Copyright 2005 Tax Analysts
Tax Notes International Magazine

September 5, 2005

by Cathy Phillips, editor of Tax Notes International

The voluntary tax systems of the United States and many other countries
aren't perfect, but they sure beat the heck out of the alternative.
Consider, for example, life under a regime where tax rates aren't made
public, assessments are arrived at in secret, and failure-to-comply
penalties include banishment to forced labor camps.

This week we present a fascinating article by DAVID JOULFAIAN on a
wealth tax adopted by Turkey in 1942 that included all of the above
unpleasantries. In the midst of World War II, Turkish citizens also were
victims of a monstrous tax system that they were powerless to change.
Joulfaian describes the discriminatory nature of the wealth tax, a
lopsided levy shouldered by the minority Christian and Jewish
populations in the predominately Muslim nation, and the misguided fiscal
policies that allowed the tax to take root in the first place (p. 915).



Wealth taxes are common in many countries, and represent one of the
oldest forms of taxation. Local governments in the United States, for
instance, levy annual property taxes. Annual wealth taxes are levied in
several European countries as well. The estate tax is the only wealth
tax levied by the U.S. government and applies to wealth held at death.
The wealthy are at times also taxed at progressive tax rates on their
earnings in addition to being exposed to wealth taxes. Governments levy
those taxes to diversify their sources of revenues, augment and protect
the income tax base, and regulate the distribution of income and the
concentration of wealth. Governments may resort to additional taxes in
times of national emergency.

A general guiding principle for any tax system is that it should be
sufficiently transparent to enable a taxpayer to construct the size of
wealth or income subject to tax, as well as the ensuing tax liability.
For local property taxes, for instance, cities inform property owners of
the assessed value of their real estate and the amount of tax they owe.
For income and estate taxes, taxpayers report the amount of income
received and the size of terminal wealth to the government. Once the
taxable amount is established, a tax rate schedule is applied to
determine the tax liability. Taxpayers are able to appeal assessments
and are given adequate time to prepare their documents and make
provisions for paying the amounts owed.

A student of taxation may encounter many fascinating features of the
various taxes levied throughout history, dating back to ancient Egypt
and the Roman Empire. Yet no tax system rivals the peculiarities of a
tax employed in the middle of the 20th century. On the morning of
November 12, 1942, the citizens of Turkey woke up to the most draconian
wealth tax ever envisaged. While the tax in theory applied to the entire
predominantly Muslim nation, in practice much of its burden rested with
the minority Christian and Jewish communities who primarily resided in
Istanbul, formerly known as Constantinople. Neither the rate of taxation
nor the taxable base and its derivation were made public. Tax
assessments were arrived at in secret, and individuals were directed to
settle their government assessed liabilities within two weeks, without
any appeal provisions in place. The penalty for Christians and Jews who
failed to do so within a month was deportation to forced labor camps in
eastern Turkey in addition to having their property confiscated. The tax
was initially also extended to Christian and Jewish schools, as well as
to churches and synagogues, but not to Muslim institutions, because they
were owned or funded by the government. As documented by Faik Okte, the
Turkish Ministry of Finance official in charge of implementing the tax,
assessments were determined arbitrarily because the authorities lacked
information on the income and properties of the minority groups./1/

Table 1: Statutory Tax Rates

Provision Applied to Applied to
Rate on wartime profit Muslim Turks Non-Muslims
12.5 percent 50.0 percent
Additional tax zero Up to 50 percent of personal wealth

Source: Faik Okte, The Tragedy of the Turkish Capital Tax.

Description of the Tax

The Turkish National Assembly passed the tax on November 11, 1942
(Law 4305/12.11.1942), and its decision to levy the tax was published
the next day in the government official newspaper, Resmi Gazete. The
details of the structure and inner workings of the tax were kept secret
by the government. The details, however, were revealed and made public
some five years after its enactment in a book authored in 1947 by Okte.
In that book Okte also traced the architects of the tax and named all
the governmental agencies and personnel engaged in administering the

In an otherwise officially secular state, taxpayers were classified
as Muslim and non-Muslim, denoted with the letters M and G,
respectively./2/ The latter included Jews and Christians, including
Armenians and Greeks. Assyrian Orthodox Christians also fell in that
class. An additional class of taxpayers were the Donme, denoted by D.
The Donme were Jews whose ancestors had converted to Islam in the 17th
century./3/ Like the Jews and Christians, the Donme were taxed at rates
higher than those that applied to Muslims. Foreigners were taxed at the
same rate as Muslim Turks.

During that period, Greeks were the largest minority group in Turkey,
and represented the heirs to Byzantium with Constantinople as its
capital. The Armenians originated from western Armenia or the eastern
half of Turkey, and represented the descendants of the first Christian
nation. The presence of the Jews also predates that of the Turks, whose
ranks had been augmented by Ladino Jews from Spain during the
Inquisition. The Assyrians are originally from southern Turkey and
modern-day Syria and Iraq; their presence also predates the arrival of
the Turks from central Asia. Combined, those non-Muslim groups made up
less than 1 percent of Turkey's population of 18 million in 1942.

The tax was initially envisaged as a tax on capital or wealth. It was
to apply to businesses and real estate (immovable property). By the time
it was enacted, it had expanded to include a tax on wages as well that
effectively applied only to non-Muslims in Istanbul. Taxpayers were
classified according to business type and property earnings. Within the
Ministry of Finance, once the size of income, wealth, and type of
enterprise were established internally, local assessment boards secretly
determined the amount owed by the taxpayer.

The Finance Ministry was responsible for setting the tax rates to be
used in computing tax assessments. Minorities were generally to be taxed
at 5 to 10 times the amount applied to Muslims with similar wealth.
Specifically, Muslims were to be taxed at the rate of 12.5 percent of
profits or earnings. In contrast, non-Muslims were to be statutorily
taxed at the rate of 50 percent of earnings plus an additional tax of up
to 50 percent of their wealth (Table 1)./4/ The reach of the tax also
extended to hospitals and educational institutions. The tax did not
extend to Muslim institutions, because they were owned or funded by the

While internal "guidelines" set minimum and maximum limits, the local
boards at the Finance Ministry were free to choose any amount in
between. Indeed, they had complete discretion in setting assessments.
Information on income and wealth were obtained from Turkish national
banks, the Republican People's Party, and the Security Directorate,
which is equivalent to the U.S. FBI. Despite the lack of information on
the sources of wealth and income, taxpayer records were not requested or
considered when setting assessments.

Table 2: Initial Assessments in Istanbul (Constantinople)

Group Number of Taxpayers Amount (TRL millions)
Extraordinary Rich
Muslims 460 17.3
Non-Muslims 2,563 190.0
Those With Earnings Statements
Muslims 924 3.1
Non-Muslims 1,259 10.4
Profit Tax on Gross Earnings
Muslims 2,589 4.0
Non-Muslims 24,151 72.8
Wage Earners
Muslims -- --
Non-Muslims 10,991 6.9

Subtotal 42,937 304.5
Muslims 3,973 24.4
Non-Muslims 38,964 280.1

Source: Faik Okte, The Tragedy of the Turkish Capital Tax.

The assessed tax was due in cash within 15 days from its published
date of December 17, 1942. Payments could be postponed for another 15
days, but would face a charge of up to 2 percent interest. If the tax
due was not fully settled within 30 days of assessment, the taxpayer's
property was to be confiscated. Furthermore, the taxpayer was to be sent
to a labor camp until his debt was discharged, under Regulation 21/19288
approved on January 12, 1943.

The Taxpayers

By August 1943 the tax assessments stood at some TRL 335 million in
Istanbul alone, or about one-half the entire currency in circulation.
Indeed, those assessments represented as much as the entire budget
revenues of TRL 394.3 million for 1942 before enactment of the tax.
Table 2 provides a summary of the number of taxpayers assessed and the
amount of assessments in Istanbul. Some 42,937 taxpayers were assessed a
total of TRL 305 million, as shown in Table 2./5/ Of those, only 3,973
were Muslims, who were assessed a total of TRL 24.4 million. In other
words, minorities who made up less than 1 percent of the population were
assessed 93 percent of the liability. Table 3 further provides
assessments for churches, synagogues, and schools./6/

In a survey of foreign chambers of commerce at the time, C.L.
Sulzberger, writing for The New York Times in 1943, documented the
discriminatory nature of the tax./7/ As illustrated in Table 4, the
effective rates of assessments that merchants faced varied considerably
from a low of under 5 percent for Muslims to over 150 percent for
Christian Greeks and Jews, to well over 200 percent for Christian
Armenians. Similarly, in one large enterprise, only 1.2 percent of the
Muslim employees were assessed compared with 96.1 percent for minority

As illustrated by the head of the Finance Ministry and the person in
charge of implementing the tax, Faik Okte, assessments were determined
in arbitrary manners because the authorities lacked information on the
income and properties of the minority groups./8/ The arbitrary nature of
the tax is best illustrated in the treatment of the "extraordinary
rich." According to Okte, Mr. Bezmenler, whose ancestors converted from
Judaism to Islam in the 17th century and who was classified as a Donme,
was assessed TRL 1 million. In contrast, Dr. Cudi Birtek, an
extraordinarily wealthy Muslim, was assessed only TRL 25,000, a mere
fraction of the amount applied to the Donme./9/ In yet another example,
Osman Sakar, K.S. was originally assessed TRL 120,000. When Mr. Sakar
proved that he was a "pure Turk" or a Muslim, his tax liability was
adjusted downward to TRL 12,000 -- just 10 percent of the originally
published amount./10/ Those mistakes were not uncommon because all
citizens were forced to adopt Turkish-sounding surnames in 1935 and
because Turks have come to resemble more the Caucasians they conquered
and less their Asiatic ancestors from central Asia.

Table 3: Tax Assessments of Minority Institutions

Christian and Jewish Institutions/*/ Number Assessment (TRL)
Schools 88 227,550
Churches and Synagogues 27 119,200
Hospitals 7 86,750

/*/ Zero assessment for Muslim institutions, which numbered in the thousands.

Source: Faik Okte, The Tragedy of the Turkish Capital Tax.

The discriminatory and confiscatory nature of this tax is also
evident in the treatment of non-Muslim institutions. According to
Sulzberger, a poorly equipped Armenian hospital in Istanbul, for
instance, was assessed TRL 39,000 compared with an assessment of TRL
2,500 for a modern and thriving American hospital. Muslim institutions
avoided taxation altogether./11/

Tax assessments were seriously flawed in particular because they
failed to consider any documents from the taxpayer. The tax due from a
Christian Armenian timber merchant, for instance, was three times his
entire fortune. The tax administrator informed him that his deportation
to the labor camp could not be prevented, even after all his wealth had
been confiscated./12/ At times the tax burden widely diverged in its
arbitrariness. A Jewish taxpayer had his tax assessment increased simply
because he argued with an assessor. In another example, a Christian
Armenian "was taxed excessively at the rate of TRL 400,000," reflecting
"the false allegation that he was the leader of the Armenian Tashnag
Society, an old member of the Union and Progress Party," better known in
the West as the Young Turk regime that governed Ottoman Turkey from 1909
through the end of World War I./13/ At the other extreme, another
Armenian was exempted from the labor camp because he had written
"favorable articles promoting Turkish interests in the French

The punitive nature of the tax was at times also extended to
foreigners. While foreigners were supposed to be taxed at the same low
rate as Muslims, many in fact were taxed at the higher rates that
applied to minority citizens. According to Faik Okte, the principal
administrator of the tax, that treatment was deliberate. He reports that
tax administrators were instructed to deny the foreigners' "privilege"
to Jews from the Axis states./15/ In addition, and under "the pretext of
the poor registration system," the property of Greeks and Armenians who
had acquired foreign citizenship was immediately auctioned off./16/

Of the first 45 deportees to labor camps, 21 were Jews, 13 were
Greeks, and 11 were Armenian. After the first deportation, it was
decided that the "elderly, women, the sick, foreign residents . . .
would not be exempted from the forced labor obligations."/17/ However,
there are no records of any women or foreigners ever sent to labor

Table 4: Effective Tax Rates by Religious and Ethnic Affiliations

Merchants by Affiliation Tax Rates (percent)
Muslim 4.94
Greek Orthodox 156.00
Jewish 179.00
Christian Armenian 232.00

Source: C.L. Sulzberger, "Turkish Tax Kills Foreign Business,"
The New York Times, Sept. 11, 1943.

Concluding Comment

Shortly after the government published its declaration to levy the
wealth tax, a Turkish professor contacted the Finance Ministry to
inquire about the details of the new tax. "Have you all gone mad?" was
his response after confirming that the new law did not provide for
appeals nor did it indicate rate of taxation./18/ Despite its insanity,
the tax shook the economy to its foundations.

Many Muslims were enriched by acquiring non-Muslim property at
bargain prices. However, those fire sales, or outright "confiscation" by
state-owned enterprises, often hindered economic growth and
entrepreneurship. Consider the case of the Banzilar and Benjamen
Company, a shipping company owned by two Jews that was forced to turn
over all of its five ships to the state-owned Maritime Lines in lieu of
taxes totaling TRL 1.6 million. Despite the rising value of ships and
Turkey's vast needs, those ships, which were productively employed by
their previous owners, remained idle at port./19/ In another example,
the majority of textile factory owners at the time were either Jewish or
Donme converts from Judaism. Yet, after World War II and repeal of the
tax, non-Muslim textile start-ups came to a screeching halt./20/

The Turkish wealth tax was advanced as part of a strategy to control
prices during the inflationary early years of World War II. The thinking
was that the forced sale of property and inventory within a fortnight of
the assessments would depress prices. Yet not only did that misguided
strategy fail to depress prices, the discriminatory nature of the tax
and the taxation of an entrepreneurial group to certain bankruptcy led
to a serious loss of confidence in the state and rattled financial
markets for years to come.


/1/ Faik Okte, The Tragedy of the Turkish Capital Tax, translated
from the Turkish Varlik Vergisi Faciasi by Geoffrey Cox, Croom Helm,

/2/ G denotes Gayrimuslim, or "other than Muslim" in Turkish,
borrowed from the Arabic ghayr Muslim.

/3/ The Donme, which means "apostates" in Turkish, are the followers
of the mystic Shabbetai Tzvi who converted to Islam on September 16,
1666. Tzvi was arrested in Constantinople on December 30, 1665, after he
announced that he would seize the crown of the Ottoman sultan and
reestablish the kingdom of Israel.

/4/ Okte, supra note 1, at 43. The wage tax was set at TRL 500 for
those with monthly wages under TRL 100, TRL 750 for those with wages of
TRL 101 to TRL 500, and so on.

/5/ Plus another TRL 30 million when taxpayers with omitted
affiliation are considered. See Okte, supra note 1, at 48.

/6/ Okte, supra note 1, at 60.

/7/ C.L. Sulzberger, "Turkish Tax Kills Foreign Business," The New
York Times, Sept. 11, 1943, p. 7, column 1.

/8/ Okte, supra note 1, at 33.

/9/ Id. at 47.

/10/ Id. at 62.

/11/ Sulzberger, supra note 7.

/12/ Okte, supra note 1, at 69.

/13/ Id. at 47.

/14/ Id. at 74.

/15/ Id. at 37.

/16/ Id. at 57.

/17/ Id. at 72.

/18/ Id. at 29.

/19/ Id. at 95.

/20/ See Edward C. Clark, "The Emergence of Textile Manufacturing
Entrepreneurs in Turkey: 1804-1968" (Ph.D. dissertation, Princeton
University, 1969).