Shadow Economy - The Times Of Central Asia

Viewing results 1 - 6 of 18

SMEs

Small Businesses in Kyrgyzstan Struggle With Expensive Loans and Border Delays

Small and medium-sized businesses now account for more than half of Kyrgyzstan’s economy, but entrepreneurs continue to face high borrowing costs, logistical bottlenecks and rising operating expenses, according to First Deputy Chairman of the Cabinet of Ministers Daniyar Amangeldiev. According to Amangeldiev, the share of small and medium-sized enterprises (SMEs) in the national economy has reached 51.7%, making the sector one of the country’s key drivers of employment and domestic demand. “The main obstacle at the moment is access to financing,” he said during a press conference in Bishkek. Amangeldiev noted that average lending rates in Kyrgyzstan remain at around 19-20%, while the profitability of many businesses does not exceed 15%. As a result, borrowed capital becomes prohibitively expensive, limiting companies’ ability to expand. The government is currently negotiating with the banking sector to reduce loan costs and has already allocated approximately $3.4 million to support small and medium-sized businesses. Authorities have also introduced interest-rate subsidies to expand entrepreneurs’ access to financing. In addition to expensive credit, businesses continue to face logistical and customs-related difficulties. According to Amangeldiev, delays in certification procedures and border clearance disrupt supply chains and reduce trade turnover. “While cargo remains stalled at the border, entrepreneurs’ financial resources are effectively frozen together with the goods,” he said. The government is placing particular emphasis on the agricultural sector, which remains one of the country’s largest employers. The Cabinet of Ministers has instructed financial institutions to accelerate loan issuance for agricultural producers, noting that the speed of capital turnover is critical for agribusiness operations. The Kyrgyz authorities are continuing efforts to bring more businesses out of the shadow economy. In 2024, the government abolished part of the voluntary patent-based trading system and required entrepreneurs, including small traders and some tax-exempt businesses, to use cash registers and digital fiscal systems. The reforms triggered resistance among some entrepreneurs. However, authorities argue that increasing transparency in trade is necessary to broaden the tax base and modernize the economy.

Employment

Kazakhstan Authorities Acknowledge Gap Between Real Scale of Shadow Employment and Official Data

Kazakhstan’s authorities have acknowledged a significant discrepancy between official estimates of informal employment and administrative data, highlighting the scale of the country’s shadow labor market. Minister of Labor and Social Protection Askarbek Yertaev said the actual number of people working outside the formal economy could be almost three times higher than indicated by official statistics. He made the statement during a Senate meeting devoted to regional development issues. Presenting the ministry’s assessment of informal employment, Yertaev noted that out of a workforce of 9.7 million people, only 6.7 million made mandatory pension contributions at least once in 2025. Of these, 5.3 million were employees and 1.4 million were self-employed. This leaves around 3 million people without recorded pension contributions. According to the minister, the figure significantly exceeds official estimates. Data from the National Statistics Bureau indicated that at the beginning of 2025, informal employment accounted for about 12% of the employed population, or just over 1.1 million people. Yertaev said the discrepancy suggests that a substantial number of citizens either work informally or underreport their income. Additional evidence of the scale of shadow employment comes from differences between statistical data and digital administrative records. While official statistics show 7.1 million registered employees, the Unified System for Accounting for Employment Contracts records contracts for only 4.1 million people. Among the factors driving workers into informal employment, Yertaev cited overdue debts and the freezing of bank accounts, which he said may encourage individuals to conceal income and avoid formal labour arrangements. To address the issue, the Ministry of Labor plans to expand the use of digital tools aimed at facilitating formal employment. This includes the introduction of AI solutions on the Electronic Labor Exchange portal. According to the ministry, an AI-based system will automatically match job seekers with vacancies based on their education and professional background, while also supporting users throughout the job search process. Deputy Chairman of the State Revenue Committee of the Ministry of Finance Zhanibek Nurzhanov also presented the results of a pilot project on platform employment. Implemented jointly with the Ministry of Labor, the initiative led to the registration of more than 43,000 taxi drivers as individual entrepreneurs under a special tax regime. The State Revenue Committee’s information systems are now integrated with 31 online platforms, a step authorities say should help bring more workers into the formal economy. Participants in the Senate discussion stressed that efforts to reduce shadow employment should combine enforcement measures with policies that encourage voluntary legalization of labor relations. As The Times of Central Asia previously reported, proposals to combat the payment of undeclared wages included sectoral agreements on salary levels and requirements for companies to disclose employment structures.

Gig Economy

Taxing the Gig Economy in Kazakhstan

Beginning in 2026, Kazakhstan plans to introduce enhanced oversight of citizens’ mobile transfers. Officially, the measure is framed as part of efforts to combat tax evasion. In practice, however, it represents a large-scale fiscalization of the gig economy, which employs hundreds of thousands of taxi drivers and couriers. The primary focus of the campaign is workers on digital platforms, including ride-hailing and delivery services. The authorities classify them as individual entrepreneurs who underreport or conceal income. Yet the economic reality is more complex: for many, this is less a shadow economy than a form of concealed unemployment operating under the label of “self-employment.” Hidden Unemployment Rather Than a Shadow Economy In recent years, the gig economy in Kazakhstan has become structurally significant. Industry estimates suggest that hundreds of thousands of people now work through digital platforms, and the number continues to rise. For most drivers and couriers, this is not supplementary income but their principal, and often only, source of earnings. The drivers of this trend are well known: limited job opportunities in many regions and a persistently high household debt burden. Elevated levels of consumer lending have compelled many citizens to seek fast, accessible sources of income, even where margins are thin. At the same time, tax authorities treat these workers as entrepreneurs who deliberately avoid taxation. However, they lack core characteristics of independent businesses: they do not set tariffs, generate demand, or accumulate capital. Their status more closely resembles digitally mediated wage labor without corresponding social protections. Tax on Turnover, Not Profit Platform-based work is highly sensitive to additional costs. Digital aggregators typically retain commissions of 20-25% on each order. The remainder is not net profit but gross turnover, from which drivers must cover fuel, maintenance, depreciation, and other operating expenses. Industry assessments indicate that a taxi driver’s net income after expenses rarely exceeds 40-50% of the order value. It is from this turnover that taxes are now expected to be withheld. Under the proposed model, platforms would act as tax agents, automatically deducting payments from each transaction. Options under discussion include a flat 4% rate or a system combining fixed social contributions with a 1% income tax. These measures are presented by officials as simplifying compliance and reducing administrative burdens. The central issue, however, is that taxation would occur before expenses are accounted for. For businesses with substantial profit margins, this may be manageable. For drivers operating on minimal profitability, it could prove critical. Digital Control as a Point of No Return Previously, some workers partially offset costs by accepting direct mobile transfers, operating in what officials describe as a “gray zone.” This avenue is set to narrow significantly. Under the current financial monitoring framework, if an individual receives transfers from 100 or more different senders over three consecutive months, the information is automatically transmitted to tax authorities. For taxi drivers, this threshold may be reached within days of active work. As a result, opportunities for informal adjustment are effectively disappearing. Who Ultimately Bears the Cost Digital...

Kazakhstan Deploys AI to Tackle Shadow Economy

Kazakhstan is entering a new phase of fiscal digitalization, leveraging artificial intelligence to identify and analyze illicit schemes in the shadow economy. Building on the existing Smart Data Finance platform, a system for storing and processing big data, a new digital solution will be developed to integrate information systems across government agencies. Deputy Minister of Finance Yerzhan Birzhanov announced the initiative, stating that Smart Data Finance, which has been in use for over a year, has already proven effective in detecting tax violations. The system aggregates data from external sources and implements a “Taxpayer Dossier,” enabling the creation of digital profiles for legal entities and individual entrepreneurs. The forthcoming upgrade will enhance Smart Data Finance’s capabilities by allowing it to cross-reference data from tax, customs, labor, and industry systems. This integration will help identify vulnerable sectors prone to “gray” economic practices and track the flow of illicit activity across industries. Simultaneously, the government has decided to replace separate sectoral roadmaps with a unified Comprehensive Plan to Combat the Shadow Economy. This plan, too, will be monitored using AI-powered tools. According to the Cabinet, substantial progress has already been made in digitizing high-risk sectors such as trade, construction, transport, healthcare, education, and agriculture. Special attention is being given to the trade sector, which remains one of the most susceptible to shadow operations. The ongoing implementation of several tools, including the National Catalogue of Goods, a domestic producer registry, labeling and traceability systems, electronic invoicing, digital VAT, and the digital tenge, is intended to reduce opportunities for illegal transactions. As previously reported by The Times of Central Asia, Kazakh authorities have steadily escalated pressure on the shadow sector in recent years. Measures range from tightening controls on smartphone imports to negotiating with employers to curb the practice of paying salaries “in envelopes.”

Economy

Kazakhstan Labor Ministry Increases Pressure on Employers Paying “Gray” Salaries

Kazakhstan’s Ministry of Labor and Social Protection has drafted legislation aimed at eliminating the widespread practice of paying employees off the books, known locally as “gray” salaries, Minister Svetlana Zhakupova announced this week. According to ministry estimates published earlier this summer, approximately 30% of Kazakhstan’s employed population fails to contribute to the Unified Accumulative Pension Fund (UAPF), a clear indicator that they may be receiving unreported wages. Data from the Bureau of National Statistics shows that in the second quarter of 2025, 9.3 million people were employed across the country. Of these, 7.1 million were salaried employees (76.8%) and 2.2 million were self-employed (23.2%). This suggests that more than 3 million workers may be receiving wages outside the official system, avoiding both income tax and social contributions. Targeting the Shadow Economy The ministry plans to focus first on those who make no contributions at all. “We have cases where highly qualified employees officially receive the minimum wage of 85,000 KZT (about $159),” Zhakupova said. “To avoid taxes, employers declare the minimum wage on paper and pay the rest in cash.” This practice, she added, creates striking wage disparities among employees with the same qualifications and roles. “In some instances, workers in identical positions earn between 229,000 KZT ($426) and 1.2 million KZT ($2,200), depending on the employer,” Zhakupova noted. These discrepancies are particularly acute in Kazakhstan’s mining and metallurgical sector. Digital Oversight and Industry Agreements To address the issue, the ministry is negotiating industry-wide wage agreements and requiring companies to declare their staffing structures. A digital tool for this purpose is available on the enbek.kz platform. “About 20 to 25 major organizations, including several under our jurisdiction, have already submitted their staffing schedules in a pilot project,” said Zhakupova. She believes the initiative will help ensure a more equitable distribution of company profits. “We’ve seen cases where salaries have risen, yet labor productivity has not. That contradicts basic economic logic. Our digital system identifies such ‘red zones’ for inspection,” she explained. Legislative Timeline The draft law is currently under interagency review and has received support from both the government and the presidential administration. It is expected to be submitted to Kazakhstan's parliament, the Mazhilis, for consideration in the near future. In the meantime, the ministry has begun flagging suspicious labor contracts, particularly those listing highly skilled workers, such as mechanical engineers, at or near the minimum wage. More than 1.1 million people in Kazakhstan currently earn wages at or below the legal minimum. “When we see such contracts, it's clear these companies are operating in the shadow economy,” Zhakupova said during a recent government briefing. “Inspectors are now actively working with such employers.” As The Times of Central Asia previously reported, the government has also decided to freeze the minimum wage in 2026, despite earlier pledges to raise it.

Shadow Economy

Kyrgyzstan Reports Decrease in Shadow Economy

Kyrgyzstan’s non-observed (shadow) economy, excluding the agricultural sector, accounted for 19.2% of GDP in 2023, marking a 1% decrease from 2022’s 20.2%, according to the latest data from the National Statistical Committee. The Committee attributes this improvement primarily to reductions in shadow activities within key sectors: wholesale and retail trade and motor vehicle repair by 0.5%, construction by 0.4%, and transportation and cargo storage by 0.2%. Historical data reveals a steady decline in the shadow economy’s share of GDP over recent years, estimated at 20.4% in 2021, 20.1% in 2020, and 22.8% in 2019. Shadow economic activities in Kyrgyzstan are concentrated in sectors such as trade, car repair, transportation, construction, processing industries, hospitality, and various services. Discrepancies persist, however, in shadow economy estimates. In January 2024, Minister of Economy and Commerce Daniyar Amangeldiev noted that international financial institutions assessed Kyrgyzstan’s shadow economy as comprising 60% to 70% of GDP. He explained this divergence by citing differences in methodologies used by the National Statistical Committee and international organizations to calculate the informal economy's size. Although the National Statistical Committee has yet to publish its shadow economy assessment for 2024, Minister Amangeldiyev recently highlighted the positive impacts of a shrinking shadow economy. He credited it, alongside growing trade volumes, with contributing to Kyrgyzstan’s GDP growth last year. For context, the U.S. Department of Commerce’s International Trade Administration estimates Kyrgyzstan’s informal economy at 25% to 72% of GDP, underscoring the challenge of accurately quantifying this sector.