Tax System Reform in Kazakhstan: Expert Comments

Economist Almas Chukin has shared insights from a recent meeting between President Toqayev and business representatives, where he spoke as an expert, Orda.kz reports.

60 businessmen gathered, 15 spoke, each about their own. I think only 5-10 people in the room really understood what the speakers wanted to say, Chukin noted.

During the meeting, President Toqayev addressed several crucial points, including a potential VAT increase to 20% (pending further analysis), possible sector-specific tax incentives, and the need to modernize economic governance in light of technological changes.

He also discussed the delayed asset recovery process that has been impacting investments.

Chukin emphasized that the core issue lies not in the proposed VAT increase but in the system's fundamental inequity:

Today, Kazakhstan has an ineffective tax model: low VAT, CIT (Corporate Income Tax - Ed.) and IIT (Individual Income Tax - Ed.) rates, but high taxes on salaries. As a result, large businesses live in the world of VAT, and small businesses live in a simplified system, he explained.

The proposed reforms would reduce the annual VAT-exempt threshold to 15 million tenge and affect about 30% of SMEs. 

Additionally, the number of activities eligible for simplified taxation would be drastically reduced from over 300 to less than 50.

Chukin provided two examples:

The buyer will always choose where it is cheaper. As a result, an honest business that pays taxes in full will simply cease to be competitive. The second example is related to import. One business makes chairs in Kazakhstan, another imports the same ones from China. At first glance, it seems more profitable to work here, VAT is included in the cost price and is not included in the cost price. But it is included in the price. An imported chair is subject to 20% VAT and import duty at the border, so it will be at least 25-30% more expensive, as VAT is not reimbursed for imports to the Chinese company. But this is in theory. But in practice, 'gray' and 'black' imports are flourishing in our country, and it is much more profitable to go through Khorgos or a more customs-friendly neighboring territory and that’s it. 

The current disparity in tax burden is stark:

• Small businesses pay 3-4%
• Large businesses pay 12% VAT plus CIT and salary taxes

The tax system reform is long overdue, and it's not about 12, 16 or 20%. Rates are the core of business, and populism won't do,Chukin concluded, emphasizing the need for comprehensive reform that establishes uniform rules for all business entities.

Original Author: Rustam Muratov