Olzhas Khudaibergenov, CSI Senior partner,
on decrease in VAT threshold in Kazakhstan
November 2, 2016
Olzhas Khudaibergenov, CSI Senior partner, has commented on decrease in VAT threshold in Kazakhstan as follows:

"The other day, the social media have been discussing the initiative on reduction of VAT threshold. However, the process history and the general picture is still hard to understand for common citizens. We will try to answer these questions:

1. ThesequenceofeventsregardingVATisfollowing. The VAT threshold now is 30 000 MCI, or just over 63 million tenge. If a company has more income, it must pay VAT. Since January 1, 2017, the threshold should have been reduced to 3234 MCI (6.9 million tenge), it was approved last year in the fall, while the project itself was prepared during the spring and summer. In 2015, that sharp decline was relatively calm, without noise. However, since September last year, many events have happened, the economy suffered from crisis, people and businesses felt worse. Different structures have tried to convey to the government that if the accepted value remained, it would lead to problems. As a result, the Ministry of National Economy has decided to postpone the reduction in the VAT threshold and to make the reduction less itself. In 2017, the threshold will remain as today; in 2018, it will drop to 25 thousand MCI; in 2019, it will be 20 thousand MCI, while in 2020 it will be 15 thousand MCI. Some people understood this news as the initiation of the threshold reduction only from this moment; however, the Ministry of National Economy accepted to improve the rule of law, which was supposed to come into effect from January 1, 2017.

2. Regarding the influence of VAT threshold reduction, it is ambiguous:

- as for the whole economy, it does not provide for increase in the tax burden on the economy as a whole;
- but if it is broken down into components, the increase in the tax burden on small businesses with turnover less than 63 million tenge per annum (or about 5 million per month) is expected;
- as for the large and medium-sized businesses, as well as the small business with a turnover exceeding 63 million tenge per annum, lowering the threshold does not increase the tax burden, it is even possible that they will reduce their load when buying products from small businesses, which gradually begin to pay VAT. In view of the scoring part by VAT (when a small business buys products, and pays the price including VAT), the VAT burden on small business will grow by less than 12%.

3. There is another problem: those who have operated on the simplified tax system, will gradually get registered for VAT, which cancels the convenience of simplified taxation system.They should hire an accountant and incur additional costs. Given that 80-90% of small businesses are concentrated in the retail sector (trade in goods and services, catering), perhaps, for this sector, it makes sense to introduce a simple tax regime (instead of a patent, simplified taxation, VAT-added simplified taxation, standard mode): there must be only one tax of 3% of all sales, and no other taxes (VAT and CIT). In fact, it is the distribution of simplified taxation system over the whole retail sector that will allow the business to be published in full. We can also allow banks to offer services of a tax agent for those retail sector enterprises, which have non-cash turnover, to pay regularly the tax from the amounts received on account. The entrepreneur will pay tax only from cash income himself. The Ministry of National Economy is now working on simplification of the tax regime for the retail sector, I hope they will have time to develop and to implement the optimal format by the year of 2018.

4. In addition, the overall situation is very complicated in the country, which affects the budget income.Most likely, the amount of annual cash inflow from the National Fund will be reduced, which will complicate the situation with the budget deficit. In this situation, the government is facing a dilemma - either to reduce the costs, which will lead to economic recession (state spendings must grow in the crisis conditions), or to increase in tax revenues. They can be increased either by increasing the tax burden or by bringing the part of the black economy into the light. And as the share of the black economy is about 40%, it would be better for the state to establish the mechanisms to drive business out of the shadows and to refill budget by this move. In other words, there is space for making decisions to benefit the both sides. Hopefully, the public administration system will take this way!"

May 30, 2018
August 8, 2018