Implications of Kazakhstan's Tax Reforms for Business Operations and Investment
Ready, Set, Tax Reform in Kazakhstan
Let's dive into the buzzing tax reform happening in Kazakhstan's capital, Astana, where the lower chamber, Mazhilis, gave the green light to a new Tax Code in the first reading on April 9. Here's the gist of what's cooking:
The gist: Say goodbye to your old Tax Code from 2017. This new one aims to bring simplicity, predictability, and fairness. But, as numerous discussions have shown, fairness is subjective. So, who's gonna be benefitting from this reform? (spoiler alert: not necessarily you)
Key takeaways:
- VAT – Raise the stakes
A hefty value-added tax (VAT) rate of 16% is proposed. This move has stirred quite a stir among locals. Critics fear it could put pressure on local businesses, especially considering that the initial rate was higher - until President Kassym-Jomart Tokayev's critique led to a reduction.
Businesses will start VAT registration once they reach 40 million tenge ($76,456) yearly earnings, a stricter criterion compared to the suggested 75 million tenge.
Some exciting exemptions include socially important food stuff, book publishing, and archaeological activities.
- Healthcare and social list
In the social sphere and healthcare, the government plans to determine a list of medicines exempt from VAT. Paid medical services, however, will be subject to VAT, with a modest tax rate of 10%.
- Sectorial tax rates
Good news for the manufacturing sector: it will stick with the regular corporate tax rate of 20%. On the contrary, the banking and gambling sectors will face a bumpy ride with a corporate tax rate of 25%.
- Discounts for the 'right' businesses
Starting in 2026, organizations operating in the social sector (e.g., hospitals, kindergartens, schools) will enjoy a reduced corporate tax rate of 5%. This rate will creep up to 10% in 2027. Agricultural producers remain content with a 3% tax rate.
- VAT for banking operations
Gearing up for some changes in the bank sector, as banking operations will now be VAT-able. The Agency for Protection of Competition, alongside the government, is expected to look into potential price hikes.
- Progressive personal tax
A progressive personal income tax system is on the horizon. Folks earning over 8,500 monthly calculation indices annually – roughly $63,841 – will have to pay a higher tax rate of 15%.
A clearer tax incentives system
Deputy Prime Minister and Minister of National Economy, Serik Zhumangarin, stated that the government is trimming down tax benefits, aiming to create a clearer tax incentives system. The reform proposes eliminating 128 out of 453 tax benefits currently in effect, roughly $2.5 billion in value.
- Investment treasure chest
Separate tax incentives are proposed for investors, including those in geological exploration, with deductions for related construction, equipment, and software purchases. The government also suggests a reduced mineral extraction tax for new oil fields.
Special tax regimes
The number of special tax regimes is set to shrink from seven to three. This includes a new regime for self-employed individuals, a special tax regime based on a simplified declaration, and a regime tailored for peasant and farming households.
This new system allows small and medium businesses to use a simplified tax regime, provided their yearly income is below 600,000 monthly calculation indices, equivalent to approximately $4.6 million.
The big question: What's in it for businesses?
Tax authorities are promising simplification, but, according to experts, there could be some unintended consequences. For instance, some businesses might find themselves losing access to tax deductions and being forced onto a general tax regime, possibly straining the tax burden.
Dmitry Kazantsev, an independent tax and finance expert, shared concerns about the VAT threshold, stating that many would reach it, leading to VAT registration for countless businesses. In turn, prices could inch up for everyday consumers.
Bottom line
Expect foreign investors to take a bitter pill, as Kazakhstan is expected to become more costly compared to neighboring countries regarding taxes. Additionally, the reform faces criticism for being rushed, causing uncertainty among stakeholders, and leading to potential price hikes, potentially dampening the business climate.
- The new Tax Code in Kazakhstan's capital, Astana, aims to introduce a progressive personal income tax system, where individuals earning over 8,500 monthly calculation indices annually will pay a higher tax rate of 15%.
- In an attempt to create a clearer tax incentives system, the government is planning to eliminate 128 out of 453 tax benefits currently in effect, totaling roughly $2.5 billion in value.
- For foreign investors, Kazakhstan may become more costly as the new Tax Code is expected to lead to higher taxes compared to neighboring countries.
- The reform proposes special tax incentives for investors, such as those in geological exploration, offering deductions for related construction, equipment, and software purchases.
