Kazakhstan reports sharpest price surge since 2019 amid tax increases

In the first month of the year, Kazakhstan’s service sector reported a long-awaited revival in business activity, turning positive for the first time in four months. However, an increase in the value-added tax (VAT) triggered the sharpest price surge since March 2019.

Business revives, but prices rise

The Freedom Holding Corp. Purchasing Managers’ Index (PMI) for the service sector rose to 50.5 points in January from 49.5 in December, indicating a shift from stagnation to growth.

Demand for new orders has increased for 15 consecutive months, with companies introducing new products and updating their business models. After four months of layoffs, businesses have begun hiring again to cope with rising customer inflows.

Record Inflation

The VAT increase was the main driver of inflationary pressure and higher business costs last month.

Input prices rose at rates close to historical highs, comparable to levels last seen in July 2022. To avoid operating at a loss, businesses passed these costs on to consumers. As a result, the growth rate of wholesale service prices reached its highest level since the survey began.

«While risks of a delayed decline in purchasing power persist, market-reported decisions regarding the renewal of product lines and business models provide grounds to expect the sector to maintain relative resilience,» said Yerlan Abdikarimov, head of the Financial Analysis Department at Freedom Finance Global.

The bigger picture

Despite localized improvement in the service sector, the broader economy continues to struggle. The Composite PMI, which includes both services and manufacturing, remained in contraction territory at 49.7 points, reflecting continued weakness in overall economic activity.

Tax fears justified

Many concerns voiced by businesses at the end of last year have proven justified. At the time, entrepreneurs were preparing for a worst-case scenario, reporting low levels of business activity and confidence. The primary source of concern was the impending VAT increase.

Now that the tax reform has taken effect, optimism in the service sector remains subdued, only slightly above December’s low levels. Companies fear that sharp price increases will ultimately hurt consumers and weaken demand again.

According to the Bureau of National Statistics, annual inflation in Kazakhstan stood at 12.2% in January, compared with 12.3% in December. Monthly inflation, however, accelerated to 1% in January from 0.9% in December.

A new edition of the Tax Code came into force on Jan. 1, 2026, raising the base VAT rate to 16% from 12%. The government also lowered the mandatory VAT registration threshold to 10,000 monthly calculation indexes (about $81,000), bringing more small and medium-sized businesses into the VAT system.