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Tax

Kazakh Government Prepares for Battle with Big Business Over Tax

Kazakhstan's government is entering a critical phase of its tax system overhaul, which is set to conclude by Nauryz, the country’s most significant Turkic holiday, beginning on March 21. The deadline for the ultimatum issued by Prime Minister Olzhas Bektenov to major businesses, accused of exploiting tax loopholes, will expire in the second half of March. The question remains: What happens next? Tax Reform: Eliminating Preferences The government has been pushing for tax reform, aiming to abolish a range of tax benefits, some of which date back to 2008 during the global financial crisis. However, the main point of contention now is the Special Tax Regime (STR), a more recent initiative. The STR was introduced in 2021 as a response to the economic crisis caused by the COVID-19 pandemic. Today, 2.3 million taxpayers in Kazakhstan operate under this system, yet only 8% (137,000 entities) are value-added tax (VAT) payers. Additionally, 81% of registered entities use the simplified tax declaration regime, with 85% reporting annual incomes of up to 15 million KZT ($30,000). Ultimatum to Developers Following a report by Minister of Finance Madi Takiyev on tax evasion practices, Prime Minister Bektenov singled out two of Kazakhstan’s largest construction companies, BI Group and BAZIS, accusing them of using legal loopholes to avoid paying fair taxes. “Unscrupulous entrepreneurs are exploiting various tax optimization schemes and paying amounts that do not match their billion-dollar revenues. We have a full list of such companies, including major developers like BI Group, BAZIS, and others, as well as well known restaurant chains, fitness clubs, and businesses across multiple industries,” Bektenov said. He then issued a demand: companies must voluntarily submit revised tax declarations within two weeks and pay appropriate taxes. Shortly afterward, it was revealed that BI Group was ordered to pay 11.9 billion KZT ($23.8 million) in additional taxes, while BAZIS must pay 4.6 billion KZT ($9.2 million) for 2022 and 2023. Developers Deny Allegations In response, both companies denied the accusations. BAZIS stated that its subsidiary structure was created to comply with Kazakhstan’s equity participation laws, not for tax evasion. “This is a legal requirement under Kazakhstani legislation, and we fully comply with it,” the company said. BAZIS also emphasized that it is regularly monitored by tax authorities and expressed concern over Bektenov’s remarks. BI Group, for its part, insisted that its tax deductions are audited annually by both state bodies and independent international firms such as KPMG and Ernst & Young. “The company has been audited annually for the last 10 years by KPMG and Ernst & Young, and no violations have been found,” BI Group stated. Ties to the Government BI Group has had close ties to the Kazakh government. In 2020, the company was tasked with building modular hospitals during the COVID-19 crisis. However, in 2021, the project came under corruption investigation, though the company was ultimately cleared. BI Group’s owner, Aidyn Rakhimbayev, remains a highly influential businessman. He is ranked 11th on Forbes Kazakhstan’s list of the country’s wealthiest individuals,...

Tax

Kazakhstan’s PM Bektenov Gives Major Construction Firms Tax Ultimatum

Kazakhstan’s Prime Minister, Olzhas Bektenov, has accused the country’s two largest construction companies, Bazis and BI Group, of tax evasion. The State Revenue Committee later substantiated these claims, notifying the firms of additional taxes amounting to KZT 16.5 billion (over $32 million). Business Fragmentation The allegations against the developers emerged during a meeting between Bektenov, National Economy Minister Serik Zhumangarin, and Finance Minister Madi Takiyev. Takiyev explained that many Kazakhstani businesses exploit legal loopholes by dividing their operations into multiple legal entities to minimize tax obligations. He cited examples from the hospitality industry, where bars, kitchens, and karaoke sections within a single venue are registered as separate businesses, or where each floor of a hotel is owned by different individual entrepreneurs. This practice enables businesses to evade value-added tax (VAT). Once a company’s revenue reaches the KZT 78 million ($155,500) VAT registration threshold, it ceases operations and is replaced by a new legal entity. “To reduce payroll taxes, businesses remove employees from their staff, register them as individual entrepreneurs, and then contract them as external service providers. This lowers tax liabilities, shifts social responsibility from the employer to the entrepreneur, and significantly reduces payroll tax contributions,” Takiyev explained. According to his figures, Kazakhstan currently has 2.3 million registered taxpayers, but only 8% (137,000) are VAT payers due to this loophole. Additionally, 81% of all businesses operate under a simplified tax regime, with 85% of them reporting an annual income below KZT 15 million ($29,900). “An analysis has shown that transactions between these tax schemes doubled over the past year, from KZT 5 trillion to KZT 10 trillion. In other words, while generating hundreds of billions in revenue, these businesses pay negligible taxes,” Takiyev stated. He noted that such schemes are prevalent not only in the service sector but also in real estate development. Final Warning Bektenov explicitly named companies under scrutiny. “We have a complete list of major businesses employing these tactics. Among them are well known construction giants such as BI Group and Bazis, as well as popular restaurants, fitness clubs, and other companies across various industries,” he said. Bektenov issued a two-week ultimatum for these businesses to settle their tax arrears. “If they fail to act, the government will use all available fiscal and law enforcement mechanisms. The conversation will be tough, but we are open to dialogue, if businesses are prepared to act fairly toward the state,” he warned. By the end of last week, tax authorities had formally notified Bazis and BI Group of their outstanding obligations. Bazis was instructed to correct tax filings for an undeclared KZT 4.6 billion ($9.2 million), while BI Group was found to have understated its taxable base and income by KZT 11.9 billion ($23.8 million). The companies have been given an opportunity to amend their tax reports and pay the additional amounts before formal inspections begin. So far, neither developer has publicly responded to the accusations. As previously reported by The Times of Central Asia, Kazakhstan is set to reform...

Tax

Kazakhstan Announces Differentiated VAT Rates

Kazakhstan’s Cabinet of Ministers has proposed a differentiated value-added tax (VAT) structure, with rates ranging from 0% to 16% and an intermediate rate of 10%. This announcement was made by Vice Minister of National Economy Azamat Amrin. The proposal comes after President Kassym-Jomart Tokayev rejected an earlier plan to increase the VAT rate to 20%. “We propose the following mechanism: a general VAT rate of 16%, full exemption from VAT for agricultural producers, and an intermediate rate of 10% for certain industries. Thus, the government's proposed differentiation consists of 16%, 10%, and 0% rates,” Amrin said during a meeting with business representatives in Astana. The government plans to determine which industries will qualify for the 10% VAT rate following consultations with the business community. Amrin also noted that agricultural VAT exemptions currently apply to peasant farms (family-labor associations), while larger legal entities in the sector pay about a third of all applicable taxes due to existing tax incentives. Now, the government is ready to abolish VAT for these larger agricultural enterprises as well to enhance the competitiveness of Kazakhstan’s agricultural products. Budget Implications of the VAT Reform Kazakhstan’s current general VAT rate stands at 12%. The government expects that raising it to 16% will generate an additional 4 - 5 trillion KZT ($7.8 billion - $9.7 billion) in annual tax revenues. In late January 2025, Minister of National Economy Serik Zhumangarin estimated that revising the VAT rate could bring in an additional 5 - 7 trillion KZT ($9.7 billion - $13.6 billion). At that time, authorities were considering a VAT increase to 20%, but late last week, President Tokayev publicly opposed such a sharp tax hike. Tokayev Calls for a Balanced Approach “It is necessary to explore different options, taking into account the specifics of various economic sectors,” Tokayev said during a meeting with representatives of Kazakhstan’s largest businesses. “I have not previously commented on this matter, as every word I say can be interpreted as a direct order due to my official status. However, I now want to make my position clear: the VAT rate should be differentiated. The rate proposed by the government was still too high,” the president stated. Tokayev emphasized the need for a balanced approach that supports businesses while also increasing budget revenues. “The state needs optimal solutions that, on the one hand, create favorable conditions and do not hinder business, and on the other hand, bring order to the tax system and ensure sustainable budget growth,” he added. Following the president’s remarks on Friday, February 7, the government revised its VAT reform plan, announcing the new differentiated rates on Monday, February 10. VAT Reform as Part of Kazakhstan’s Broader Tax Overhaul As The Times of Central Asia previously reported, the draft of Kazakhstan’s new Tax Code, which includes the VAT reform provisions, also proposes a differentiated corporate income tax (CIT) rate for banks. The aim is to encourage business lending by making it more financially attractive than consumer lending or investments in government securities.

Tax Amnesty

Kyrgyz Businesses React With Cautious Optimism To Tax Amnesty

The Kyrgyz government has announced a tax amnesty aimed at easing the financial burden on businesses and reducing the workload of the State Tax Service (STS). However, local entrepreneurs have received the initiative with cautious optimism. As part of the amnesty, President Sadyr Japarov has decreed the exemption of taxes on agricultural land, the cancellation of private vehicle taxes for citizens, and the write-off of all tax debts accrued before January 1, 2022. The initiative has been met with mostly positive reactions from Kyrgyzstan’s business community. Entrepreneurs noted that many small and medium-sized enterprises in the country are burdened with significant debts to the state. They believe this measure has the potential to improve the business climate - provided the government maintains a stable and predictable tax policy. “Such decisions were likely made to support entrepreneurs during a challenging economic period, stimulate economic activity, and improve the overall state of business in the country. It could also be part of a broader strategy to foster trust between the government and the business community,” the JIA Business Association, one of Kyrgyzstan’s largest business groups, told the Times of Central Asia. By writing off debts, the JIA representatives said, the government will significantly ease the financial strain on businesses across various sectors. This would allow many entrepreneurs to focus on recovery and growth, particularly after the economic setbacks caused by the COVID-19 pandemic. Despite these positives, the association expressed concerns over the fairness of the tax amnesty. “We hope that the amnesty will also include those businesses that were declared debtors by court decisions, but remain unable to pay their debts to this day. Additionally, there are social businesses - such as those in education and healthcare - that are registered as non-profit organizations but still face tax burdens. Including these entities in the amnesty would ensure greater fairness and also ease the workload of the tax service,” a JIA spokesperson explained. However, under the presidential decree, businesses or individuals with tax debts resulting from court rulings are not eligible for the amnesty. The Kyrgyz presidential administration estimates that the amnesty will result in the write-off of approximately 11 billion KGS (around $126 million) in tax debts for over 20,000 businesses. But while this decision is welcomed by many, it has drawn criticism from some quarters. Market representatives argue that the amnesty may be unpopular among diligent taxpayers who have consistently fulfilled their tax obligations and do not owe the state. Nonetheless, they acknowledged that the government’s decision demonstrates a willingness to be flexible. This includes addressing other concerns, such as issues surrounding the introduction of electronic commodity invoices, which have been controversial among entrepreneurs. “In the past three years, there has been significant progress in reforming tax administration. We anticipate further reforms, such as limiting the application of electronic goods invoices (ETNs) to specific types of goods or simplifying their use for small and medium-sized businesses. Efforts to improve digital tools for businesses, streamline tax administration, and increase public and business...

Economy

Kyrgyzstan Announces Tax Amnesty

The Kyrgyz government has introduced a tax amnesty as part of its efforts to ease the financial burden on citizens and stimulate economic activity. President Sadyr Japarov directed the government to draft the necessary legislation and submit it to the country's Parliament, the Jogorku Kenesh, for approval. One key measure is the abolition of the annual tax on movable property, previously ranging from $10 to $20 depending on vehicle engine capacity. Instead, this tax will now be incorporated into the price of gasoline, resulting in a one som (KGS) increase in fuel costs. “The Cabinet of Ministers of the Kyrgyz Republic is instructed to submit within two months a proposal to exempt vehicle owners from tax obligations unfulfilled as of January 1, 2025, provided there is no judicial act of recovery,” states the presidential decree. Tax Relief for Farmers and Entrepreneurs Farmers will benefit from a suspension of the agricultural land tax until 2030. Additionally, Japarov has prohibited tax authorities from conducting inspections of businesses except for unscheduled checks in cases where an organization or entrepreneur ceases operations. Citizens with tax debts as of January 1, 2022, will also be exempted from repaying those amounts. While the move has been welcomed by many Kyrgyz entrepreneurs, who see it as a step toward fostering business growth, it has also sparked mixed reactions. Some citizens who have already paid their taxes expressed frustration on social media, questioning the fairness of the amnesty. Changes to Tax Administration In a related development, Japarov instructed the Cabinet of Ministers to revise the system of electronic delivery notes used for monitoring business turnover and tax compliance. The updated system will retain electronic invoicing for a limited list of goods, with all other products exempt from such requirements. The recent reforms build on efforts initiated under Almambet Shykmamatov, the new head of the State Tax Service, to streamline Kyrgyzstan’s tax system and reduce administrative burdens on businesses.

Legislation

Amid Discontent Among Entrepreneurs, Kyrgyz Authorities Ease Tax Burden

Kyrgyz President Sadyr Japarov has instructed the new Prime Minister Adylbek Kasymaliev and the head of the State Tax Service (STS) to develop a new fiscal policy that will not overburden citizens or force entrepreneurs to conceal their income. Special attention is to be paid to electronic bills of lading (EBL). Following a corruption scandal in the STS, the new head of the tax service, Almambet Shykmamatov, proposed abolishing the EBLs introduced by the government in the summer of 2024. At a parliamentary session, Shykmamatov explained that the EBLs were implemented to combat the shadow turnover of goods. However, the new reporting system has sparked numerous complaints from entrepreneurs. Shykmamatov stated, "I will find those who implemented the EBL system improperly and without analysis and ensure they are held accountable. I will explain what populism is and why simply raising taxes and calling it economic growth is unacceptable." EBLs (electronic bills of lading) replaced the so-called voluntary patents that entrepreneurs and market traders used to purchase monthly as a form of tax payment. Later, during a government meeting, Kasymaliev, head of the Kyrgyz Cabinet of Ministers, confirmed that despite widespread public protests, the authorities do not intend to abolish EBLs entirely but assured that the Cabinet will work to simplify the system and will study the possibility of revising the list of goods to be included in the reporting of EBL. The Times of Central Asia surveyed entrepreneurs who have been most affected by EBLs. Venera Mugalimova, a seller of electrical building supplies at a Bishkek market, said, "The introduction of EBLs has severely complicated my life. This system is unfeasible for me and all vendors working on consignment sales. In such cases, we first receive the goods, sell them, and only then settle the payment. The system doesn’t recognize 'consignment goods.' The company providing the goods on consignment cannot issue me an invoice without payment.” According to sellers, individuals offering paid training on how to use the EBL system have started to appear in Kyrgyzstan's online space, and their services are in high demand. "It’s a massive headache, although it depends on your business type. In my case, we deal with many small items—about 5,000 different products. Manually entering the name, price, and exchange rate for each product is problematic and very time-consuming," Alena, a wholesale seller of fabrics and clothing at Dordoi Market, told The Times of Central Asia. Her company not only sells goods but also imports them from nearby countries. "With EBLs, I lose a lot of time. Either I focus on reporting or work. Combining both is very hard, and we’d need to hire at least three accountants for the number of outlets we have. That’s additional expenses," the businesswoman noted. Sergey Ponomarev, President of the Association of Markets, Trade Enterprises, and Service Industries, commented to The Times of Central Asia that moving away from the patent system was crucial in combating the shadow economy. However, the current situation with EBLs looks less than optimistic.