* Dogan tax dispute not politically motivated
* Investors need not worry about withholding tax
* Govt 2010 growth forecast of 3.5 percent is conservative
updates with background, quotes,
By Sujata Rao and Darcy Lambton
LONDON, Oct 21 (Reuters) - Turkey's $3.3 billion tax dispute with media company Dogan Yayin is not politically motivated and freedom of press is not at risk in the country, Finance Minister Mehmet Simsek said on Wednesday.
Simsek also attempted to soothe investor fears about the possibility of a withholding tax for foreigners, saying the status quo would remain for the next nine months at least.
Speaking to Reuters financial television on the sidelines of the Adam Smith investment conference, Simsek said: "There is no question that (Dogan) is purely a tax case, not a political case, it is not (politically motivated)."
Dogan, which controls over half of Turkey's private media, alleges the massive fine is in response to its critical news coverage including corruption allegations. The holding company's CEO Nebil Ilseven told Reuters this week the case had political implications.
The government has frequently accused Dogan media of acting like an opposition party.
"Our tax system, I am not going to pretend it is perfect...but there has been not a single change...that would imply this is a political case," Simsek said.
"This is a purely technical case. This is not the first tax case but because it involves a media group, the risk is that it is blown out of proportion."
Turkey has a vibrant press, he said, adding: "Nobody should be worried about freedom of press in Turkey".
The case has aroused concern outside Turkey's borders, with a European Union report earlier this month suggesting the ruling AK Party may be treating Dogan Yayin unfairly. Turkey hopes to join the EU someday, an ambition that Simsek told Reuters would not be impaired by the Dogan case.
The minister declined to comment on what kind of settlement could eventually be reached with Dogan but noted the large fine included penalties for overdue payment.
WITHHOLDING TAX
Simsek also said investors did not need to worry about withholding tax, a levy on investments that locals pay at a 10 percent rate but which is currently zero for foreign investors.
Turkey's constitutional court ruled last week that the two different rates were illegal, sparking a selloff in the local stock and bond markets as overseas investors panicked their zero percent rate could be raised to 10 percent.
The withholding tax for foreigners was scrapped in 2006.
"The constitutional court is important, they've given us nine months to come up with new arrangements," Simsek said.
"We are going to be working on that, in the meantime there is no need to worry. In the foreseeable future, the status quo will continue."
"We are committed to continuing to improve the investment climate," he said.
Turkey has emerged as an investors' darling in recent years and is seen to be emerging from the global financial crisis relatively unscathed. The stock market is up about 80 percent this year while bond yields are at record lows, following 1000 basis points in rate cuts.
Simsek said he was confident the Turkish economy would grow at 3.5 percent next year as envisaged by the budget, though most analysts are more pessimistic.
"We think our assumptions are conservative, the Turkish banking sector is very strong...households have not experienced significant health erosion....interest rates are at historically low levels," he said. "Chances are the rate of growth could prove to be stronger." (Additional reporting by Carolyn Cohn; Editing by Andy Bruce)