Debates on Position Designation Have Begun
Mauletn Ashimbayev, Speaker of the Senate of Kazakhstan
In January, the government gave momentum and drama to the tax reform by radically lowering the VAT registration threshold from 78 to 15 million tenge. This proposal sparked widespread discussion. President Tokayev called for more balanced opinions in this discussion and urged a reevaluation of the impact of reducing the VAT threshold and employing a differentiated approach. The government adjusted this position and introduced amendments to the tax code, which are currently in the Mazhilis.
Let's start with the goal of conducting tax reform. Initially, the new Tax Code was designed to address the following tasks:
- simplifying tax legislation to make it understandable for entrepreneurs
- fair redistribution of national income
- development of promising sectors of the economy.
Today, the focus is on increasing the tax base and revenue to the country's budget. At least, these aspects are being discussed more now. Therefore, let’s begin with why tax reform is necessary.
Serik Zhumangarin – Deputy Prime Minister and one of the key developers of the tax reform
The economy is about the efficient distribution of limited resources. This distribution occurs through a sort of targeted fund — the budget. While preparing the budget for 2025-2027, we noticed that state finances are unstable. And this is the main reason for the reform.
For 2025, budget program administrators submitted requests for 32 trillion, but we satisfied only 26 trillion tenge. We have hit the so-called non-sequesterable expenses — social ones. Currently, 98.9% of our expenses are non-sequesterable. There’s nothing to cut! In reality, we have about 350 billion available for sequestration.
And from 26 trillion, or more precisely, from 25.7 trillion, it turned out that the government only has 15.7 trillion. The rest is the non-oil deficit. The collection of taxes and their overall balance are not in good shape.
Rayimbek Batalov, main owner of Raimbek Group and acting chairman of the NPP "Atameken"
We view the new Tax Code as a growth stimulus for SMEs and large businesses. The President clearly stated: a simple (Tax Code — Bizmedia.kz). And this is not without reason. I’ve been in business for 30 years, and the best period was probably the first when there essentially was no Tax Code. Today, the business is weary and is fragmenting and optimizing. Behind this lies administration: the tax authority has found ways to optimize... In general, they don’t come out dry...
In business, there isn’t even a percentage of entrepreneurs who want tax increases. I’m against raising taxes. However, budget revenue needs to increase; the main production means, electrical networks are worn out, agricultural machinery is outdated, and there are no irrigation systems. I would like additional funds from tax increases to go not to social needs, with all due respect, but to infrastructure.
Thus, another main goal of the budget and tax reform is business development, the stimulating role of the new Tax Code, concluded Ashimbayev.
Almaz Chukin, entrepreneur and macroeconomist
Tax reform is important, but we still lack an economic concept. What kind of economy are we building? — There are various plans: we will build this, we will do that, but they lack a financial and economic block. On what basis are we building?
There are only four types of economies. We have a choice between two: we build a purely market economy, a la Hong Kong, or a mixed one, with elements of command and market, a la China. We are somewhere in the middle, with a large state block.
The Tax Code cannot be simple. It should be straightforward for the average citizen with their declaration and SMEs, but not for banks that invest in securities.
With a threshold of 2.4 billion tenge, how difficult is it to hire an accountant?
Ashimbayev
Therefore, we need to develop an economic model and then adjust taxes to that model. Tax reform is part of a new social contract. If businesses pay more taxes, then they have the right to ask: how rationally and transparently are these taxes spent?
VAT accounts for 42% of total tax revenues to the republican budget. What calculations did the government base its proposal for a 20% VAT, then 16%?
Zhumangarin
The State Revenue Committee sees all businesses; it is completely transparent, except for the shadow economy, where cash is paid, and so on. We set the rate at 20% because this rate allowed us to reduce the labor taxes, specifically, the payroll tax (PPT). We have high taxes on PPT, around 40%. So, the calculation was for a slight rebalancing of the tax system. VAT affects the price of goods and the end consumer, the buyer, but does not affect the price of exports.
Batalov
All sectors want a preferential rate. All of them. Of all suppliers of goods, works, and services, 70% are VAT non-payers. But in terms of money, VAT non-payers account for only 5% of the value of goods, works, and services. Lowering the VAT threshold is complicated by tax administration. The number of taxpayers under the simplified tax regime (STR) is already 850 thousand. It will be difficult for some of them to pay VAT. They will bear the burden of VAT accounting, and accountants will be needed.
• Those under the STR? — There’s a threshold of 2.4 billion tenge. With such a threshold, how difficult is it to hire an accountant? — Zhumangarin says in an icy tone.
• Chukin nods in agreement. He looks at his papers. Batalov continues, but Zhumangarin is already not listening.
Ashimbayev interrupts Batalov.
• Well, good. So, you believe that with such a rate and such a threshold, the government will not collect 4-5 trillion, but will collect about 1 trillion less?
• These are not the first calculations. This is already the third block. In the first two, significant errors were found, Zhumangarin says irritably.
• Administration will complicate, continues Ashimbayev summarizing Batalov’s remarks. VAT will be paid by several times more companies.
Zhumangarin
Grocery stores, hairdressers, and markets will not be affected by this reform. Transport and logistics, manufacturing, and so on. They all operate under a special tax regime (STR).
We have 2.1 million enterprises, of which 1.8 million are under the STR. This is small and micro-business. They will not be affected. Two and a half thousand large businesses provide 69% of revenues, 3.1 to 3.3 thousand medium-sized businesses — 14% of revenues. Thus, 6 thousand enterprises provide 85% (83%) of revenues.
Chukin
The economy cannot be fully controlled. It consists of millions of players, each acting in their own way. We will see the results of this in a year. 16% is the "golden mean." The economy is an unmanageable system. No one can predict exactly how market players will behave. What if we include in the tax code that fragmentation is not allowed?
It is not necessary to lower the threshold to prevent business fragmentation, Ashimbayev formulates.
We can divide it not immediately, but in stages, Chukin suggests. Also, VAT refunds must work like clockwork, so that I am not the creditor of the government — I pay VAT, and then I walk around like a beggar with outstretched hand: "Give me back my VAT!"
"Only the honest pay taxes, and only cowards repay loans"
Ashimbayev
Could it happen that VAT increases, payroll taxes remain, and new taxes are also proposed, pushing businesses into the shadow? And secondly, will a complicated tax system contribute to expanding the corruption space? What measures can help ensure that businesses do not go into the shadows but develop?
Batalov
The payroll tax is a separate topic. Corruption has existed and remains. In this matter, there is a large share of the "shadow." A significant share of the "shadow" is related to tax administration. There are still questions related to the border: customs, Khorgos, the Uzbek border, discrepancies in statistics between China and Kazakhstan. We do not understand how much will go