Experts warn that amendments to the Tax Code will lead to an increase in the number of Kazakh citizens receiving salaries in cash under the table.

Starting from the new year, amendments to the Tax Code will come into effect, significantly impacting the operations of all private enterprises and their employees, reports inbusiness.kz.

As is known, from 2025, the social contribution rate will increase from 3.5% to 5%, the social tax rate will rise from 9.5% to 11%, and the mandatory pension contributions from employers will increase from 1.5% to 2.5%.

Essentially, an additional 2.5% will be added to the existing 40% burden on the payroll fund. Previously, Maxim Baryshev, the founder of the "Uchet kz" group of companies, repeatedly stated that the current payroll fund burden stands at 40%. This means that the total amount is approximately 40% of what employers pay their employees in hand.

Currently, the corporate income tax is set at 20% of profits, and some entrepreneurs opt to pay their employees the minimum wage to save on taxes. They pay the remaining portion of income illegally after tax payments.

Why the situation is worsening

The upcoming increase in social contribution rates and pension contributions is causing concern among entrepreneurs.

Recall that earlier the business community initiated the introduction of a unified social tax at a rate of 20% as part of the preparation for the new Tax Code project.

Today, the significant tax burden on businesses hinders the formalization of workers, with estimates suggesting around 2 million people receive "envelope wages." If this burden on the payroll fund increases further, even the conscientious part of entrepreneurs may go underground, experts predict.

According to the business community, the situation is somewhat deteriorating. This is because government agencies are initiating discussions about increasing contributions. The tax burden will gradually increase over several periods. By the end of next year, it is estimated to rise by at least 2.5%. The business sector sees this as a serious risk. Therefore, the business community is calling for a reduction of this already excessive rate, which is placing pressure on entrepreneurs and the wage fund in Kazakhstan.

At a recent forum dedicated to small and medium-sized businesses, it was emphasized that this issue should be addressed through the optimization of internal procedures within the government, rather than shifting the entire responsibility onto the business community, and that all increases should be frozen for the time being.

"We believe that this will exert pressure on businesses, forcing them and ordinary people to go underground for salary payments. Consequently, we consider it necessary for the government to find alternative mechanisms to address these issues instead of shifting this financial burden onto the business and society. We have articulated our vision in a proposal that was supported at the congress of the National Chamber of Entrepreneurs of Kazakhstan. Thus, we insist that now is not the time to implement such reforms and further increase the burden on businesses," stated Timur Zharkov, Deputy Chairman of the Board of the NPP "Atameken" during a roundtable initiated by the "Uchet kz" group of companies.

In turn, Erlan Sagnaev, Director of the Department of Tax and Customs Policy of the Ministry of National Economy of the Republic of Kazakhstan, reported that together with fiscal authorities, the ministry is facing the challenge of legalizing labor relations between citizens and employers. This is crucial for ensuring social security, access to medical services, and receiving state benefits that are only available to socially protected citizens.

However, there are negative aspects as well. According to the State Revenue Committee (SRC), over 70% of workers operating under a special tax regime with a simplified declaration receive minimum wages, raising doubts about the accuracy of these figures. The majority of salaries are paid "under the table."

"We are at a stage where it is necessary to develop measures that would encourage employers to engage in transparent relationships and ensure social protection for citizens. This requires civic responsibility. There is also another side to the problem: the significant indebtedness of the population and numerous alimony obligations compel citizens to hide their actual incomes from accountants and court executors. Therefore, I believe we need to approach this issue thoughtfully and move forward, not backward. Despite the fact that some citizens may find it convenient to receive "envelope wages," this primarily concerns the future of the country and social security. We are ready to consider reciprocal steps, but due to the lack of consensus within the government, the issue remains unresolved within the framework of the Tax Code project," Sagnaev emphasized.

The social contribution rate returns to 5% historically

Meanwhile, according to the Ministry of Labor of the Republic of Kazakhstan, social contributions have been historically set at 5% since 2010. From 2018 to 2024, the rate of social contributions was suspended, reduced from 1.5% to 3.5%. Starting January 1, 2025, the rate will be restored to 5%. Regarding the burden on the wage fund, it currently stands at 16.5%. And 38.5% accounts for the contribution from the employee's income as well as the wage fund.

Additionally, starting January 1, mandatory insurance will be introduced for those engaged in civil law activities and earning income. They will be covered by the social insurance system.

"Participation in the social insurance system has its advantages. In the event of five social risks: loss of ability to work, loss of breadwinner, loss of job, maternity benefits, and child care, these individuals participating in the mandatory insurance system will be eligible for these social payments," the ministry noted.

One employer pays for two pensions

The Ministry of Labor also reminded that starting January 1, 2024, the pension savings of working Kazakhs will increase significantly due to new mandatory pension contributions from employers (OPVR). Employers pay OPVR for their employees from their own funds at a rate of 1.5%. Each year, the rate will increase and will reach 5% by 2028.

The introduction of OPVR aims to enhance the welfare of Kazakhs and future pensioners. The payment of OPVR by employers for their employees will ensure additional accumulative pension payments for these workers in their old age. The employer's participation in pension contributions reflects the classic model of social responsibility for the pension future of their employees.

The mandatory pension contribution from employers will be paid starting this year not for all employees, but only for those born after January 1, 1975. This is due to their lack of entitlement to a solidarity pension. However, the Ministry of Labor acknowledges that the downside of OPVR is the increased burden on entrepreneurs.

It is important to note that OPVR is not inheritable and is distributed among all according to a distribution principle.

Currently, an employer simultaneously pays for the pensions of current pensioners through the tax system and for future pensioners through the system of mandatory pension contributions from employers. Essentially, one employer is paying for two pensions. The OPVR rate will increase from 1.5% to 2.5% in 2025.

In the future, rates will continue to rise annually until they reach 5% in 2028. The first payments from mandatory pension contributions from employers will only begin in 2038.

Until that time, mandatory pension contributions from employers will be accumulated in a single pension fund. The overall increase in the tax burden on the wage fund will be: social tax - 1.5%, social contributions - 1.5%, and mandatory pension contributions from employers - 1%. Thus, the nominal increase rate will total - 4%.

The business community believes that the actual increase of 4% is not the final rate, as there are threshold limits, deductions for individual income tax, and so forth when calculating salaries.

It has been noted that the tax burden on the wage fund in Kazakhstan ranges from 37% to 44%, which is higher than in OECD countries (33% to 39%), where incomes and living standards are significantly higher. Therefore, a thorough analysis of the adequacy of the tax burden involving businesses and employees is necessary. The increase in the unified payment from 21.5% to 23.8% will negatively impact small businesses, where fixed margins range from 10% to 20%.

Furthermore, starting in 2025, social contributions will be introduced for civil law contracts, which will reduce the income of individuals by 5% or raise the cost of services. This will affect the cost of goods and services.

Entrepreneurs face challenges in finding qualified workers, exacerbated by high competition levels. Increased taxes create an additional burden for them, as any increase in contributions falls on their shoulders. This applies not only to salaries but also to taxes from civil contracts.

Roundtable participants noted that accountants are experiencing stress due to constant legislative changes and delays in system updates.

According to Lolita Zakirova, an auditor and tax consultant in Kazakhstan, lawmakers should listen to the accounting community and simplify processes. Ahead of the adoption of the new Tax Code, it is crucial to maintain current taxes and make the unified payment for wages consistent for all, as the existing nuances and shortcomings of