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In Washington: Michael Jones (202) 473-2588
New World Bank report ‘AStrategic Plan for Increasing the Neutrality of the Tax System in Non-Extractive Sectors’
ALMATY, June 26, 2008– Kazakhstan can become more competitive and achieve more diversified growth through improvement of its tax system, according to a new World Bank report. Today the World Bank has released Volume 1 of a study of the Kazakhstan tax system. This volume is devoted to issues in the taxation of the non-extractive sectors of the economy. Volume 2 is devoted to tax administration, and will be released in July.
Through the release of this study, the World Bank hopes to contribute to the dialog surrounding the drafting of a new Tax Code in Kazakhstan. The main planned directions of the new Tax Code were presented at a Round Table held in Astana last week, which marked the beginning of a discussion between government, business, and civil society.
“We believe that making the Tax Code more streamlined and investor-friendly represents a vital step towards making the country more competitive globally and supporting its goal of economic diversification,” - remarked Annette Dixon, the World Bank Country Director for Central Asia. “This study offers ways to achieve Kazakhstan 's formidable goals”
While noting that the current tax system in Kazakhstan has a number of positive attributes, as reflected in several high ratings from the World Bank Doing Business indicators, the World Bank tax study nevertheless identifies a number of areas where there is strong room for improvement. The biggest problem, according to the study, concerns the proliferation of preferences, exemptions, and special regimes that has eroded the tax base, obstructed fair competition, complicated administration, and facilitated corruption. Furthermore, the World Bank believes that Kazakhstan stands to profit from harmonizing and simplifying its tax structure, while shifting some of the tax burden from direct to indirect taxes. Some of the recommendations from “A Strategic Plan for increasing the neutrality of the Tax System in Non-Extractive Sectors” include:
The elimination of most preferences, exemptions, and special regimes for the corporate income tax (although maintaining a single simplified regime for small business) and the VAT.
A corresponding increase in the corporate income tax base will make possible a substantial reduction in the corporate income tax to 20-25 %.
Converting remaining investment preferences to a general tax credit for everyone
A simplification of labor taxes that combines the personal income tax and social tax as a single flat tax
Excise, property, and land taxes should be increased in general to maintain progressivity in the tax system and charge for externalities (smoking, pollution, etc.)
The extension of the period for carry-loss forward to at least 10 years to help new companies and companies in highly volatile sectors.
All of these recommendations are generally consistent with the recently announced plans of the government, and the World Bank hopes that the publication of the Tax Study will promote a deeper understanding in Kazakhstan about the motivations for these changes. A tax system that is fair, uniform, and balanced, with a low average tax burden by international standards, can provide a major additional stimulus to private sector development in the country. As resources continue to accumulate in the National Fund, and the Kazakhstan government budget becomes less dependent on oil prices, additional opportunities should emerge for reducing the tax burden in the non-extractive sectors of the economy.
