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Kazakhstan’s financial market regulator rejects tax reform proposals for retail investors

Kazakhstan’s financial market regulator has turned down a proposal from the QAMS Association to provide tax exemptions for large investors / Photo: Shutterstock, photo editor: Arthur Aleskerov

Kazakhstan’s Agency for Regulation and Development of the Financial Market (ARDFM) has rejected several proposals from the Qazaq Association of Minority Shareholders (QAMS) to support retail investors in the stock market and capping taxable income.

In early November, QAMS submitted recommendations to the parliament and relevant agencies, advocating for improved tax measures for individual investors. Key proposals included:

  • Offsetting losses from transactions involving securities in foreign markets;
  • Carrying over losses for three calendar years, retroactive to March 2020;
  • Deducting investment-related expenses (such as brokerage fees) from the taxable base;
  • Introducing a tax-free income ceiling of 100,000 monthly calculated indices (MCI) annually (equivalent to KZT 367.2 million or approximately $740,000 at the current exchange rate, USD1 = KZT494.87), applicable to dividends and securities appreciation.

The ARDFM dismissed these proposals, describing some as «premature.» According to the agency, currently, no mechanisms exist to verify data or regulate pricing in unorganized markets.

«This proposal poses a risk that investors could exploit loss offsets by underreporting actual profits through securities sales in unorganized markets,» the ARDFM stated. However, QAMS had clarified that its recommendations were focused on foreign markets, not over-the-counter markets.

The agency also noted that the draft of Kazakhstan’s new Tax Code includes a proposal to allow retail investors to deduct associated investment expenses from their taxable base. Regarding the suggestion to carry over losses for three years, the ARDFM recommended that QAMS submit an inquiry to the Ministry of National Economy.

Additionally, the ARDFM rejected the proposed tax break for investors with annual income from dividends and securities appreciation below 100,000 MCI.

The agency argued that the measure would contradict Resolution No. 911, which aims to boost stock market liquidity, and could enable large investors to bypass key provisions of Articles 341(1)(7) and 654(3) of the Tax Code.

The adoption of the new Tax Code was postponed until next year. This was announced by President Kassym-Jomart Tokayev in his recent state-of-the-nation address, emphasizing that the draft law should be prepared «at a high-quality level.»

What taxes do investors pay now?

As per the current Tax Code, residents must pay a 10% tax on income from exchange transactions, including dividends and securities appreciation, while non-residents are taxed at 15%. However, the code offers several benefits for residents and foreign investors, including special tax preferences explicitly outlined for participants trading on the Kazakhstan Stock Exchange (KASE).

Income from securities appreciation is taxable only if transactions by Kazakhstani legal entities or non-residents occur outside of open trading. Coupon payments on corporate bonds are tax-exempt, except when the bonds are not included on KASE’s official list. No such restrictions apply to government debt traded on the exchange.

The rules for taxing dividends are slightly different for resident individuals and other categories. The latter are exempt from taxes if the issuer’s shares are actively traded (at least 50 transactions per month with a total volume of KZT25 million or $50,000). Kazakhstani retail investors have an additional benefit: taxes are not levied if the dividend amount does not exceed 30,000 MCI (KZT110 million in 2024).

The Astana International Exchange (AIX) had a full tax exemption until 2022. This benefit was meant to extend until 2066 and stipulated in the constitutional law adopted in December 2015, without any restrictions. However, two years ago, the cabinet revised the rules, obliging AIX participants to comply with the same trading activity requirements as on KASE, although there are still no requirements for the size of dividends. Thus, income from transactions on Kazakhstani exchanges remains effectively tax-exempt.