Jason Pugh jpugh@indiana.edu

Cory Winchell cwinchel@indiana.edu

Marina Yakolina myakol@indiana.edu

An Economic Overview

Budgetary Policies and Fiscal Developments

Inflation

Monetary Developments

Financial Intermediaries

The Shadow Economy in Kazakhstan

Income Tax for Legal and Physical Persons

Business Profits

interest up to the level of 150% of the rate set by the National Bank of Kazakhstan for Tenge-denominated loans and the World Bank for dollar-denominated loans;

doubtful debts;

research and development costs;

labor costs.

Tax losses incurred after 1 July 1995 are available for carryforward for up to five years, regardless of the type of business.

There are substantial fines and penalties for the late payment of tax and any under declaration of income, regardless of the reason.

International matters

The definition of a permanent establishment under the new tax code is very wide and includes, for example, the provision of consultancy services. Branches of foreign companies are, in addition to income tax, subject to a branch profits tax at the rate of 15% of net income.

The following withholding taxes apply to payments to non-residents:

dividends and interest 15%

royalties, provision of services 20%

Kazakh entities that do not withhold tax from payments to non-residents become liable themselves to account for the tax due.

Individual Income Tax

Employment income is taxed according to a progressive system, with a top rate of 40%, currently on income over approximately $200 per month. Benefits in kind are generally taxable.

Value Added Tax ( VAT)

VAT is applied at a rate of 20% on turnover arising from the sale of goods, works and services within the Republic of Kazakhstan, subject to a number of exemptions, including financial services and leases of land or buildings.

VAT is now also applied to the import of goods. The export of goods is zero rated.

VAT on the acquisition of most fixed assets may now be reclaimed.

Other Taxes

A special regime for the taxation of mineral resource users is prescribed in the code.

Owners and users of vehicles are subject to a tax on vehicles assessed by reference to the kilowatt power of the vehicle.

Those owning or having rights over property are subject to a tax on property assessed by reference to the value of the property at a rate of either 0.1% or 0.5%.

Social Protection

After the disintegration of the social protection system from the USSR, Kazakhstan has faced two related tasks:

1. Prevent further disintegration of the positive aspects of the existing system of social protection;

2. Lay the foundation for social protection in a free market economy.

Recently, Kazakhstan has made a legal and complex program base for social protection of disabled pensions.

1. Labor

2. Army

3. Social

There are nearly 3 million pensioners, and pensions account for nearly half of total cash benefit expenditures.

Intergovernmental Fiscal Relationships

Bibliography

Kazakhstan. IMF Economic Reviews 18, Washington, DC. April 1995.

Kazakhstan: Economic Update. American Embassy, Almaty. August 1, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. July 1, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. June 3, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. April 9, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. March 1, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. February 1, 1996.

Kazakhstan: Economic Update. American Embassy, Almaty. January 4, 1996.