Kazakhstan tax service increases pressure on retail investors 

Published (modified )
The government accuses those investors of not paying income tax

A new wave of tax notices to retail investors came in April. In these notices, the tax agency of Kazakhstan accuses investors of neglecting to pay a profit tax of 10% from banking transactions, including transactions with brokerage accounts.

Tax notices were sent even to those clients of Kazakhstani brokerage companies, who have declared income they generated through operations with securities and paid taxes. For example, the tax authorities are focused on money transfers from a brokerage account to a bank even if these transfers were conducted within Kazakhstan only. Alexander Dronin, deputy head of BCC Invest showed such a tax notice. The document says that a client underreported an income that has been found during analyses of transactions above $50.000 or its equivalents.

«When I heard about these notices, I thought that this is just a mistake. I sent my accountant to the tax agency to recall all those notices. However, they said that there is no mistake and they want to talk to all taxpayers who transferred more than $50.000,» said Doronin.

Currently, clients of brokerage companies have to persuade the tax authority that they haven’t made any mistake in income declaration and that tax notices are wrong. And they do that on their own.

According to Aydar Masatbayev, executive partner in legal firm Salyqtez and member of the Chamber of Tax Advisers, there are four different types of tax notices that have been sent to retail investors.

«The tax authorities’ claims are starting from the demand to register as an entrepreneur just because they made a transaction and finishing with the accusation of failing to declare taxes,» he said.

If someone receives such a notice he must visit the tax agency and give an explanation of an action mentioned in that notice.

«The tax authorities may act a bit provocative, which is why a retail investor shouldn’t explain anything apart from the action mentioned in a notice. There is no need to give any further explanation even if tax officials want them to hear,» advised Masatbayev.

Dmitry Sochin, a member of the governing board of the Qazaq Association of Minority Shareholders (QAMS) forecasts that all these problems with the tax administration are going to be a headache for not only retail investors but other individuals who may fit under the universal declaration of income.

«Many citizens of Kazakhstan may face similar problems because in theory any banking transfer within Kazakhstan may be scrutinized if no taxes were paid,» said the expert.

Another risk is associated with accounts Kazakhstanis have in foreign banks or brokerage companies. This risk might be realized as soon as the Ministry of Finance gets data about foreign bank accounts from Common Reporting Standard (CRS).

«CRS reports about assets as of the end of the year and the turnover per year. I can’t rule out that the government would start sending people tax notices when it gets CRS data. The tax authorities want people to pay turnover tax. This is wrong because the Tax Code of the Republic of Kazakhstan requires people to pay income tax,» Sochin explained.

These gaps in the tax administration might be eliminated with the help of digitalization. The main idea is the creation of a united IT system (approved by the tax authorities and the financial regulator) that may collect data from brokerage companies and calculate taxes in an automated way. This would be an effective tool for both taxpayers and the tax agency. Moreover, private tax advisers may be invited to moderate specific cases when transactions or assets are not standard.

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