New economy minister comments on VAT increase

New Minister of National Economy of Kazakhstan Nurlan Baibazarov, appointed to the position by President Kassym-Jomart Tokayev on February 6, revealed on the sidelines of the cabinet what is going to happen with the Value-Added Tax (VAT) within a massive tax reform.

The ministry has been preparing the new Tax Code for a while. The increase of the VAT from 12% to 16% is one of the key elements of the reform. At the initial stage, the ministry even wanted to raise the tax to 20% but later dropped the idea.

According to the Ministry of National Economy, the VAT increase will let the government boost its revenue and stop the practice of money transfers from the National Fund. The agency also cited the relatively low competitiveness of Kazakhstani products on the domestic market compared to foreign ones, primarily from Russia. The ministry said that Russian exporters benefit from a tax refund of the 20% VAT in Russia as they pay only 12% in Kazakhstan and can spend the difference on marketing.

However, this information wasn’t correct as the exporters are getting reimbursement not for “outgoing” but “incoming” VAT like Kazakhstani producers do. Russian companies pay the same VAT as their Kazakhstani competitors when exporting goods to Kazakhstan. As a result, the ministry dropped this argument, although many experts continue to criticize the idea of the VAT increase due to its imminent effect on the end price of goods and services. 

«The president has ordered us to revise our approaches to the new Tax Code, including VAT. To deliver this order, we are going to revise the document in conjunction with the business community and experts,» Baibazarov said.

The minister also noted that a new approach to the VAT will be announced after «complex work concerning the entire system of taxation.» This is expected to happen within two to three months.

During a meeting with the cabinet members, President Tokayev said that the VAT increase won’t be a panacea and the value-added tax itself must be revised as it has «transformed into a new substance in Kazakhstan.»