Turkey's proposed tax reforms should somewhat increase foreign currency inflows and medium-term investment in manufacturing and export-oriented sectors amid economic pressures from the Iran war. Still, continued high inflation, political uncertainty and bureaucratic hurdles will likely limit the reforms' overall effectiveness ahead of the 2028 presidential election. On May 5, Turkey's ruling Justice and Development Party, or AKP, submitted a bill to Turkey's Grand National Assembly intended to increase foreign currency inflows and boost both foreign and domestic investment through a series of economic reforms, including tax exemptions and tax cuts. Some provisions include 20 years of income tax exemptions for non-Turkish residents who transfer foreign-earned assets into the country. These income tax exemptions would also extend to recent residents of Turkey who have not paid domestic income taxes over the past three years and who register their foreign assets by July 2027. The tax breaks also extend to corporations to boost domestic production, especially for export-oriented companies. With the exception of financial services, Turkish businesses face a 25% corporate income tax rate. Under the proposed legislation, Ankara would lower the tax on export earnings from 25% to 9% for manufacturers and 11% for other exporters.

• The ruling coalition holds a majority of seats in the Grand National Assembly, meaning it probably can pass the proposed economic reforms by a simple majority.
• Lawmakers from the main opposition party, the Republican People's Party, or CHP, have protested the asset amnesty provision, saying such measures have been used to funnel illicit funds into Turkey. In June 2024, Turkey was removed from the global Financial Action Task Force's "grey list" after implementing reforms to align with international standards on money laundering and terrorism financing. 

High inflation and slowing economic growth in Turkey have been exacerbated by the Iran war, causing the Turkish lira to decline. Inflation had been declining amid moderate economic growth as the Central Bank of the Republic of Turkey pursued more orthodox economic policies to reduce inflation following the government's spending spree ahead of the 2023 presidential election. But the Iran war has thrown a wrench in this. In mid-April, the International Monetary Fund revised its growth forecast for Turkey from 4.2% to 3.4% due to slow economic momentum from late 2025 and elevated global energy prices due to disruptions to Middle Eastern oil and gas exports. In April, Turkey's annualized inflation rate rose to 32.4%, up from 30.9% in March, driven by elevated energy prices. Meanwhile, the Turkish lira has continued to gradually depreciate — following a trend that preceded the late February start of the Iran conflict — decreasing from around 42 lira to the dollar just before the war began to 45 lira to the dollar in early May. According to its Central Bank, Turkey's foreign reserves decreased by $43.4 billion in March as the country used some of its reserves to stabilize the lira after the start of the Iran conflict, and as the increased cost of energy imports further strained its reserves. The Turkish tax exemptions represent efforts to increase foreign currency reserves by registering foreign-earned assets and to incentivize digital nomads to move to Turkey, thereby boosting local economies through spending. The corporate tax cuts also align with ongoing Turkish efforts to expand strategic manufacturing and export-oriented sectors to promote economic growth amid lower-than-anticipated economic growth. 

• The Central Bank has gradually cut interest rates since July 2025 as inflation decreased to promote economic growth in strategic sectors, especially manufacturing and export-oriented sectors, including electric vehicles. The rate cuts have stalled since the start of 2026, however, due to stubborn inflation. 

While the tax exemptions will appeal to some foreigners, Turkey's inflation and bureaucratic hurdles will not, and if verification of funding sources is insufficient, Turkey risks reputational damage. The income tax exemptions are likely aimed at increasing Turkey's appeal to foreigners and Turkish citizens living abroad as a way to increase its foreign currency reserves; such efforts will likely meet with mixed success. Compared to other Middle Eastern countries — especially Gulf countries — Turkey has had fewer security concerns from the Iran conflict. This makes it seem safer to foreigners than countries that have been heavily attacked during the conflict, such as the United Arab Emirates, which had previously portrayed itself as a secure destination. Even so, Turkey's red tape and struggles to contain inflation compared to other countries trying to appeal to foreigners, such as some Latin American and Southeast Asian countries, will likely somewhat offset the appeal of the long-term tax exemptions. Furthermore, insufficient source of funds verification for the transfer of foreign assets will make it more likely that illicit funds will enter the country despite Turkey's financial reforms, where they could be used for illicit purposes, such as sanctions evasion and/or money laundering. This could undo some of the reputational benefits Turkey gained from its removal from the FATF's grey list.

• Despite improvements in some regulatory areas, Turkey's business environment continues to struggle with bureaucratic complexity, regulatory uncertainty and slow legal processes, increasing operational costs and complicating investment decisions. The Organization for Economic Cooperation and Development's 2025 assessment of Turkey's economy noted that "the administrative burden on existing firms is heavy," while "large hurdles remain" for business formation and foreign investment.

Turkey's corporate tax cuts will likely somewhat boost investment in strategic manufacturing and export-oriented sectors over the next several years, though political uncertainty, elevated interest, and inflation rates and corruption will pose significant challenges. Turkey has previously introduced similar corporate tax cuts following economic shocks, such as temporary tax cuts following the 2022 Russian invasion of Ukraine. While the measures are likely partially intended to offset the blow from the Iran war, they also align with Turkey's broader, long-term efforts to expand economic growth in manufacturing and export-oriented sectors. The corporate tax cuts on export earnings in Turkey's strategic sectors will likely boost Turkey's appeal to foreign and domestic investors in manufacturing and export-oriented sectors, especially since Turkish officials have indicated that these reforms are intended to be long-term. Turkey will also likely leverage its customs union with the European Union and its proximity to European and Middle Eastern markets to attract investment, especially in manufacturing. These economic policies and Turkey's urban centers, like Istanbul and Ankara, and Turkey's skilled, educated, and large workforce will likely increase its appeal. But Turkey's high interest rates of about 37% and elevated inflation rates will likely remain an obstacle to increasing domestic investment over the next several months. Furthermore, the investment environment struggles with corruption, and with political uncertainty amid Turkish authorities' ongoing crackdown on opposition parties. While regional uncertainty and a broader economic slowdown related to the Iran war may limit investment over the next several months, these policies will likely somewhat boost growth in Turkey's manufacturing and export sectors over the next several years, though economic and political constraints probably will hamper this growth. 

• Early in the Iran conflict, air defense systems intercepted a few missiles in Turkish airspace or heading there. These aside, Turkey has faced relatively few threats in part due to its role as a NATO member and due to its pragmatic approach to relations with Iran. 
• Turkey has been part of the EU-Turkiye Customs Union since December 1995, which facilitates the free trade of manufactured goods and processed agricultural products, but excludes services and other agricultural products. 
• In a speech in early January, Turkish President Recep Tayyip Erdogan said that Turkey's exports increased 4.5% year on year from 2024 to $273.4 billion in 2025, with most exports coming from the manufacturing sector. 

Ahead of the 2028 presidential election, the AKP will likely attempt to balance economic growth with inflation control to preserve political support. These efforts to boost economic growth come about two years ahead of the next presidential election and amid the AKP's ongoing push for constitutional reforms that would enable Erdogan to seek reelection in 2028. This has not happened yet, leaving the AKP to face the prospect of fielding another candidate — one lacking Erdogan's charisma — in the next election. In that case, economic issues will likely become increasingly salient voter issues. The AKP in that case would likely pursue economic policies to boost growth, such as tax cuts and exemptions, while also trying to lower the cost of living by reducing inflation. The Central Bank will likely maintain some of its more orthodox policies, especially over the next several months. Ankara will likely try to balance economic growth with controlling cost-of-living increases through maintaining high interest rates. Persistently slow economic growth could eventually fuel government spending, particularly ahead of the 2023 presidential election cycle, to please voters, which could result in higher inflation.

• The economic impacts of the Iran war are unlikely to spark domestic social unrest since Turkish government policies are not to blame for the conflict. In the unlikely event of anti-government sentiment, the government would likely quell protests quickly.