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Today, taxes are the basic source of the state's reve- nues. The greatest share within the budget revenues is from taxes, even though its ratio can change from one country to another and according to business cycles. Consequently, taxes are considered as the basic financing source of public expenses.

Besides the financing of public expenses, taxes are at the same time one of the economic policy instruments utilized for attaining economic and social goals such as to change the distribution of incomes, investments, increasing production and exports, provision of price stability, prevention of unemployment and raising the level of prosperity.

Certain principles have to be realized in order to fulfill the functions expected from tax revenues. The simplification of tax applications, provision of tax justice, and connected to this, the provision of competitive equality by expanding the tax base are important. In order to be able to reach these basic principles, decisions have been taken to implement certain extensive alterations in 1997, and changes have been made in practically all of the laws of the Turkish tax system and in many of the important establishments, by Law No. 4369, that went into effect in 1998.

With this law, which makes very extensive changes in the tax system, by simplifying the tax system and making it understandable, by expanding the taxation base enabling taxation of all "real" earnings, by breaking the justified resistance to taxes by lowering the tax ratios, by taxing the unregistered economy and by increasing the dissuasiveness of the punishment system, are the very important steps taken in the direction of the basic principles.

However, the Russian crisis which emerged after the law came into force, led to fluctations in the financial markets; as a result, amendments were made in some laws so as to reduce the effect of the crisis on markets in 1999. The ratio of tax revenues to the GNP, which constituted 78.1 percent of the general budget revenues, increased 1.3 points in comparison with the previous year and reached 17.4 percent in 1998. The ratio of tax revenues to budget expenses was realized at 59.1 percent.