Türkiye is assessing short-term capital flows, particularly the growing amount of foreign and institutional money flowing into money market funds, reports said Wednesday.
Authorities are weighing new steps that may include taxation aimed at keeping capital in the country longer and channeling it into longer-term investment, private broadcaster CNBC-e reported.
The Treasury and Finance Ministry is studying the rising share of institutional investors in short-term funds and the scale of capital flowing into them, it said.
The review is aimed at limiting the financial risks associated with capital that enters and exits markets quickly while encouraging investment in production, employment and the broader economy, according to the reports.
No final decision has been made on any potential measure, and the review is focused on managing risks from short-term capital movements rather than simply increasing tax revenue.
Institutional investors in focus
Interest in short-term funds has increased among both domestic and foreign investors in recent years, with money market funds becoming particularly attractive because of their high liquidity and existing tax treatment.
The ministry is assessing whether short-term capital flows by foreign institutional investors through such funds make a sufficient contribution to economic growth and whether some of these resources could instead be directed toward longer-term investments.
The review is examining not only the size of capital inflows but also how long funds remain in Türkiye and their contribution to expanding the economy's productive capacity.
Under the current system, income earned by individual investors from money market funds is subject to a 17.5% withholding tax under provisional Article 67 of the Income Tax Law.
There is currently no withholding tax on such income for corporate investors.
The Treasury is considering whether this difference in tax treatment has encouraged short-term capital flows and whether it should be reconsidered, the reports said.
It remains unclear which investor groups or types of funds could be affected if new measures are introduced.
Keeping capital in Türkiye longer
Authorities are seeking to limit the volatility that rapid movements of short-term capital can create in financial markets while encouraging funds to support production, employment and long-term investment.
If new taxation is introduced, the attractiveness of money market funds to investors could change.
Higher costs for institutional and foreign investors could encourage some capital to move into alternative investment instruments.
Markets will therefore be watching the scope of the Treasury's review, particularly which funds and investor groups could be covered by any potential regulation.