Kazakhstan's Tax Reform: VAT Changes Could Bring 3% Inflation

Deputy Prime Minister - Minister of National Economy Serik Zhumangarin reported to the government on tax reform, Orda.kz reports.

The government's proposed tax reforms center on VAT rate changes, with officials acknowledging potential short-term economic impacts.

Additional inflation is expected to be up to three percent, Zhumangarin said at a meeting of the Government of the Republic of Kazakhstan.

The plan aims to reduce dependency on oil revenues by raising the general VAT rate to 16% while introducing targeted exemptions and reduced rates.

At the same time, we offer VAT exemption for agricultural producers. Currently, farms are non-VAT payers. We are maintaining this. Legal entities from among agricultural producers pay VAT at 30% of the amount due to be paid to the budget. Now they will not pay. Thus, all products (potatoes, tomatoes, onions, cabbage, etc.) produced in Kazakhstan will be more competitive.

Healthcare providers would benefit from a reduced 10% rate, with other sectors still under consideration.

Who else will it apply to? This issue requires further discussion. What other types of activities - we will collect all the proposals, calculate them and decide together with experts and businesses.

The Minister explained the reasoning behind limiting rate variations:

First of all, for business. Secondly, for tax authorities. When there are many rates, accounting becomes more complicated, filing declarations becomes more complicated, and debit balances accumulate. To avoid this, we propose 16%, 10%, 0%, and exemption.

To combat tax avoidance through business splitting, the government proposes lowering the VAT registration threshold:

Many companies artificially split their businesses to avoid taxation. This undermines the tax system and prevents normal VAT offsetting. Therefore, it is proposed to reduce the registration threshold from 80 million tenge to 15 million tenge.

Supporting this change, Zhumangarin cited international examples:

For example, in Canada, Korea, the Scandinavian countries, a number of Eastern European countries and our closest neighbors (in Russia, Uzbekistan, Kyrgyzstan) the thresholds are lower than in Kazakhstan.

The retail tax regime will maintain its 4% rate while introducing new features, including employee limit removal and payroll deductions above 100 million tenge annual revenue.

The regime is called retail. It should live up to its name. Sales only to the population.

Prime Minister Olzhas Bektenov has mandated regional discussions with stakeholders:

We need to get their feedback and take all their suggestions into account. I will also hold meetings with businesses in Astana and the region. Based on the results of the discussions and necessary approval procedures, amendments to the draft Tax Code and the accompanying bill must be submitted to the Majilis by February 20, the Prime Minister replied.

This reform initiative follows President Qasym-Jomart Toqayev's recent call for sector-specific VAT rate differentiation during his meeting with the business community

Original Author: Zhadra Zhulmukhametova