Kazakhstan Business & Economy - The Times Of Central Asia

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Why Kazakhstan Wants to Change Subsoil User Taxation

Kazakhstan is considering a significant change in the taxation of subsoil users, with Minister of Industry and Construction Kanat Sharlapayev proposing the introduction of royalties to replace the current mineral extraction tax (MET) for licenses issued from January 1, 2026. According to Sharlapayev, this shift would attract more investors to Kazakhstan and encourage the domestic processing of raw materials. Why Investors Are Dissatisfied with MET The MET, introduced in 2008, is levied on subsoil users for every type of mineral, hydrocarbon, underground water, and therapeutic mud extracted in Kazakhstan. Each resource is taxed at a separate rate, calculated based on the volume of extracted raw materials rather than their actual sale or revenue. This has caused dissatisfaction among both local and foreign subsoil users. Over the years, discussions have intensified about replacing MET with royalties, which would calculate taxes based on the volume of products sold or profits earned. Sharlapayev stated during a recent government meeting that experts from the World Bank have recommended this change to make Kazakhstan’s mining sector more attractive to investors. “Globally, the most popular taxation model in the mining and metallurgical sector is based on the volume of products sold or profits earned. Kazakhstan, however, uses the mineral extraction tax. Introducing royalties tied to the sales value of minerals would be more transparent and familiar to international mining players,” Sharlapayev explained. Sharlapayev also emphasized that replacing MET with royalties would incentivize domestic production by imposing lower taxes on minerals processed within Kazakhstan compared to those exported without processing. He urged Prime Minister Olzhas Bektenov to instruct the Ministry of Finance and the Ministry of National Economy to include royalty provisions in the new Tax Code, expected to take effect in 2026. However, these changes would only apply to licenses issued from January 1, 2026. Concerns Over the Transition The Ministry of Finance has expressed reservations about the proposed shift, citing potential revenue losses. In September, Zhanybek Nurzhanov, Deputy Chairman of the State Revenue Committee, warned that transitioning to royalties could cost the state budget hundreds of billions of tenge. “We can switch to royalties only if there are no losses for the budget. If we simply introduce royalties and reduce business payments, it raises a serious question—how do we offset nearly half a trillion tenge in lost tax revenue?” Nurzhanov said. Additionally, Nurzhanov pointed out that determining the true value of exported raw materials would require the establishment of specialized laboratories, imposing financial burdens on both businesses and the state. This, coupled with the complexities of administering royalties, could deter subsoil users. Kazakh economist Galymzhan Aitkazin echoed these concerns, noting that MET’s fixed rates provide predictability for both businesses and the government, while royalties—tied to revenue or market prices—introduce variability. “The simplicity of flat MET rates allows companies to plan effectively and helps the government forecast revenues. By contrast, royalties linked to revenue or market prices could lead to payment variability, complicating financial planning for both parties,” Aitkazin explained. He also emphasized that MET’s straightforward...

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Amid Sanctions, China’s Xinjiang Strengthens Ties with Central Asia

China’s Xinjiang region is deepening its engagement with Pakistan and Central Asia as part of efforts to counter Western sanctions and bolster its role in the Belt and Road Initiative (BRI). On November 26, officials from Xinjiang met with their counterparts from Kazakhstan’s Zhetysu region for the first meeting under a new cross-border coordination mechanism. The discussions focused on cross-border tourism, infrastructure, market regulation, quarantine measures, and joint crime prevention. The meeting culminated in the signing of a memorandum on cross-border tourism. The discussions took place near the port of Khorgos, a critical hub for the China Railway Express, which connects China with Europe. Khorgos is home to China’s first cross-border cooperation center, where residents of neighboring countries can engage in business and shop visa-free. The center allows duty-free purchases of up to 8,000 yuan ($1,104) per day. Xinjiang Governor Erkin Tunyoz stressed the importance of strengthening ties with Zhetysu in areas such as trade, tourism, security, and agriculture. This cooperation is becoming increasingly crucial for Beijing as Xinjiang grapples with sanctions from the United States and other Western countries over alleged human rights abuses—a claim that China denies. Sanctions include the U.S. Uyghur Forced Labor Prevention Act, which prohibits imports from Xinjiang suspected of being produced using forced labor. Similar measures have been implemented by Canada, the United Kingdom, and the European Union. In addition to its collaboration with Kazakhstan, China has established a dialogue mechanism with the five Central Asian countries—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. Since 2020, foreign ministers from these nations have met annually to discuss logistics, trade, investment, agriculture, mining, and security. Li Lifan, a Central Asia scholar at the Shanghai Academy of Social Sciences, described Xinjiang as a “bridgehead” for the BRI. He highlighted the region’s rich natural resources and its role as a base for major industries, including automobile manufacturing. In 2023, trade between Xinjiang and Central Asian countries surged by 50%, reaching 283 billion yuan ($39 billion). Despite these successes, Li cautioned about future challenges. He noted uncertainties surrounding potential Western secondary sanctions, geopolitical tensions, and Russia's ongoing war in Ukraine. Additionally, U.S.-China relations remain fraught, with further unpredictability anticipated under the leadership of Donald Trump. “Full economic development may only be achievable once global tensions ease,” he said.

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Kazakhstan’s Power Grid Revamp Secures €267 Million Backing from EBRD and Canada

The European Bank for Reconstruction and Development (EBRD) has announced a €267 million financing package for the Kazakhstan Electricity Grid Operating Company (KEGOC) to enhance the reliability of the country’s power supply system. The funding comprises a €252 million EBRD loan and a €15 million concessional loan from the Government of Canada. The financial support will enable KEGOC, which oversees more than 27,800 kilometers of overhead transmission lines, to construct approximately 600 kilometers of 500 kV transmission infrastructure. This will facilitate the integration of the West Kazakhstan Power System into the country’s Unified Power System. The initiative is part of the EBRD’s broader efforts to assist Kazakhstan in implementing its long-term decarbonization strategy, aimed at achieving carbon neutrality in the power sector by 2060. It will improve the electricity supply for residents in western Kazakhstan and enable the integration of up to 12 GW of renewable energy capacity nationwide by 2030. Currently, Kazakhstan’s power grid is divided into three separate systems. While the EBRD connected the northern and southern grids in 2004, the West Kazakhstan Power System remains isolated. The project includes the construction of the 500 kV Karabatan-Ulke power line along the Atyrau-Aktobe motorway, the 500 kV Karabatan substation, and the expansion of the switchyards at the Karabatan (220 kV) and Ulke (500 kV) substations. These upgrades will strengthen domestic interconnections and enhance power supply reliability in western Kazakhstan. In addition to infrastructure improvements, the project is expected to reduce annual CO2 emissions by over 200,000 tons. It is supported by grant funding from the Government of Japan. The EBRD will also provide KEGOC with technical assistance, including piloting digital technologies within the grid, bolstering the system’s resilience to potential cyberattacks, and introducing gender-responsive training programs.

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300th Container Train Departs Along Trans-Caspian International Transport Route

Kazakhstan Temir Zholy (KTZ), the national railway company of Kazakhstan, announced on December 2 the departure of the 300th container train of the year from the Kazakh-Chinese terminal in Xi’an, China, along the Trans-Caspian International Transport Route (TITR). This milestone highlights the growing strategic importance of the TITR, also known as the Middle Corridor, as a vital transport artery for fast and efficient cargo transportation between China and Europe. Expansion of the Middle Corridor The Kazakh-Chinese terminal in Xi’an, launched on February 28, 2024, has become a key logistics hub for the region, consolidating cargo from across China and streamlining logistics operations. This development has provided a significant boost to the TITR, which saw only 11 container trains traverse the route in 2023. The 300th train, bound for Azerbaijan, was organized by KTZ in collaboration with ADY Express (Azerbaijan) and Xi’an Free Trade Port (China). This partnership underscores the cooperative efforts between countries along the route to enhance connectivity and efficiency. Strengthening Regional Cooperation On November 12, Kazakhstan, Azerbaijan, and China signed an agreement to establish an inter-modal cargo terminal in the Port of Alat in Baku, Azerbaijan. This new facility aims to further facilitate the smooth flow of goods and boost trade along the TITR. Kazakhstan’s Ministry of Transport has outlined ambitious goals for the corridor, aiming to increase cargo traffic to 600 container trains per year in both 2025 and 2026. The target rises to 1,000 trains in 2027 and 2,000 by 2029, reflecting the corridor’s growing role in global trade logistics.

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Kazakh Agricultural Producers Sign $1 Billion in Deals with China

Kazakhstan and China have strengthened their agricultural partnership with $1 billion in new export agreements signed on November 30 during negotiations in Beijing. The deals include a $100 million contract for Kazakh poultry products. Kazakhstan’s Agriculture Minister, Aidarbek Saparov, emphasized that grain, oilseeds, and vegetable oil form the bulk of the country’s agricultural exports to China. Grain exports, in particular, remain a key focus. In 2023, Kazakhstan’s grain exports to China surged 5.5-fold to 1.4 million tons. From January to September 2024, the country exported 1.1 million tons of grain to China. Both governments have agreed to raise grain exports to 2 million tons shortly. Kazakhstan has invited Chinese investors to collaborate in its agro-industrial sector, particularly in producing organic products, which command higher prices and are increasingly sought after in global markets. The country is also well-positioned to expand the production and export of high-quality livestock products, including beef, lamb, poultry, canned meat, dairy products, and honey. According to the Agriculture Ministry, Kazakhstan produces about $20 billion in agricultural goods annually. Over the past five years, agricultural exports have nearly doubled, reaching $5.4 billion. The ministry projects this figure will climb to $10 billion within the next five years.

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Kazakh Deputy PM Zhumangarin: Our Industries Come Before Sanctions

Kazakhstan has clarified its position on sanctions against Russia imposed as a result of Russia's invasion of Ukraine. Primarily, Kazakhstan will not support measures that could negatively impact its economy. Speaking to Russian state media outlet Tass, Deputy Prime Minister Serik Zhumangarin underscored that Kazakhstan will not act as a conduit for circumventing sanctions, as doing so could severely affect its domestic industries. However, he emphasized the nation's commitment to safeguarding its economic interests, particularly in sectors where products might fall under sanction restrictions. “We have explicitly stated that we will not impose restrictions on these goods, as behind them are large labor collectives and enterprises, often located in single-industry towns,” Zhumangarin explained. During Russian President Vladimir Putin's visit to Kazakhstan on November 27-28, he met with Kazakh President Kassym-Jomart Tokayev. The leaders issued a joint statement condemning unilateral sanctions, citing their detrimental effects on global trade, economic cooperation, and sustainable development. They reaffirmed their commitment to principles of open and non-discriminatory international trade. By maintaining a neutral stance on sanctions, Kazakhstan seeks to minimize economic risks while prioritizing the interests of its workforce and industries. As The Times of Central Asia previously reported, Kazakhstan’s Ambassador to Russia, Dauren Abayev, noted that Kazakh companies aim to avoid secondary sanctions but will continue fostering close cooperation with Russia. In an August interview with Bloomberg, Zhumangarin reiterated that Kazakhstan would not blindly adhere to sanctions against Russia but would consider international restrictions. He highlighted that while Kazakhstan aims to protect its companies from trade bans, it cannot completely disregard sanctions due to the risk of economic isolation. Furthermore, Kazakhstan's Minister of National Economy, Nurlan Baibazarov, addressed concerns in early November regarding including Kazakh companies on UK sanctions lists. He emphasized that these cases mostly involved transient firms, asserting that Kazakhstan continues to comply with international regulations.