ASTANA – Kazakhstan is open and keen for tax reform, said Wayne Barford, senior advisor to the International Tax and Investment Centre (ITIC), who visited in early February to conduct a workshop with members of the State Revenue Committee on implementing risk assessment systems in the tax office and meet with other officials, including addressing Kazakhstan’s Supreme Court Round Table, to provide guidance on tax reform.
“There’s a clear message that Kazakhstan is open and keen for reform – that’s what I’ve experienced this week,” said Barford, who is the former assistant commissioner to the Australian Tax Office, in a Feb. 6 interview with The Astana Times. “You can feel it. They’ve still got to find their way, but you can feel it.”
The reforms include implementing a risk management system – a process which began in 2011 – to help weed out taxpayers that may be at high risk of noncompliance, the subject of the workshop on Feb. 4, which brought together members of the recently created Risk Management and Analysis Department of the State Revenue Committee and representatives of the business community.
Barford took workshop participants through Australia’s highly developed risk management strategy and identified key recommendations, including the need to establish active partnerships with the large clients that provide much of Kazakhstan’s revenue and investment base. They also discussed using a model to consider intent when differentiating between civil and criminal tax violations and the importance of e-auditing – which will require good governance in data collection, security and storage.
Kazakhstan’s tax office should form partnerships with their largest clients, Barford said, “to get away from old world of tax office versus taxpayer. There’s a wall there. But partnerships work. Partners help each other,” Barford said. After setting ground rules, “the idea is that the tax office would undertake to do certain things and the large client would undertake to be very open and frank and transparent with their processes and bring any issues, early, for early resolution into the tax office. The tax office would undertake to not delay those early resolutions and work more closely with the company.”
The result, he said, is that companies get fewer audits and tax offices get more money, more regularly, and have fewer disputes at less cost.
Before the workshop, Barford and Mukhit Akhanov, president of ITIC Kazakhstan, met with Chairman of the State Revenue Committee of the Ministry of Finance Daulet Yergozhin and the heads of the customs, tax service and investigation service of that committee and discussed differentiating between mistakes and intentional violations in tax noncompliance and not measuring criminal intent by the monetary value of the noncompliance. They also raised the issue of evaluating tax service efficiency by how closely it matches forecast collection figures, as the real economic situation can change and adherence to old goals can foster corruption. Compatibility and security issues in e-auditing were also discussed.
On the morning of Feb. 6, Barford gave a presentation at the Supreme Court Round Table, “A fair judicial system and stable legislation are the basis for an attractive investment climate,” about adopting non-court-based tax dispute resolution processes.
There is a concern that many cases that go into the judicial system could be dealt with before they get there and clog the system, Barford said. “I was suggesting that they look at adopting further dispute resolution processes earlier.” These might include an informal court tribunal process. “From the Australian experience with the dispute resolution process, we find the majority of cases that look like they’re going to court don’t end up going to court. There’s some sort of reasonable outcome at the end of the day on those.”
Barford also suggested setting up a specialised investors court or arbitration court to help reach quick, fair resolutions to tax disputes. “This would substantially improve the investment attractiveness of Kazakhstan and provide necessary confidence to the international companies that are considering investing in Kazakhstan,” benefiting the country and the people, he said. Reaching timely resolutions to issues seems to be one hindrance to investment in Kazakhstan, Barford noted, and solving that problem would give the business climate a boost.
In the end, reforming the tax system is as much about changing cultures as it is changing laws, the two experts said. At the morning’s meeting at the Mazhilis, Akhanov said, a participant noted that the reforms aimed to change the mentality of the tax officers from trying to take money from taxpayers but instead seeing themselves as helping taxpayers not make mistakes, helping them fulfil their obligation to pay taxes.
A lot of work remains, Akhanov said. “There is an understanding of which way to go, there is an understanding of the need or importance of [reform], but at the end of the day, we come across these cultural problems.” A partnership might be struck between a taxpayers and the tax office, he said: “And we had a question … ‘Wouldn’t it happen that when the taxpayer comes, the tax inspector would say, ‘Did I say that? Did I promise that?’”
That culture must change before much reform can develop further, he said. Barford added that the guidance on changing cultures wouldn’t end with this week’s presentations. “We’ve also undertaken to follow up with some documentation and some help, some guidance. We’re not coming in and saying, ‘this is what we think you should do’ and walking away.”
“Kazakhstan’s keen on reform, it’s about just finding their way through … ” said Barford. “Now it’s for them to actually catch up with some of the more developed countries in the world. … [Kazakhstan] is only a very young country and it’s still got a lot to do, and it’s got a lot to offer.”