ASTANA – Mazhilis, a lower chamber of the Kazakh Parliament, approved the draft Tax Code in the first reading on April 9. The government frames the tax reform as a move to make the system clearer, more predictable and fairer, but so far it has left many with a question: fairer for whom?
Photo credit: Shutterstock
The bill, which has been in the making since September, is designed to replace the Tax Code adopted in 2017.
Key highlights
A value-added tax (VAT) is proposed at 16%, a move that sparked heated public discussions over concerns that it may strain local businesses. The rate was initially higher, but after President Kassym-Jomart Tokayev’s criticism, it was lowered.
Businesses will be required to register for VAT once they earn 40 million tenge (US$76,456) per year, lower than the previously suggested 75 million tenge (US$143,356).
Socially significant food products, book publishing, and archaeological activities will be exempt from VAT.
“Fourth, in the social sphere and in healthcare, the government will define a social list of medicines exempt from VAT. Only paid medical services will be subject to VAT. The VAT rate will be 10%,” said Deputy Prime Minister and Minister of National Economy Serik Zhumangarin, addressing the deputies.
Serik Zhumangarin addresses the Mazhilis deputies on April 9. Photo credit: primeminister.kz
While the standard corporate income tax rate will remain at 20%, higher rates will apply to specific industries, particularly the banking and gambling sectors, which will now be taxed at 25%. The manufacturing sector will be taxed at the full corporate income tax rate of 20%.
Starting in 2026, a reduced corporate income tax of 5% will apply to organizations working in the social sector. These include institutions like hospitals, kindergartens and schools, among other socially-oriented entities. The rate will increase to 10% in 2027.
Agricultural producers will continue to benefit from a 3% corporate income tax rate.
Banking operations will also now be subject to VAT.
“To ensure that they do not increase in price, the Agency for Protection of Competition, together with the government, will analyze the reasonableness of the current rates,” Zhumangarin added.
One of the fundamental suggestions is the introduction of a progressive personal income tax system. Under the proposal, a higher tax rate of 15% would apply to individuals earning more than 8,500 monthly calculation indices annually, which is roughly equivalent to around 33.4 million tenge (US$63,841).
In his remarks, the Kazakh official said the tax reform targets “unscrupulous taxpayers who hide their income, as well as strengthening the fairness of taxation.”
“The rich should pay more,” Zhumangarin said.
Streamlined tax incentives
Zhumangarin also said the government is optimizing tax incentives. Based on tax filings, there are currently 453 tax benefits in effect, worth 3.4 trillion tenge (US$6.5 billion). The reform plans to eliminate 128 of them, worth an estimated 1.3 trillion tenge (US$2.5 billion).
Zhumangarin said the government wants to create a clearer tax incentives system.
Separate tax incentives are proposed for investors, including those in geological exploration.
The government suggested 100% tax deductions on expenses related to construction, equipment and software purchases, as well as their reconstruction and modernization. These deductions will be allowed both within existing contracts and outside of them.
“It is planned to allow the use of deductions for exploration expenses within or outside existing contracts. It is also proposed to introduce a zero mineral extraction tax for up to five years for the development of new low-margin parts of fields,” Zhumangarin said.
“Tax preferences for the processing of solid minerals are introduced. An alternative subsoil use tax is proposed for mature oil fields,” he added, stressing that any savings gained from these tax incentives cannot be distributed as dividends. Instead, companies will be required to invest these funds in production and regional development, including improving infrastructure, training the local workforce, and supporting scientific research.
Special tax regimes
The number of special tax regimes will be cut from seven to three. It includes a new preferential regime for the self-employed, a special tax regime based on a simplified declaration, and a special tax regime tailored for peasant and farming households.
Small and medium businesses will be able to use a simplified tax regime. As of April, there are nearly 2.3 million small and medium businesses in Kazakhstan, and they contribute close to 39% to the country’s GDP.
The income limit for the regime will be 600,000 monthly calculation indices per year, which equals approximately 2.4 billion tenge (US$4.6 million). Businesses will have no limits on the number of employees they can have. However, this special tax regime will only apply to businesses that sell directly to consumers (B2C).
Business-to-business (B2B) deals can only happen between companies that are both using the special regime.
How can it impact businesses?
While the government frames it as a simplification of the tax regime, some experts warn of unintended consequences. For some businesses, it means losing access to tax deductions and being forced to a general tax regime, a move that will strain the tax burden.
Dmitry Kazantsev has spent more than 20 years working in tax. Photo credit: Kazantsev’s personal archive
“The B2B segment will be hit first. (…) Because such companies won’t be able to deduct purchases made from entrepreneurs operating under a special tax regime. So what happens? Let’s say I’m on the general regime — I have two options: if I buy here, I cannot deduct VAT; if I buy there, I can. Obviously, that affects my taxes, so I’ll choose to work with a business that’s also on the general regime,” Dmitry Kazantsev, an independent tax and finance expert, told The Astana Times.
“And what does that mean? Small businesses that work with companies on the general regime will be forced to switch to a general tax regime. On top of that, the VAT threshold is now set at 40 million tenge [US$76,456], and given today’s prices in Kazakhstan, that’s not a very high bar. Many will surpass it, and therefore, they’ll have to register for VAT too,” he said.
Even small businesses, which the government promises will not be affected by a VAT hike to 16%, will eventually feel the impact.
“They say corner shops won’t feel the impact because they will continue operating without VAT. But what we need to understand — and what our deputy minister isn’t saying — is that these stores buy their goods from suppliers who do pay VAT. So, prices will go up either way,” said Kazantsev.
The expert does not expect “things to get any easier anytime soon.”
“As for simplification, nothing specific has been said so far. They’re saying things won’t get harder for those switching to the general regime, which, by their estimates, is around 300,000 people, and that everything will supposedly be automated through software and so on. But right now, I don’t see such decisions in place. So I don’t think things will get any easier anytime soon,” he said.
Public reaction
Kazantsev, who regularly works with businesses, describes the reaction from the public and business circles as negative. He points to several factors, and one of them is uncertainty.
“People still don’t fully understand what’s going to happen. Since last August, one set of legislative rules has been under development. Then suddenly, in February, without consulting anyone or involving working groups, the government comes out and says, ‘we’ve decided to do it this way now.’ First, the threshold [for VAT] was 15 million [US$28,671], then it became 40 million [US$76,456],” he said.
Kazantsev said businesses are turning cautious and deciding to respond preemptively.
“Some are already raising their prices even before the reform officially takes effect,” he said.
How reform can impact foreign investors
When asked about how these tax reforms may impact foreign investors in Kazakhstan, Kazantsev didn’t sound optimistic. He expects Kazakhstan to become “more expensive in terms of taxes” compared to neighbors, including the Kyrgyz Republic, Russia and Uzbekistan.
“Second, what will make people hesitant to invest is the lack of certainty. One year before, we are told that VAT rates won’t change, and the next year, the government reverses course,” he said.
A more balanced tax burden
Dana Tokmurzina, CEO at Fortune Partners, a Kazakhstan-based consulting company, has a different perspective.
Dana Tokmurzina is also an associate professor at the Academy of Justice under the Supreme Court. Photo credit: fortunepartners.kz
Speaking to The Astana Times, Tokmurzina said the goal of the tax reform is to create a “more balanced tax burden.”
“For many years, Kazakhstan has been deliberately working to offer favorable conditions: tax rates were lowered, VAT was reduced, and 128 different tax incentives and numerous investment preferences were introduced,” she said.
According to her, if the country continued this scenario, the National Fund, which has been accumulating the country’s windfall hydrocarbon revenues, would soon be depleted, and the state budget would no longer be able to support the country’s needs.
Such conditions, however, may ultimately leave the state budget unable to support the country’s needs.
“That’s why certain measures were proposed, particularly regarding VAT, which plays a key role in forming the national budget. Tax rates [corporate income tax] were also raised for specific industries, such as banking and gambling. This is not about changing the investment climate, but rather about creating a fairer and more sustainable tax system,” Tokmurzina said.
Strong tax administration
Tokmurzina called for a more effective tax administration. “It means the tax authorities need better tools to carry out timely and objective tax oversight. This can be achieved through various means. Conducting tax audits where appropriate, implementing strong personnel policies, hiring skilled inspectors, and retaining qualified staff through competitive salaries,” she explained.
She stressed qualified workforce is instrumental in ensuring effective and accurate tax collection.
“One positive development for businesses is the adoption of a new rule simplifying cameral audits. This means taxpayers will have more opportunities for self-correction and fewer disputes with tax authorities. The process for obtaining a deferral or installment plan for tax debt has also been simplified,” she said.
While the bill awaits its second reading in the Mazhilis, the business community is hoping the government and the deputies will take their concerns into account.
