In January, Kazakhstan is discussing the potential sharp increase of the value-added tax (VAT) from 12% to 20%. This was officially mentioned on January 23, when the Prime Minister of Kazakhstan, Olzhas Bektenov, gathered experts, economists, and business representatives in the government to discuss proposals for a new Tax Code. During the meeting, among other things, it was proposed to raise the VAT to 20%, lower the threshold for VAT registration to 15 million tenge per year (currently about 79 million tenge), and reduce special tax regimes (STR) utilized by a significant number of small business representatives.
Some experts present at the meeting supported these amendments to some extent, arguing that increasing the VAT would help plug holes in the state budget.
Forbes Kazakhstan decided to listen to other opinions.
One salary for the state
Maxim Barychev, the founder of the "Uchet" group of companies and a tax expert, is convinced that raising the VAT rate to 20% is absolutely unacceptable.
— According to my data, with the adoption of these measures, they plan to collect an additional 7.5 trillion tenge for the budget. This amount will come from our money. In other words, the state will collect an additional 375,000 tenge in VAT from every citizen of Kazakhstan, including infants. The average salary in Kazakhstan is 390,328 tenge, and with the increase in VAT, each Kazakhstani will effectively have to give one salary to the budget per year, — calculated Maxim Barychev.
According to the expert, reducing the VAT threshold to 15 million tenge per year will result in an additional 300,000 VAT-paying companies that currently pay other taxes. This sharp increase in the number of enterprises required to pay VAT will "cause a collapse in the accounting sector."
— Currently, there are only 110,000 VAT payers. And there won't be enough accountants who understand the nuances for a larger number. Training an army of 300,000 accountants in six months is unrealistic. Ignorance of the rules for issuing electronic invoices and submitting reports will lead to fines and freezing of entrepreneurs' accounts, causing shock and a freeze in business activity, — argues Barychev.
Increasing the VAT rate will lead to price increases for all products and goods officially sold in Kazakhstan, the expert is sure. According to Barychev, this will subsequently slow down the economy or even lead to stagnation in the medium term: "In no country in the world has raising taxes led to economic growth; on the contrary, it has resulted in a decrease in growth rates."
Barychev reminded that in recent years, Kazakhstan has introduced a tax on dividends, payroll contributions to the Medical Insurance Fund, and mandatory pension contributions from employers. According to the expert, these innovations resulted in a decrease in budget revenues despite economic growth. This indirectly confirms the rise of the unobserved or shadow economy.
— Let's recall the history when the VAT rate was gradually lowered from 20% to the current 12% — this was from 2000 to 2009. During those years, Kazakhstan recorded the highest economic growth of over 10%, with a 12% rate in 2010 and 2011 resulting in economic growth of more than 7%. The economy grows when labor productivity increases, not when taxes are raised, — believes the expert.
According to Barychev, Kazakhstan's economy is currently showing excellent results in three sectors: trade, catering, and construction. The catering sector has begun to show good growth thanks to the retail tax, while construction has benefited from the cancellation of VAT on housing purchases by individuals. Now, however, there are talks about wanting to "take away" the retail tax from café and restaurant owners and impose VAT on apartment buyers again.
— When the demand elasticity factor comes into play, we will see that in monetary terms, the statistics from the sale of goods, works, and services may remain the same, but in quantitative terms, these indicators will significantly decrease, — the interlocutor is convinced. — In my opinion, if we aim to double the economy by 2030, we must not raise the VAT rate. Comprehensive measures are needed to develop businesses, increase domestic consumption, and enhance exports through the introduction of stimulating measures. This can be achieved with the current VAT rate of 12% and a reduction in the tax burden on payroll, — Maxim Barychev outlined his proposals.
Who shook the social contract
According to Galyzhan Aitkazin, the General Director of AERC and author of the Telegram channel Tengenomika, it is clear that the proposed changes will put significant pressure on businesses and the population. Changes to the VAT, which is essentially a consumption tax, will ultimately affect consumers. However, "the need for changes in tax and budget policy has long been overdue and is dictated by a number of factors," the expert believes.
— For instance, the difference between tax revenues and budget expenditures has increased from 5.2 trillion tenge in 2019 to 10.7 trillion tenge in 2023, which forces the government to actively use loans and National Fund resources. The complexity of the situation is exacerbated by the high level of current expenditures, which are difficult to reduce without harming the socio-economic conditions of citizens. An additional challenge remains the budget's dependence on revenues from the National Fund. Over the past ten years, 40 trillion tenge has been withdrawn from the fund, exceeding its revenues by 10 trillion tenge. This practice threatens to deplete the fund, which serves as a financial buffer for the economy, — says Galyzhan Aitkazin.
The problem is further complicated by the need for investments in strategic infrastructure: energy, water supply, transport, logistics, etc., which, as the economist clarifies, "require significant investments to support economic growth."
— Fundamental changes in the tax system affect the "social contract" and require reciprocal obligations from the state, including accelerating reforms in public finances, adopting strict budget rules and international management standards, and reducing state involvement in the economy to stimulate competition and growth, — shared his opinion the economist.
Aitkazin believes that these measures will help build "a more sustainable and competitive economy." However, business representatives do not share this view. On the contrary, many are convinced that raising the VAT by 8% and lowering thresholds will have a series of negative consequences for businesses, potentially leading to bankruptcies and economic stagnation.
Victims of the attempts to "patch holes"
Veronika Daugalieva, chairwoman of the Self-Regulating Organization of Public Catering of the Republic of Kazakhstan, believes that the country's SMEs, especially in the catering sector, are under real threat. Currently, over 60,000 organizations are involved in small and medium-sized businesses, almost 50,000 of which are cafes and restaurants.
— Small businesses are those companies and entrepreneurs that provide jobs for people, develop our economy, and offer us all the conveniences — from cafes to shops, from services to small retail points. But more importantly, small businesses ensure stable year-round employment. If taxes are raised, many small companies will not be able to pay such large sums, especially when rental and utility costs have already increased two to three times, — says Daugalieva.
Veronika is convinced that raising the VAT to 20%, lowering the threshold for the simplified system, and canceling the retail tax could lead to bankruptcies, mass layoffs, and multi-million debts.
— I think about 24,000 SMEs will declare bankruptcy and leave debts amounting to 600 billion tenge. Of this amount, no more than 200–250 billion tenge will be recovered. Meanwhile, to pay off this debt, entrepreneurs will be forced to sell off all their assets. And the rest will have nothing left to sell, — believes Veronika.
Gulybanu Maigaryna, founder of the Lanzhou fast food restaurant chain, advisor to the Public Catering Association, and chairwoman of the Central Asian Franchise Association, agrees with Veronika Daugalieva.
— Our tax system is structured so that entrepreneurs pay taxes even before they make a profit. For example, if a business hires employees, it immediately pays 40% in payroll taxes. Lowering the VAT threshold to 20,000 MRP (approximately 250,000 tenge per day) requires tax payments quarterly, even in the absence of net profit, — says Maigaryna and adds: — SMEs become the first victims of attempts to "patch holes" in the budget.
Both Daugalieva and Maigaryna believe that instead of raising the VAT and lowering the threshold, the existing tax measures that are already effective should be preserved. For