The measure that is set to be implemented this autumn has been met with mixed reactions from the expert community. Some argue for its necessity given the budget deficit (3.6 trillion tenge in 2024) and significant withdrawals from the National Fund, while others point to potential negative repercussions.
“Closure of up to 30% of catering establishments”
The director of the Talap applied research center, Rakhim Oshakbaev, highlighted several risks associated with the increase in VAT:
- an increase in prices by 8-12%;
- a decrease in real incomes of citizens by 15-20%;
- the closure of up to 30% of catering establishments in the first year of the reform;
- an increase in poverty;
- a slowdown in economic growth.
“I know that many companies and corporations are already factoring in a rate of 600 tenge per dollar. Therefore, we are certainly facing a significant inflation spiral. All of us with incomes in tenge will become poorer. Our disposable income will decrease. The most socially vulnerable segments of the population will suffer first, as a significant portion of their consumption basket consists of products that will rise in price, and they will be able to afford even less,” Oshakbaev expressed on social media.
He reminded that the tax reform will be implemented simultaneously with the liberalization of fuel prices, an increase in utility tariffs, and a rising dollar exchange rate, as well as against the backdrop of potential external shocks.
According to Oshakbaev, last week the Ministry of National Economy presented a number of amendments to the draft new Tax Code. In addition to increasing VAT and lowering the threshold, there are plans to abolish the social tax and reduce the number of types of business activities that can benefit from a special tax regime (STR) based on a simplified declaration (from 364 to 40).
The Ministry of National Economy estimates that due to these measures, the budget could receive an additional 7.5 trillion tenge in 2026, 8.4 trillion tenge in 2027, 9.2 trillion tenge in 2028, and 10.1 trillion tenge in 2029. In comparison, tax revenues to the republican budget amounted to only 12.3 trillion tenge in 2024.
“If someone wants to collect 7.5 trillion tenge, it means someone has to give up that 7.5 trillion tenge. And it is clear that this will primarily be us, the consumers, and, accordingly, businesses. Some businesses will become fragmented, while others will simply move to the shadow sector. I even think they will just shift from mobile transfers like Kaspi to cash,” the expert believes.
“Businesses will start to fragment”
Partner at GRATA International legal firm Yerzhan Esimkhanov also believes that the increase in VAT will heavily impact the wallets of all Kazakhstanis.
“VAT applies to two types of operations – turnover and import. In other words, if you bring something imported into the country, you need to pay VAT. Almost everything we have is imported: from the clothes you are wearing to the smartphone you are reading this on. If VAT rises by 8%, everything imported will become correspondingly more expensive. Imported goods will cost more, while domestic products have yet to catch up,” wrote the expert on Facebook.
He noted that VAT on imports is paid on a prepayment basis. Businesses pay the tax immediately, but they may sell the goods at a later time. These costs will be included in the final price of the product.
“Currently, the turnover required for registration is 78 million tenge. It’s not an excessive amount, but it's manageable. It is proposed to reduce it to 15 million tenge per year. That’s just over 1 million tenge per month. This includes any individual entrepreneur, any neighborhood kiosk, any vegetable stand. In this case, 80% of all individual entrepreneurs in the country will be required to register as VAT payers, submit reports, and issue invoices to clients. This creates complex accounting requirements, necessitating the hiring of an accountant either in-house or outsourced, which still incurs expenses,” Esimkhanov explained.
To avoid paying VAT, businesses are considering fragmentation, believes the lawyer. As a result, instead of one individual entrepreneur, there will be 15. Companies that could have grown into medium-sized enterprises over several years will focus not on development but on concealing income. Consequently, tax collection will not increase but rather decline.
“It is clear there is a budget deficit in the country. But solving this problem through VAT is akin to doing simple things instead of necessary ones. It’s like planning to get fit and first buying a medal holder instead of going to the gym. Every year, a monstrous amount of money is spent completely ineffectively,” Esimkhanov concluded.
“The markup will be invisible for cheap goods”
Businessman Erlan Ospanov believes that raising the VAT rate to 20% will lead to higher prices and decreased demand in the mid-price segment. Consumers are unlikely to notice the markup on cheap goods, the expert argues, and the measure will not affect luxury items.
“The current number of VAT payers is around 100,000. This number will increase by another 300,000 [due to the threshold reduction to 15 million tenge]. Those additional 300,000 currently do not add 12% to their prices, but after the threshold reduction, they will have to. Currently, the prices of those who do not pay VAT are more competitive. As a result, prices will equalize among all market participants. The current 100,000 VAT payers will be pleased. They will be happy that all their smaller competitors will also play by the same rules,” Ospanov expressed his opinion.
The collected funds should go towards economic development
The author of the Telegram channel Tengenomika, Galymzhan Aitkazin, advocates for the reform but emphasizes that it must be implemented carefully, “after meticulous calculations and thorough planning.”
“Because if the government sharply and simultaneously increases VAT, lowers the turnover threshold, and liberalizes gas and fuel prices, it risks not only a significant surge in inflation but also a drastic slowdown in business activity,” Aitkazin warns.
Aitkazin believes it is crucial that the additional taxes collected go towards economic development and improving the welfare of citizens. Along with tax reforms, reforms aimed at disciplining budget expenditures and prioritizing them for development goals should also be accelerated.
Is there another way out?
Renowned economist and author of the Telegram channel Finance.kz, Andrei Chebotarev, has also supported the increase in VAT, but in his opinion, the reform should have been implemented much earlier and gradually.
“Is there another way out? Of course! We can continue to live off the National Fund and in debt. And there is nothing wrong with that – most developed countries live this way. The National Fund can sustain us for another 10-15 years, and due to the low level of public debt, we can manage on loans for another 10-15 years. Thus, we have from 20 to 30 years in which we can continue to support local and foreign businesses with our low taxes,” Chebotarev noted.
The economist believes that Kazakhstan has only two options: “pretend everything is fine and continue to suppress tariffs and taxes while living off our children's money and loans” or raise tariffs and taxes.
“Naturally, it would have been less painful to do this gradually and a long time ago. Simultaneously explaining to people what and why, but apparently, we have a different, special path,” the expert emphasized.
At the same time, Chebotarev noted that a sharp increase in VAT would lead to a rise in prices for goods and services, but this would be immediate and short-term. If the increase had been gradual, the overall acceleration of inflation could have been greater and lasted longer.
The economist agrees that businesses will start moving “into the shadows,” but given the low thresholds, this will be more challenging, partly due to the level of digitalization.
“No business in any country in the world likes paying taxes. No people in any country in the world ever consider their taxes small and do not like paying them,” the economist concluded.
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