The Prime Minister of the Republic of Kazakhstan, Olzhas Bektenov, held a working meeting with the Deputy Prime Minister – Minister of National Economy Serik Jumangarin and Minister of Finance Madi Takiyev. They discussed issues related to tax and budget reform and enhancing control over tax revenues, as reported by Primeminister.kz.
Finance Minister Madi Takiyev reported that, during the ongoing analysis, facts were established regarding the use of special tax regimes (STRs) that were previously introduced to support and develop small businesses during their initial phase, which are now being used as legal schemes for tax obligation optimization by unscrupulous taxpayers.
Currently, there are 2.3 million registered taxpayers in Kazakhstan. Of these, only 8%, or 137,000, are VAT payers. Overall, 81% of the total entities operate under a simplified declaration special tax regime, with 85% of them reporting incomes of up to 15 million tenge.
“We conducted an analysis of mutual settlements between entities applying special tax regimes and those operating under the general regime. The analysis revealed that mutual settlements between these regimes doubled over the past year – from 5 to 10 trillion tenge. Out of a total turnover of 16 trillion tenge under special tax regimes, mutual settlements with the general regime accounted for 10 trillion tenge. In other words, while earning hundreds of billions of tenge, taxpayers are paying minimal taxes,” said Madi Takiyev, who also outlined several fragmentation schemes used by businesses.
To optimize taxes and dilute profits, companies follow the principle of increasing "documentary" expenses. One company purchases goods and resells them at cost to another legal entity operating under a simplified regime. As a result, the first company shows a loss, while the second, benefiting from favorable conditions, avoids paying VAT.
Additionally, there is a method of splitting businesses into several legal entities. For instance, in one establishment, the bar, kitchen, and karaoke are registered as separate companies, or each floor of a hotel belongs to different individual entrepreneurs. When the income of one of them reaches the threshold of 78 million tenge, the activity ceases, and another legal entity takes its place, allowing them to avoid paying VAT.
“To reduce the burden on the wage fund, employees of the enterprise are taken off the payroll, registered as individual entrepreneurs, and provide services to their former employer not as employees, but as separate entities. Consequently, tax payments to the wage fund are reduced, and social responsibility is lifted from the employer, which is then borne by the entrepreneur,” reported Madi Takiyev.
In this regard, to improve tax administration, the Ministry of Finance of the Republic of Kazakhstan proposes several measures to combat fragmentation:
- introduce a legislative criterion for business fragmentation;
- implement the principle of form over substance in tax disputes;
- introduce methods of control and evidence for such facts;
- restrict types of activities for individual entrepreneurs.
“From the information provided by the finance minister, it is evident that unscrupulous entrepreneurs, using various tax burden optimization schemes, are behaving inappropriately. With billion-tenge turnovers, they pay amounts to the budget that are absolutely inconsistent with their profits. We have a complete list of such large companies. This includes well-known construction companies like BI Group, BAZIS, and many others, as well as popular restaurants, fitness clubs, and various companies operating in other sectors of the economy. Taking this opportunity, I would like to address the owners and managers of large companies that are applying various tax optimization schemes. Today or tomorrow, your companies will receive notifications from tax authorities regarding the need to pay additional tax amounts. I urge everyone to submit additional tax declarations to the tax authorities within two weeks and pay fair amounts of taxes. If these actions are not taken, the state reserves the right to apply all available resources, including fiscal and law enforcement. The conversation will be tough, but we are ready for dialogue if business is prepared to act fairly towards the state,” emphasized Olzhas Bektenov.
It is worth noting that Kazakhstan is facing a deficit in the republican budget. To replenish state treasury revenues, the government intends to carry out a tax reform and increase the VAT rate. Previously, the issue of raising the VAT rate from 12% to 20% was considered, while intending to reduce the burden on the wage fund to 30%. Additionally, Deputy Prime Minister - Minister of National Economy Serik Jumangarin proposed to lower the VAT threshold to 15 million tenge. During a meeting with entrepreneurs on January 28, 2025, President Kassym-Jomart Tokayev stated that any innovations should be based on comprehensive analysis and a well-thought-out strategy, and instructed the government to further work on the VAT rate issue.
On February 11, 2025, Serik Jumangarin stated at a government meeting that the VAT rate “will be differentiated: 16%, 10%, 0%, and exemption from VAT.” It was also reported that in the construction sector, a social infrastructure payment (SIP) is planned to be introduced instead of VAT.
The proposed reform regarding the cancellation of social tax and OPVR payments by entrepreneurs could take place on the condition of raising the VAT to 20%. In that case, the state would have income to cover social contributions instead of the employer. However, with the currently proposed VAT rate of 16%, it is suggested to keep social contributions unchanged.
The Ministry of Finance of Kazakhstan is also considering issues regarding the reduction of ineffective tax benefits and the differentiation of personal income tax based on the income of individuals.
It was also reported that a reduced income tax rate is being introduced for manufacturers of their own products, while raw material processors will receive a VAT deferral on imported equipment.