Kazakhstan’s government announced on January 28 a range of measures that will increase the tax and tariffs burden. Under the guise of a “tax optimization,” officials said that gasoline prices, VAT, and corporate tax will gradually increase.
Speaking before the entire government and regional governors, President Kassym-Jomart Tokayev said that the people of Kazakhstan would have to “tighten their belts and live within their own means because the country found itself in a tough situation.”
More VAT for More Companies
Despite rather abstract plans – the government did not specify when and by how much it will increase the tax rates or price caps on basic goods – one of the immediate changes will affect which companies will be forced to pay VAT: Companies with a yearly return above 15 million tenge ($29,000) will have to pay VAT. The previous ceiling was 78 million tenge ($344,000). Just through this measure, the government plans to increase the number of companies paying VAT by 300,000 and grow budget income by at least 5 trillion tenge ($9.7 billion).
The government has not established a concrete rate – currently 12% – but has repeatedly mentioned it could align with 20%, a widely-used rate across the world.
Serik Zhumagarin, the minister of economy, said that the overall tax burden should only increase by 4%, because of measures taken last year to scrap mandatory pension contributions and social tax.
Prime Minister Olzhas Bektenov essentially said the burden will be shifted to the end consumer.
In a seemingly contradictory remark, Tokayev said that the government should look for alternatives for the social tax, once a boon for regional administrations.
Inflation
Another contradiction arose during the discussion around inflation.
Zhumangarin repeatedly emphasized that the changes in tax and regulatory principles will inevitably lead to an increase in prices. However, Tokayev continued to insist that the government and Central Bank should prioritize containing inflation.
Timur Suleimenov, head of the Central Bank, said the regulator’s independent policy hinges on inflation targeting. Tokayev rebuked that the current "difficult situation" requires the Central Bank to sacrifice its independence to carry out reforms that will eventually spur inflation.
Whether this means that the Central Bank needs to abandon inflation targeting remains unclear.
Investment
While officials reiterated the decades-long refrain regarding the country’s focus on the diversification of the economy, the government will continue to be one of the key investors. The focus could change, however: Astana will focus on the development of infrastructure and the creation of the necessary climate for attracting capital from local and foreign entrepreneurs.
The National Fund, which used to direct massive investments to projects in various industries, will now only allocate cash to large infrastructure initiatives. The only exception will be startups in the advanced sectors of the economy.
Doubling the GDP
The investment climate should be improved and bureaucratic barriers should be removed, according to Tokayev. In addition, the president said the government must find a way to extend production sharing agreements (PSAs) with the world’s largest oil and gas companies on new terms. According to Tokayev, although PSAs and joint ventures have greatly helped Kazakhstan in the past 30 years, it is now time to increase their contribution to the local economy.
Tokayev said these measures will help the government achieve the goal of doubling the country’s GDP by 2029, as he ordered.
A Tighter Belt
Tokayev warned that civil servants should do more and take responsibility. For their part, however, the people should also be ready for responsibility, the president said.
While the state will continue to focus on social issues and support vulnerable groups, it will not tolerate “dependency.” According to Tokayev, every citizen of Kazakhstan is obliged to work, pay taxes, and respect tariffs.
But the most important question remained unanswered: Why should citizens pay for the government’s long-standing mistakes and failures, which cause constant damage to the purchasing power of the population? And how likely is it that the government’s new measures will succeed this time?
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