VAT Rate: What the Government Proposed

The differentiated VAT rate was discussed during a meeting with business representatives in Astana, according to inbusiness.kz citing the press service of the Prime Minister of Kazakhstan.

"As emphasized by Kasym-Zhomart Tokayev, the tax system must be balanced. This was a clear directive. It should take into account the interests of both business and the state. Today we have gathered to discuss one of the key issues, which probably concerns value-added tax. We will have many meetings in the regions, involving representatives from the Ministry of Economy, Finance, and the "Atameken" Chamber. A significant and comprehensive amount of work lies ahead. All proposals we receive will be heard. Together, we will formulate a unified position because the Tax Code should be very simple, clear, and straightforward," noted the Minister of Finance of Kazakhstan Madi Takiyev.

VAT is one of the key sources of budget replenishment. Increasing and differentiating the VAT rate will help reduce the budget's dependence on volatile oil revenues and finance priority state projects.

In turn, the Vice Minister of National Economy Azmat Amrin presented the government's proposals for establishing differentiated VAT rates as part of the tax reform.

"We propose to consider such a mechanism: a general VAT rate of 16%, full exemption from VAT for agricultural producers, and for certain sectors – an intermediate rate of 10%. Thus, the government-proposed differentiation of rates consists of: 16%, 10%, 0%, and exemption," explained Azmat Amrin.

It was noted that currently, in the agricultural sector, peasant farms do not pay VAT, while legal entities, due to existing benefits, pay only 30% of the taxes due to the budget. Under the new mechanisms, none of them will pay VAT. This will make Kazakhstani agricultural products (potatoes, tomatoes, onions, etc.) more competitive. The types of sectors to which the 10% rate will apply are still being discussed with businesses.

Additionally, during the meeting, proposals were made to revise the simplified declaration regime and retail tax while maintaining its essence – an income limit of 600 thousand MRP (2 billion 359 million tenge) per year.

The key change is the implementation of this regime only in the B2C segment (retail). It was proposed to lift restrictions on the number of employees. If a business's revenue exceeds 100 million tenge per year, the possibility of reducing taxable income by the amount of the payroll fund (Wage Fund) is provided. Thus, the threshold of 100 million tenge will stimulate the formalization of wages. Meanwhile, the 4% retail tax rate remains (with the possibility of a 50% reduction by local councils).

With the implementation of tax reform, an increase in tax revenues to the country's budget is expected to reach 4-5 trillion tenge annually. These funds will help reduce dependence on the National Fund, lower the level of public debt, and direct additional resources towards financing investment projects, developing development institutions, and modernizing housing and communal services, and the thermal energy system.