What Is Inflation Adjustment? How Does It Affect Your Company’s Balance Sheet?
📌 Update Note: Pursuant to Provisional Article 37 added to the Tax Procedure Law by Law No. 7571 dated 25 December 2025, inflation adjustment will not be applied in the 2025, 2026, and 2027 accounting periods (including provisional tax periods), even if the conditions are met. For taxpayers assigned a special accounting period, this timeframe applies to accounting periods ending in 2026, 2027, and 2028. Certain taxpayer groups remain outside the scope; details are provided within the article.
A machine you have been using for years still appears in your books at the price paid on the day it was purchased. However, today you would need to pay significantly more to purchase the same machine. This disparity between your balance sheet and real value is the exact issue that inflation adjustment (also known as inflation accounting) seeks to resolve. Moreover, the rules have changed repeatedly in recent years. In this article, we explain in plain terms what inflation adjustment is, how it affects your balance sheet, and what applies during the 2025–2027 period.
🚀 Quick Look: Inflation Adjustment Status in 3 Minutes
Will inflation adjustment be applied in the years 2025, 2026, and 2027? No. Pursuant to Provisional Article 37 of the Tax Procedure Law added by Law No. 7571, inflation adjustment will not be carried out throughout any of these periods (including provisional tax periods). (For those with a special accounting period, this timeframe covers accounting periods ending in 2026, 2027, and 2028.)
Who does this postponement cover? All income and corporate taxpayers keeping books on a balance sheet basis benefit from this suspension period. Those keeping books on an operating account basis are already outside the scope.
Is there an exceptional segment that remains outside the scope (continuing implementation)? Yes. Certain groups, such as jewellers engaged exclusively and continuously in the purchase, sale, and manufacture of processed gold and silver, as well as financial institutions, cannot benefit from this postponement and must continue to perform adjustments.
What can companies do during this period without adjustment? Taxpayers keeping books on a balance sheet basis may, if they wish, exercise their optional revaluation right under Repeated Article 298/Ç of the Tax Procedure Law to update their economic assets and secure higher depreciation advantages.
What is Inflation Adjustment?
Inflation adjustment (inflation accounting) is an adjustment process carried out to prevent amounts on the balance sheet from drifting away from their real value due to high inflation. Its legal basis is Repeated Article 298/A of the Tax Procedure Law.
Two conditions are sought together for an adjustment to be performed:
The increase in the Domestic Producer Price Index (D-PPI) exceeding 100% in the last 3 accounting periods
The increase in the D-PPI exceeding 10% in the current accounting period
Even when these conditions are met, the legislator may periodically postpone the implementation. The process in Turkey has unfolded in this manner: First, the 2021 and 2022 periods were postponed, adjustments were made in 2023 and 2024, and under current circumstances, the 2025–2027 periods have been suspended.
How Does It Affect Your Balance Sheet?
Items in the adjustment are divided into two categories:
Monetary items (cash, bank, receivables, payables): They are not adjusted as they are already considered to be at current value.
Non-monetary items (fixed assets, inventories, equity, etc.): They are updated using the inflation coefficient.
Hypothetical example: If a machine appearing as 1,000,000 TL in the books has an adjustment coefficient of 1.5, the machine is increased to 1,500,000 TL. Depreciation is also calculated on this new value.
The primary results you might see on the balance sheet:
Asset values increase: Fixed assets and inventories move closer to their current values.
Depreciation increases: Higher value means higher depreciation expense.
Equity is updated: Capital and reserves are also subjected to adjustment.
A net difference arises: The difference between the increase in non-monetary items and the equity adjustment appears as a profit or loss in the inflation adjustment account.
💡 Üstad Reminder: The impact of the adjustment on the tax base depends on specific rules that vary by taxpayer group and period. Be sure to clarify your own position with your financial advisor.
What Applies Right Now?
General Rule (Suspension Period): Provisional Article 37 deems the 2025, 2026, and 2027 periods as "periods in which conditions are not met." This means you do not need to perform a balance sheet adjustment in these years (and in provisional tax periods). (For those assigned a special accounting period, this timeframe applies to accounting periods ending in 2026, 2027, and 2028.)
Exceptions: Taxpayers falling under Repeated Article 298/A-9 of the Tax Procedure Law who are exclusively and continuously engaged in the purchase, sale, and manufacture of processed gold and silver are excluded from this postponement. These groups continue to perform inflation adjustment.
Revaluation Option: In periods where adjustment conditions are not met or are postponed, taxpayers keeping books on a balance sheet basis can revalue their economic assets and depreciation under Repeated Article 298/Ç of the Tax Procedure Law. This procedure is optional, and if implemented, offers the opportunity to claim higher depreciation.
💡 Üstad Reminder: Revaluation is a strategic decision that directly affects your tax planning. Evaluate whether it is suitable for your company before the period ends.
Points to Keep in Mind
2028 and Beyond is Uncertain: The authority to extend rests with the President. Depending on economic conditions and legislative developments, new decisions may be issued for subsequent periods.
Your Balance Sheet May Not Reflect Reality: In years where adjustments are not made, items retained at historical cost may weaken the balance sheet you present to banks, partners, or investors.
Legislation Changes Frequently: Businesses that do not closely follow communiqués and legal amendments may encounter surprises at year-end.
What Should You Do?
Confirm that you keep books on a balance sheet basis and determine which taxpayer group you belong to.
Confirm with your financial advisor whether you fall within the scope of the 2025–2027 suspension period.
Assess the revaluation advantage for your fixed assets.
Review your 2023 and 2024 adjustment entries.
Keep track of new communiqués and legislative amendments.
❓ Frequently Asked Questions
Will inflation adjustment be performed in 2026?
No. Pursuant to Provisional Article 37, it is not performed in the 2025, 2026, and 2027 accounting periods (including provisional tax periods).
Who does inflation adjustment apply to?
It applies to income and corporate taxpayers keeping books on a balance sheet basis. Those on an operating account basis are outside the scope.
What are the adjustment conditions?
Under normal conditions, there must be a D-PPI increase of over 100% in the last 3 periods and over 10% in the current period; however, due to statutory postponement, these conditions are not sought.
What happens to my balance sheet if no adjustment is made?
Items remain at historical cost. Fixed asset and inventory values may appear below current market value.
Is revaluation mandatory?
No, it is optional. In periods where adjustment conditions are not met or are postponed, it is left to the taxpayer's discretion.
