Kazakhstan is considering exempting non-resident investors from tax on capital gains from the sale of quasi-public sector bonds in transactions conducted outside Kazakhstani stock exchanges. Foreign investors could potentially invest 1.4 trillion tenge (approximately $3 billion) in the debt of Kazakhstani companies.
During a meeting of the project office overseeing the implementation of the Tax Code, National Bank Deputy Governor Aliya Moldabekova put forward the proposal. Work is currently underway to expand foreign investors’ access to quasi-public sector bonds through the international depository infrastructure of Euroclear and Clearstream.
At the same time, there is a tax hurdle to developing this market. If non-residents sell bonds on the Kazakhstan Stock Exchange, capital gains are exempt from tax. However, if the same securities are subsequently sold outside the exchange, the same rules do not apply.
As a result, transactions between non-residents conducted through Euroclear and Clearstream do not pass through Kazakhstan’s trading and settlement infrastructure. Tax exemptions also do not apply to over-the-counter transactions between foreign investors and Kazakhstani market participants.
Tenge-denominated bonds issued by quasi-state-owned companies worth 17.6 trillion tenge (approximately $38.7 billion) are currently in circulation. If their share were to match the 8% share of foreign investors in the volume of government securities, they could invest an additional 1.4 trillion tenge in the debt of Kazakhstani companies.
The National Bank noted that differences in the tax treatment of exchange-traded and over-the-counter transactions create a barrier for foreign investors and limit the circulation of quasi-state-owned companies’ bonds through international infrastructure.
Overall, the members of the project office supported the proposal. The Ministry of National Economy and the Ministry of Finance will work out the necessary amendments to the tax legislation in detail.
