213 stipulates that the provisions of this Law shall also apply to taxes belonging to municipalities. Article 8 of the said Law defines the concepts of taxpayer and tax responsible person, stating that the taxpayer is the natural or legal person upon whom a tax liability is imposed under tax laws, whereas the tax responsible person is the individual who is accountable to the creditor tax office for the payment of the tax.
Pursuant to Article 35, paragraph 1 of the Municipal Revenues Law, electricity consumers are obliged to pay the Electricity Consumption Tax. Paragraph 2 of the same article provides that institutions supplying electrical energy under the Electricity Market Law are responsible for collecting this tax together with the sales price and remitting it to the relevant municipality. Accordingly, the taxpayer of the Electricity Consumption Tax is the electricity consumer, while the tax responsible person is the electricity supplier.
According to Article 38 of the Municipal Revenues Law, the Electricity Consumption Tax is calculated at the rate of 1% over the sales price for the cases listed under subparagraph (a), and at the rate of 5% over the sales price for the cases listed under subparagraph (b). Consumers are obliged to pay the Electricity Consumption Tax to the electricity suppliers at the aforementioned rates, calculated over the sales price determined based on the amount of energy consumed. Suppliers, in turn, are required to remit the taxes they collect to the municipality.
In this context, electricity supply companies function as an intermediary mechanism in transferring the tax from the consumer to the municipality.
TAX BASE AND RATES IN THE ELECTRICITY CONSUMPTION TAX
ECT Tax Base
The term tax base refers to the value or amount on which a tax is calculated. Pursuant to Article 37 of Law No. 2464, the tax base of the Electricity Consumption Tax (ECT) is the sales price of electrical energy, excluding charges related to transmission, distribution, and retail sales services. Taxes, funds, and shares are not included in the tax base. Accordingly, it is understood that the tax base of the ECT is determined on an ad valorem (value-based) basis.
Since the provision refers specifically to the sales price of “electrical energy,” the sale of “electric capacity” does not fall within the scope of the ECT. The term electrical energy used in determining the sales price refers to active energy. Reactive energy is considered an extension of transmission and distribution activities. As charges related to transmission and distribution activities are excluded from the tax base, reactive energy charges are not included in the ECT tax base.
In this context, it may be stated that, pursuant to the Law, the tax base of the ECT essentially consists of the active electrical energy price. The active electrical energy price generally consists of the costs of acquiring electrical energy supplied to the consumer (production or purchase from third parties) plus the supplier’s profit margin.
For residential use — including detached houses, apartment buildings, independent units within apartments, housing cooperatives, and residential complexes — the table below illustrates the formation of the price under the “single-term single-time low-voltage residential tariff.”
Residential Subscribers Electricity Tariff (1 January 2022)
Consumption Amount
1 kWh
240 kWh
Electricity Charge (a)
0.794622 TRY
190.71 TRY
Distribution Charge (b)
0.329483 TRY
79.08 TRY
ECT (c) (a × 5%)
0.039731 TRY
9.54 TRY
VAT Base (d) (a + b + c)
1.163836 TRY
279.32 TRY
VAT (e) (d × 8%)
0.093107 TRY
22.35 TRY
Total Electricity Price (d + e)
1.256943 TRY
301.67 TRY
Progressive Electricity Tariff for Residential Consumers
During periods when electricity consumption exceeds the minimum daily average of 8 kWh (240 kWh for 30 days), the first 240 kWh of energy consumption is charged at 1.26 TRY per unit, and the remaining amount is calculated at a 50% increased unit price of 1.89 TRY.
Accordingly, for a residence consuming 300 kWh per month, the electricity bill is calculated as follows:
(1.26 × 240) + (1.89 × 60) = 415 TRY
Another conclusion to be drawn from the above table is that, for a residential subscriber billed under TEDAŞ tariffs, approximately 63% of the invoice amount consists of the electricity energy charge, while the remaining portion corresponds to other charges.
THE STATUS OF ECT IN MUNICIPAL BUDGETS
According to the “2020 Final Budget Revenue Account” of Municipality X, which has a population of approximately 170,000 and is the actual creditor of the ECT amounts paid by users to supplier companies, the total municipal revenue accrual for the period amounted to 140 million TRY, of which 46.5 million TRY constituted tax accruals. However, only approximately 70% of these tax accruals could be collected within the period. In some other municipalities, the overall tax collection rate can fall as low as 65%.
According to the “2020 Audit Commission Report” of Municipality X, a total of 4.6 million TRY in Electricity Consumption Tax (ECT) was collected during the 12-month period of 2020. This ECT revenue corresponds to approximately 4% of the municipality’s total revenues of approximately 120 million TRY.
Considering that electricity constitutes one of the most intensive areas of consumption expenditure in Türkiye, it is striking that the share of taxes collected at a rate of 5% from all consumer groups — primarily residential and commercial subscribers — except for the industrial group subject to 1%, and paid by citizens on each invoice by electricity supply companies acting as tax responsible persons, remains so low.
Based on January 2020 figures, the monthly minimum electricity consumption of 230 kWh for a family of four corresponded to a bill amount of 180 TRY. For residential subscribers exceeding this consumption amount, the excess consumption is calculated at a higher unit price.
The approximate electricity consumption figures of District X for 2020 are as follows:
District total consumption: 350 million kWh.
It is understood that approximately 8% of the total 4.3 billion kWh electricity consumption across the province — which has a population of approximately 1.5 million — was consumed in District X. Annual consumption figures by subscriber type are as follows:
Subscriber Group
kWh (Approx.)
ECT Rate
Industrial
2 billion
1%
Residential
1 billion
5%
Commercial
0.9 billion
5%
Other
0.4 billion
5%
Total
4.3 billion
Accordingly, it is possible to calculate the approximate ECT amount payable based on the 2.3 billion kWh consumed by user groups subject to the 5% ECT rate and the 2 billion kWh consumed by industrial subscribers subject to the 1% ECT rate throughout the province.
It is the responsibility of municipal financial services units and administrators to monitor whether the ECT amounts collected by supplier companies as tax responsible persons are fully and accurately transferred to the municipalities, which are the creditor public administrations. For this purpose, it is evident that not only energy experts knowledgeable in electricity pricing mechanisms but also tax experts and tax law specialists proficient in financial analysis and taxation techniques are required.
Taxes constitute a significant share in financing municipal services. Increasing industrialization and recent rises in energy prices have further enhanced the importance of the Electricity Consumption Tax. From the perspective of municipalities, the key issue is to ensure that the tax is transferred at the highest possible level to the municipality by taking the necessary legal measures in the monitoring and collection process.
For professional support in Energy Law and in the monitoring and collection of the Electricity Consumption Tax (ECT) by municipalities, you may contact Aykut Law & Consultancy, operating primarily in Izmir and throughout Türkiye.