Retail Investors in Kazakhstan to Pay Taxes

However, the state agencies aren’t sure how they have to count investors’ losses

Ministry of National Economy, which is responsible for tax policy in the country, says that they won’t decrease personal income tax for retail investors. They should pay the price on their own, not the government. On the other hand, the Committee of Internal Revenue agrees that trading losses must be taken into account but only if brokers become revenue agents.

Unfavorable Tax 

About six weeks ago, thousands of Kazakhstanis who have traded on the domestic and foreign stock markets started to receive written notifications from the tax authorities. All the people with accounts in foreign banks or property abroad were asked to fill out a certain tax form. Now the revenues they are getting from stock markets abroad are subject to taxation in Kazakhstan.

Currently, the Kazakhstani tax authorities are trying to force retail investors to reveal their foreign assets and pay personal income tax. The government didn’t do this before, because the tax authorities never had a technical opportunity to do so. However, at the beginning of 2021 when they had received the right to require brokers to show all the proper information, the game’s rules changed.

According to the Committee on Internal Revenues, new data from brokers has allowed conducting in-house audits. As a result, 609 individuals recognized and fulfilled their tax liabilities. So far they have paid $385,045 of tax in total.

The vast majority of retail investors in Kazakhstan aren’t used to declaring personal income even though it is required by law. The reason is unfair taxation as some experts noted. Thus, Kazakhstani legislation requires retail investors to pay income tax even if there were losses; the authorities just refuse to take them into account.

“If you have an income, you should pay tax. No one worries about your losses or costs of operations such as fees for transactions or transfers,” said Erlan Burabayev, the executive director of the Association of Financiers of Kazakhstan (AFK) in an interview with the Kursiv edition.

Currently, retail investors are shunned from declaring their incomes; they don’t want to pay tax for personal income because their losses might be bigger than returns. Experts from EY and AFK suggested some amendments to the Tax Code. 

According to Vladimir Fesenko, EY partner and an author of the amendments, the Committee of Internal Revenues doesn’t mind taking into account both income and losses but refused to transfer losses for 10 years. The authorities want brokers to be revenue agents and help with defining a personal income tax rate from investments. This approach is good but first, the changes to tax rules are needed, experts said. 

“We cannot use this approach right now because in this case, people would prefer to not work with Kazakhstani brokers,” he highlighted.

“Not Approved”

The revenue committee refused to comment but noted that paying taxes is a constitutional duty of each citizen.

“Individuals who gain investment returns in Kazakhstan or abroad have to declare personal income regardless of accounting nuances,” the agency said. In its response to the Kursiv edition, the Committee on Internal Revenues mentioned the position of the Ministry of National Economy, which is responsible for tax policy in the country. In its turn, the ministry has stated that it doesn’t support the EY suggestion to count and transfer losses.

“Loss is something higher than income while investment income is a passive type of income. Individuals do not keep count of returns or losses and that’s why these losses can’t be taken into consideration,” the ministry said. 

At the beginning of 2021, the Central Depository holds 132,861 individual accounts, or 15,100 accounts more than in 2020.

“It means that even during the pandemic and global crisis with the current tax rules there is still a strong demand,” the ministry underlined. 

Officials insist that the trading activity on a stock market requires a certain level of expertise, and investors are aware of that.

“In other words, any decrease of the tax due to losses would mean that investors try to shift the burden of their mistakes on the state. This is wrong,” said the ministry.

Officials also make it clear that brokers might take advantage of it and therefore actively promote this idea.

“This is kind of advertising when brokers can tout themselves and say – look, you can trade and do not pay taxes, come to us! They don’t care if you win or lose, they gain fees all the time. Therefore, we stand against this initiative,” the Ministry of National Economy said.

Market Shows Interest

However, the position of independent experts and brokers is different. Jusan Invest representative told Kursiv that the company is okay with the idea of combining returns and losses of individuals or any other changes in the tax legislation. Other big industry players Freedom Finance and BCC Invest stand for similar positions. 

According to experts from Deloitte, Kazakhstani fiscal law in this area is not as developed as in other countries. For example, many jurisdictions allow individuals to make deductions of expenses, which may emerge in the course of investment activities. In Kazakhstan, people can’t do that. The only exception is transactions with the property.

Another soft place of Kazakhstani tax legislation is a requirement to prove income or losses with documents, according to Deloitte. These days, people often use a bunch of online services and sometimes just can’t show hardcopy documents required by the local laws.

“The result of these rules is a massive administrative burden for individuals – in this case for those who trade with stocks abroad where their investment portfolios might include more than 100 companies,” Deloitte said.

Given the shortcomings of the Kazakhstani Tax Code, which doesn’t provide any information about deduction of expenses while investing in contrast to many other countries, the requirement to declare investment income may negatively affect the retail investors’ appetite for investment activities in the country, the company noted.

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