Municipal Finances

A-  Municipal budget

Municipal budgeting is based on the calendar year as in the case of state budget. Since the Law No. 5018 on Public Fiscal Administration and Control covers also municipalities, the procedures prescribed by the said Law apply to the preparation and implementation of their budgets, and other fiscal administration matters.


The said Law requires that the budgets of local governments, social security institutions and the central government be consolidated and submitted the national parliament for scrutiny, making it possible that all public expenditures including those of local governments be monitored in accordance with international standards.


The Law introduced radical reforms to the finances of local governments, conferring the power of disbursement to departments and charging the municipal top administration with supervision of expenditures.


One can access the fiscal and non-fiscal information on municipalities at the Local Governments Activity report published annually by the Ministry of Interior, and certain information on local governments in the general annual reports of the Ministry of Finance on the public sector.


It is also possible to see the budget actualizations of municipalities in addition to other activities in the detailed annual reports.


B-  Municipal revenues

Municipal revenues consist in own revenues collected by municipalities themselves and the apportionments from the central government tax revenues. Local governments are not authorized to collect taxes on revenues and expenditures. Only the state (i.e. central government) collects such types of taxes and distributes shares to local governments.


a-    Share from state tax revenues

The state allocates a certain part of tax revenues to local governments. The rates of such shares were increased slightly in 2008, then again in 2012 to redistribute the tax revenue shares to local governments in proportion to their functions and responsibilities.

Approximately 12% of the state tax revenues are allocated to municipalities, accounting for 51.2% of municipal revenues on average.


1-    Distribution of shares

State tax revenues are allocated to municipalities in three categories: metropolitan municipalities, district municipalities within metropolitan municipalities and other municipalities.

Metropolitan municipalities (30 in total) are first allocated 6% of the tax proceeds collected by the state within the respective metropolitan municipality.

Metropolitan district municipalities (519 in total) are allocated 4.5% of the state tax revenues.

Non-metropolitan municipalities (848 in total) are allocated 1.5% of the state tax revenues.

Population size is the dominant criterion in the distribution of shares. Other additional criteria are also applied for financial equalisation in favour of municipalities with low own revenues.


2-    Financial equalisation

Metropolitan municipalities are allocated 6% of the tax proceeds collected within the respective metropolitan municipality. However, a metropolitan municipality receives 60% of such apportionment directly. The remaining 40% is pooled in a special account from which 70% is redistributed to metropolitan municipalities by population and 30% by surface area.


Equalisation is thus effected among metropolitan municipalities through allocating more funds to municipalities with lower local revenues.


The Ministry of Finance distributes the apportionments so allocated to metropolitan municipalities.


Of the apportionment of 4.5% to district municipalities, 90% is distributed by population, and 10% by surface area. The use of geographic size as a distributive criterion brings equalisation in favour of municipalities with lower population density.


However, district municipalities receive only 60% of such apportionment directly; 30% is given to the respective metropolitan municipality and 10% to the water and sewer administration. As noted earlier, the metropolitan municipality delivers services of basic infrastructure, main roads, and water and sewer in the districts.


Therefore, metropolitan municipalities receive two items of apportionment from the state tax revenues.


Of the 1.5% share to other municipalities, 80% is distributed by population and 20% by the index of social and economic development. Financial equalisation is applied among municipalities by giving larger shares to less developed settlements.


The financial equalisation so applied fails to close the revenue deficits of municipalities with low own revenues and population. Therefore, another 0.1% of the general budget revenues is allocated to 708 municipalities with population smaller than 10,000. Of this apportionment, 65% is distributed across the board, and 35% by population. This constitutes a secondary financial equalisation for smaller municipalities.


Except for the metropolitan municipalities, the apportionments from the state tax revenues are transferred to the Bank of Provinces which distributes the individual shares to individual accounts of municipalities.


Figure 3: Distribution of apportionments from state tax revenues to local governments (general budget shares)


b-   Own revenues

Municipal own revenues consist in taxes, charges, contribution to investment expenditures, fees and enterprise revenues, and collectively account for 48.8% of the municipal budget.


1-    Taxes

Taxes collected by municipalities include property tax, sanitation tax, announcement and advertisement tax, electricity and coal gas consumption tax, communication tax, entertainment tax. Tax revenues account for 22.36% of municipal own revenues.


Property tax: Property tax is the most important of all municipal taxes. The rate is 0.1% of the property value for residences and 0.2% for other buildings (in metropolises, these rates are doubled). The tax base for buildings is the land value plus the structure on the land. The property value is appraised and renewed every four years by a commission formed by the representatives from the respective municipality, chamber of commerce and the Ministry of Finance.


Sanitation tax: Residences and work places are levied a sanitation tax for the solid waste services provided by municipalities. For residences, sanitation tax is collected along with water charges at a rate of 0.12 Turkish Lira (0.15 TL in metropolises) per cubic meter of water consumed. The sanitation tax for work places is assessed on the basis of number of employees or the accommodation capacity. Work places are classified into 5 groups, and each further classified into 7 subgroups. Accordingly, the smallest work place pays 12 TL, whereas the largest pays 1,400 TL of sanitation tax per annum. For metropolises, 25% is added to these figures.


Announcement and advertisement tax: For all announcements and advertisements made within municipal boundaries, an announcement and advertisement tax of 20 to 100 TL per square meter per annum is levied. Where the announcement and advertisement tax is illuminated, 50% is added to these figures. The lower and upper rates of this tax are set by the law. The Council of Ministers classifies the municipalities and sets the rates for each group.


Electricity and coal gas consumption tax: For electricity and coal gas consumed municipal boundaries, 5% of consumption total is charged as tax.


Entertainment tax: The operation of entertainment businesses within municipal boundaries is subject to entertainment tax at a rate of 20% for domestic cinema films, 50% for foreign cinema films at cinema theatres; 20% for other places admitting by tickets; and 5% for betting games.


Communication tax: 1% of communication tax is charged on telephone and other communication fees collected within municipal boundaries.


2-    Charges

Municipalities collect charges against certain services delivered including primarily building construction charge, business license charge, various development charges, occupation charge, spring water charges. Charges represent a significant revenue item constituting 9.16% of municipal own revenues.


The lower and upper rates of charges are set by the law. Within this range, the Council of Ministers classifies the municipalities by economic development, and the municipal council sets the rates for each neighbourhood.


For the municipal budget, building construction charge, business license charge, development charges constitute the largest revenue items.


Construction owners are charged a building construction charge per square meter by the building, ranging from 0.5 TL to 2.5 TL per square meter. Likewise, when the construction is completed, the owner must pay an occupancy permit charge to use the building, ranging from 0.05 TL to 0.15 TL per square meter.


New businesses are charged one-off business license charge ranging from 0.10 TL to 1 TL per square meter of the work place


Those using the public places such as roads, bridges, walkways for commercial purposes within municipal boundaries are charged daily charge ranging from 0.5 TL to 2.5 TL. Vehicles parking at public places are charged per hour.


The lower and upper limits of the charges are set in the Law No. 2464 on Municipal Revenues. The Council of Ministers classifies municipalities by development. The rate of charge is established on the basis of such classification. However, the municipal council has the power to set varying charge rates for neighbourhoods of different economic development levels.


3-    Contribution to investment expenditures

Municipalities charge property owners not to exceed 0.2% of the value of their respective property as a contribution to investment expenditures incurred by municipalities for construction of roads, water and sewer etc. infrastructure.


4-    Service fees

Fees are charged for services provided by the municipality upon the request of the buyer, not a subject-matter of any taxes, charges or contributions. The fee schedules shall be set by the municipal council.

Major service fees collected by municipalities include potable water fees and public transport fees. Municipalities also provide such paid services as pesticide application to residence or work place, water tank cleaning, chimney shaft cleaning, car parking etc.


5-    Other revenues

In addition to the aforelisted revenues from taxes, charges, contributions and fees, the enterprise and property revenues are more important for municipalities than tax revenues. Such revenues represented 14.8% of total municipal revenues in 2013.


C-  Borrowing

Municipalities may borrow as a financing means where the apportionments from the state budget and own revenues are insufficient. Investments in subway system, treatment facilities and other large infrastructure are usually financed by borrowing. Municipalities may issue bonds to finance the projects in the investment program.


A municipality is barred from borrowing more than the total of its revenues in the previous year (one and a half times the previous year’s revenues for metropolitan municipalities). However, no restriction applies to borrowing for an infrastructure project requiring advanced technology and large financial resources where the Council of Ministers approves the project.


Any borrowing of the municipality by any means or at any amount is subject to the approval of the municipal council, and except for certain cases the approval of the central government is required in addition.


For borrowing by the municipality up to 10% of the previous year’s revenues, the approval of the central government is not required. For amounts exceeding this threshold, the consent of the Ministry of Interior is sought.


Borrowing at rates exceeding the previous year’s revenues of a municipality is possible only in the case of infrastructure investments and upon the approval of the Council of Ministers.


Borrowing from foreign sources is similarly possible only in the case of infrastructure investments and upon the approval of the Council of Ministers. For foreign borrowing, the affirmative opinion of the Undersecretariat of Treasury is also sought.


Borrowing in violation of these limits and procedures results in financial liability of the relevant officials.

Of municipal revenues

Type of borrowing

Approval required from

Up to 10%

Domestic borrowing


10% to 100%

Domestic borrowing

Ministry of Interior

Exceeding 100%

Domestic borrowing

(for infrastructure)

Council of Ministers


Foreign borrowing

(for infrastructure)

Council of Ministers





Council resolution

Simple majority of full membership of council

Council resolution

Council resolution

Approval by Ministry of Interior

Approval by Undersecretariat of Treasury

Approval by Undersecretariat of Treasury



D-  Bank of Provinces

The Bank of Provinces was established in 1933 with special provincial administrations and municipalities as shareholders to finance the land development activities of municipalities.


The Bank of Provinces is allocated, as the partnership share, 2% of the apportionments of the state tax revenues to special provincial administrations and municipalities. Such share is deducted from the apportionment to the municipalities and transferred to the Bank.


The debts of municipalities including particularly taxes, social security premiums and other debts to public entities are deducted from the apportionments of the state tax revenues and paid to the relevant entities. Such deductions however shall not exceed 40% of the total amount from tax revenues that a municipality receives a month. This threshold is set to avoid the disruption of mandatory municipal services.


Apportionments of the state tax revenues to municipalities are guarded against creditors other than the public entities. No attachment is possible on the apportionments.


The Bank of Provinces provides project designs and financing for the infrastructure investments by municipalities. The Bank extends both short-term loans for cash needs and investment funding at softer terms than the market for municipalities. Municipalities may also borrow from such organizations as European Investment Bank, Asian Investment Bank and other banks.