Is Withholding Tax Required for Agricultural Product Purchases from Non-Farmers?

Is Withholding Tax Required for Agricultural Product Purchases from Non-Farmers?

Despite the ever-increasing importance of industrial and IT production in our lives, the impact of agriculture has never diminished. In fact, epidemics, sometimes wars or conflicts cause us to recall the true value of agriculture and farming, the most fundamental and ancient occupation in human history.

As with almost all income-generating activities, there is of course a tax-related aspect to this ancient activity. In this respect, in our country, the earnings of real persons from agricultural activities are taxed according to the provisions of the Income Tax Law (Law) adopted by the Turkish Grand National Assembly on 31.12.1960. It can be said that the principles regarding the taxation of agricultural income were regulated in detail in this Law, since agricultural activities had a large share in the economy of our country at the time when the aforementioned Law was written.

Withholding Tax Procedure in Taxation of Agricultural Earnings

The Law defines real persons engaged in agricultural activities as farmers. Withholding tax is withheld at the rates specified by the persons and institutions listed in Article 94 of the Law on the prices of agricultural products and services received from farmers. For farmers who do not exceed the enterprise size criteria in the Law or who do not own a combine harvester or more than two tractors up to ten years old, the withholding tax is in the form of final tax. These persons do not submit a separate declaration. Those who exceed the size of the enterprise or own the motor vehicles listed (those taxed in the real method) are obliged to submit an income tax return and have the right to deduct the amounts withheld from the tax calculated in the annual declaration.

The withholding tax is the most fundamental institution in the taxation of agricultural earnings. According to the law; public administrations and institutions, economic public institutions, other institutions, trade companies, business partnerships, associations, foundations, economic enterprises of associations and foundations, cooperatives, those who manage investment funds, trade and self-employed persons who are obliged to declare their real income, farmers who determine their agricultural earnings on the basis of balance sheet or agricultural business account are obliged to withhold withholding tax in cash or on account when they make payments (including those paid in advance), as a deduction against the income tax of the payers.

These persons are required to withhold withholding tax from the payments they make for the agricultural crops and services they receive from farmers according to the following rates:

a) For animals and their products and land and water hunting products,

i) For the ones purchased by being registered in the commodity exchanges (1% with the B.K.K. No. 2009/14592. Effective; 3.2.2009),

ii) For the ones other than subparagraph (i) (2% with the Decree Law No. 2009/14592. Effective; 3.2.2009),

b) For other agricultural crops,

i) For agricultural crops purchased by being registered in the commodity exchanges (%2 with the B.K.K. No. 2009/14592. Effective; 3.2.2009),

ii) For those other than subparagraph (i) (4% with the Decree Law No. 2009/14592. Effective; 3.2.2009),

c) For services performed within the scope of agricultural activities,

i) For afforestation, maintenance, cutting, collection of products, transportation and similar services provided to the forest administration or institutions that undertake against the forest administration (%2 with the Decree Law No. 2009/14592. Effective; 3.2.2009),

ii) For other services (4% with Decree Law No. 2009/14592. Effective; 3.2.2009)

Purchase of Agricultural Products from Persons Other Than Farmers and Joint Liability

Based on the above-mentioned provisions of the Income Tax Law, it is understood that the withholding tax on agricultural products is only applicable for those purchased from real person farmers. However, in order to ensure tax security, there are some regulations in our tax legislation regarding the withholding tax on agricultural products purchased from persons other than farmers (for example, a joint stock company). The source of these regulations is Article 11 of the Tax Procedure Law, which states that “The Ministry of Finance and Customs is authorized to hold the institutions and Commodity Exchanges that mediate the purchase and sale of agricultural products (including processed ones) jointly and severally responsible for the tax withholding to be made during the purchase of these crops, and to determine separately for each product at which stage the tax withholding to be made due to the sale of such products will be made.”

In the Income Tax General Communiqué Serial No. 164 (Communiqué) published pursuant to this provision, after mentioning the withholding obligation of those who purchase agricultural products from farmers, it is regulated that those who are party to the purchase and sale of agricultural products at later stages will also be jointly and severally liable for the tax not paid through withholding and the related penalty, late payment interest and late payment interest.

According to this regulation, even if the agricultural product is purchased from persons other than farmers, in order to ensure the safety of the tax at the farmer stage, the responsibility is imposed on the addressees at the subsequent stages. Buyers who do not want to bear this responsibility are required to make withholding tax at the rates stated above over the purchase price even if the persons from whom they purchase the products are not farmers. Otherwise, they will be jointly and severally liable for the withholding that should have been made in the previous stages. By making this withholding, the buyers are relieved from joint and several liability.

Another way to avoid liability is to register the products on the stock exchange. According to the Communiqué regulation, in the event that agricultural products traded in the Commodity Exchanges established in accordance with Law No. 5590 are registered and purchased from persons and organizations other than farmers, the purchasers are not jointly and severally liable for the agricultural products purchased by registering in the Exchange.

In case of registration to the stock exchange, the withholding obligation regarding the products purchased from farmers continues. However, this obligation disappears in relation to the products registered in the stock exchange received from persons other than farmers.

Two examples in the Communiqué on the subject are given below:

EXAMPLE 1:

The trader (A), who is subject to real method tax and registered in the stock exchange, purchased 10 tons of wheat from farmer (B) in the stock exchange.

Trader (A) is obliged to withhold income tax for the agricultural products purchased from farmer (B) by registering them in the stock exchange and to declare and pay the withheld tax to the relevant tax office. In the event that this tax is not paid, the trader (A) will be jointly and severally liable for the unpaid tax, as well as the stock exchange and its managers.

EXAMPLE 2:

The trader (C), who is registered in the stock exchange, purchased 5 tons of dry beans from the trader (E), who is also registered in the stock exchange.

Regarding this purchase and sale transaction, the trader (C), who is the buyer in the stock exchange, will not withhold tax for these 5 tons of dry beans purchased by registering in the stock exchange, and will not be jointly and severally liable for the income tax to be paid through withholding and the related penalty, late payment interest and late payment interest.

However, the trader (E) will be jointly and severally liable together with the stock exchange and stock exchange managers who carry out the registration process for the income tax to be withheld from the price of the agricultural product sold by registering it to the stock exchange, and the related penalty, default interest and delay interest.

According to the above-mentioned provisions and regulations, withholding tax liability can be summarized in the table below:

Deduction of Withheld Taxes on Product Prices Sold by Non-Farmers

In agricultural product purchases, the main thing is to make the withholding tax at the first stage. In other words, it is obligatory to make the withholding tax during the purchase from the farmer. The aforementioned joint and several liability arrangement regarding the subsequent stages is to secure this first stage.

In this case, in the sales of these products by persons other than the farmer who have purchased agricultural products from the farmer and withheld withholding tax, it becomes possible for the buyer to withhold withholding tax. In this case, in order to avoid double taxation, it is allowed to deduct the withheld taxes from the taxes calculated on the annual declaration. In order to make this deduction, the sellers must attach the document showing that the tax withheld by the buyer from the payment made to him due to the sale of agricultural products is paid to the declaration.

On the other hand, if the taxes withheld on the agricultural products sold by non-farmers are more than the tax calculated on the annual declaration, this amount can be offset against other tax debts of taxpayers within the framework of general provisions, provided that they have been paid. If there is an amount remaining despite these deductions, it is possible to refund this amount to the taxpayers upon their application within the framework of general provisions.

In order for the offset and refund transactions to be made, the taxes withheld by these persons on the agricultural products purchased by them must also be declared and paid with withholding tax declaration.