According to the expert from the Institute of Innovative Economy, Professor Magbat Spanov from KazNU, a tax reform in Kazakhstan has been "long overdue." He believes that an increase in VAT to 20% is "only a matter of time." After all, the VAT rate in Russia has already reached that level. The expert suggests that the government should focus on large companies in the raw materials sector rather than on small and medium-sized businesses when changing tax policies, and eliminate offshore schemes within the country, as reported by the correspondent of the business information center Kapital.kz.
"The current tax system was established back in the early 2000s. It is clear that since 2020, this system has not been functioning effectively. It is unfortunate that so much time has been wasted and practically nothing has been done to change fiscal policy earlier," the economist stated.
The VAT threshold is "moving" towards the Russian level
The expert recalls that the issue of lowering the minimum turnover threshold for VAT registration was raised as early as 2014.
"Currently, this discussion has resurfaced, with plans to lower the threshold from 78 million tenge to 15 million tenge. Furthermore, there are discussions about increasing VAT from 12% to 20%, along with the possibility of reducing or abolishing the social tax and mandatory employer pension contributions. There are both pros and cons to this initiative. I doubt that this proposal will satisfy small businesses," noted Magbat Spanov.
He believes that the proposed increase in VAT is "only a matter of time."
"This decision is influenced not only by internal but also by external factors. Kazakhstan is a member of the EAEU. You know that the locomotive and main participant of the union is Russia. In the Russian Federation, the VAT rate has been at 20% for several years now. Considering that by 2025 we should have a common labor market, capital, and oil and gas resources, it is safe to say that the decision to raise VAT has most likely already been made. Russia is 'pushing' its interests to unify the tax system across the EAEU territory," emphasized the interviewee.
Magbat Spanov points out that Kazakhstan is still continuing a "populist policy" that has been actively promoted since 2010.
"However, it is clear that we need to move away from it. Back then, many experts suggested 'tightening the belts' by reducing budget expenditures on certain social payments because difficult years were anticipated. But this never happened. As a result, the republic's budget incurred significant costs, and most importantly, the government and the regime in power lost much of the public's trust," the interviewee believes.
"Most regions are subsidized"
In his opinion, the only "centrifugal force" in Kazakhstan is the unified tax system.
"Meanwhile, the common tax system has led to the situation where most regions of Kazakhstan are subsidized. And I do not currently see a centripetal force in the government's proposals regarding VAT and the wage fund that could unite the country. Will the regions be interested in the new tax system, and how will it affect the social and economic life of the population in the regions? This is yet another question with many unknowns. An increase in VAT is inevitable; the budget deficit creates a huge 'gap' that needs to be patched somehow," emphasizes Magbat Spanov.
The interviewee believes that fiscal authorities should primarily focus on large taxpayers rather than on small or micro businesses.
"Because entrepreneurs from the SME segment employ a vast number of Kazakhstanis. This is the social component of business. However, the bulk of taxes is paid by large businesses anyway—this is who needs to be worked with carefully. Especially, raw material companies need to be involved in 'fair' taxation," the interviewee asserts.
Additionally, according to him, it is necessary to prohibit offshore schemes in Kazakhstan.
"Once we do this, we will have a more realistic picture of budget revenue. Then we can raise the question of which initiatives need to be implemented specifically. For now, I do not see a foundation on which most 'subsidized' regions can develop. After all, 2-3 'successful' regions cannot constantly redistribute resources in favor of 'poor areas.' This must come to an end sooner or later and could lead to negative consequences," the economist notes.
When asked whether the initiative to increase the VAT rate and lower the turnover threshold for companies for VAT registration will lead to a more active fragmentation of businesses, Magbat Spanov replied: "Yes, that may happen."
"Moreover, it will not only be uncomfortable for entrepreneurs to conduct their business in this case, but also for fiscal authorities to administer them. The number of fiscal authorities and their personnel is not limitless; despite digitalization, they will not be able to monitor all business entities. There is a risk that after the introduction of VAT initiatives, many small businesses may close, consequently increasing the number of unemployed who may receive social benefits, thus adding an additional burden on the budget," emphasizes Magbat Spanov.
"Contracts with subsoil users need to be reviewed"
The economist suggests focusing on cooperation with foreign investors and reviewing many contracts with subsoil users.
"Such contracts should become more transparent. Another point is that in new contracts for the development of fields, the share of participation of the Kazakh side should be at least 50% + 1 share. It is important that the controlling stake in such contracts belongs to our country. This will allow us to influence strategic decisions, including taxation," the interviewee notes.
At an extended government meeting, Kazakhstan's President Kassym-Jomart Tokayev stated that "against the backdrop of a growing energy deficit, it is necessary to accelerate the construction of the first nuclear power plant and begin creating a nuclear cluster in the country." The government also announced plans to build two more nuclear power plants.
"One nuclear power plant planned for construction in the Almaty region is not enough for our republic. Kazakhstan's territory is quite large, and transferring electricity from the South to the West is too costly. Therefore, uniform development of energy capacities across the country is necessary. Without this, it is practically impossible to talk about economic and industrial development in Kazakhstan," summarized Magbat Spanov.
On Tuesday, January 28, 2025, at an extended government meeting, Deputy Prime Minister Serik Jumangarin reported that the question of lowering the turnover threshold for VAT registration from 78 million tenge to 15 million tenge per year is under discussion. "Today, out of more than 2.3 million registered taxpayers, only 137,700 business entities are VAT payers, which is 6% of the total. Of these, only 88,000, or 4% of the total number of taxpayers, actually pay VAT," he noted, emphasizing that the proposed measure will not have a significant impact on this segment. In OECD countries, the threshold is even lower, and in some leading economies, it is zero.
The government also proposed to increase VAT from 12% to 20%, while reducing the burden on the wage fund by decreasing or abolishing the social tax and mandatory employer pension contributions.