Legalisation Campaign Seeks to Add Revenue to National Budget, Reduce Shadow Economy

ASTANA – Kazakhstan launched property and capital legalisation campaigns in September 2014 that are scheduled to run until Dec. 31, 2015. The campaigns include the approval of a law “On amnesty of Kazakhstan citizens, oralmans (repatriated ethnic Kazakhs) and permanent residence holders in relation to legalisation of their property.”

Objects of legalisation include money, securities, participation interest in the charter capital of a legal entity, real estate registered in the name of another person (except for space objects and the linear part of main pipelines), the title of which or related transactions are to be registered according to legislation of Kazakhstan, buildings located within the territory of Kazakhstan that comply with construction rules and regulations, as well as the intended use of occupied land plots owned by the subject of legalisation and real estate located outside the territory of Kazakhstan.

The law was designed to help cut the shadow economy, attract funding and increase investments into the country. Property obtained through criminal practices, including offences against a person, breach of the constitution or human rights, undermining the foundations of constitutional law and national security, crimes against the government and corruption cannot be legitimised.

The concept of “legalisation” means the transition from illegal to legal status. Since the property was illegal, taxes for it were not paid.

“This measure will be the first step towards the introduction of incomes and expenses reporting for all citizens of Kazakhstan. It will help us fight the shadow economy and bring us closer to the economies of developed countries in terms of transparency. The shadow economy is a major enemy of sustainable economic development,” said Kazakh President Nursultan Nazarbayev.

“We have calculated and evaluated everything. The expected inflow of money and property is 2.2 trillion tenge (US$7.2 billion),” Minister of Finance Bakhyt Sultanov said.

According to Finance Ministry statistics, 63,039 applications for property legalisation have been filed totalling 614,543,200,000 million tenge (US$2 billion). In terms of submitted applications, the Almaty region and Almaty are leading the way, followed by the Aktobe region. The Mangistau region is in last place.

The government is providing an opportunity to legalise property before the introduction of an income and expenditure declaration. Legalisation of property is a procedure of recognition of rights to property derived from a legitimate economic turnover in order to conceal income and (or) not executed in accordance with the laws of Kazakhstan or prepared by an improper person. Thus, the main goal is integration into the economy of additional funds in the form of legalised capital.

Avoiding bureaucracy is one of the benefits of the legalisation process. For instance, many property owners expand their buildings or build new ones without government permission because of officialdom; however, they are not able to sell them or to pledge the property as collateral for a loan. Thus, this is a chance to legalise capital and real estate located within and outside the territory of Kazakhstan to prevent problems in terms of how to manage them.

Many citizens of Kazakhstan wonder whether the legalisation campaign will be prolonged because they understand the importance and timeliness of the process.

Moreover, expectations in terms of legalised capital have not been met, and the legalisation of foreign real estate in general has not happened: 17 applications have been filed on foreign assets, with only 14 of them regarding real estate because buying property abroad is not prohibited by Kazakh legislation. So the mere fact of the acquisition of foreign property may not be illegal. In addition, having bought real estate abroad, its owner is not required to pay taxes in Kazakhstan. Therefore, the requirement to pay 10 percent to the state budget of Kazakhstan is not lawful.

The period to bring real estate and capital out of the shadows will be extended for a year, until the Dec. 31, 2016. The upper house of Kazakhstan’s parliament (Senate) adopted the relevant bill on Oct. 22.

“In order to stimulate the legalisation process and provide confidence in the campaign, it is necessary to take additional measures and safeguards for the subjects of legalisation,” said Olga Perepechina, deputy of the Senate.

“The first amendment concerns guarantees for the subjects of legalisation. Here we included in the banking and tax legislation rules regarding the prohibition of the provision of information concerning the legalised property. The second change is eliminating the possibility of using information obtained during legalisation as evidence in criminal cases. And the third change is a tightening of standards and specifications of the current criminal law to better protect those who have made the legalisation. In addition, the ban on the confiscation of legalised property is introduced,” the minister of Finance said when presenting the bill.   

Kazakhstan held its first legalisation campaign in 2001. It resulted in a return of $480 million. The second legalisation held in 2006-2007 was more successful and brought in $6.8 billion. The United States has conducted 62 legalisation campaigns, India five and Italy conducts legalisation campaigns regularly.

The legalisation campaign is intended to raise short-term tax revenue, stimulate the repatriation of capital and transfer assets from the shadow economy as a means of expanding the tax base.
Some officials have expressed concern that transferring cash to the legal sphere will do little more than create instant millionaires and billionaires.

Despite this scepticism, the economic impact of the campaign is clear due to the integration into the country’s budget of additional funds in the form of legalised capital through avoiding additional bureaucracy.

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