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Too many tax benefits and preferences is a weak point of Kazakhstan's tax system - World Bank

Almaty, June 27

Interfax-Kazakhstan - The main problem of the Kazakh tax system today is numerous benefits, preferences and special tax regulations, according to experts from the World Bank (WB).

"In our opinion the numerous taxes, preferences and special tax regimes are the biggest problem of Kazakhstan today," John Litwak, WB public sector specialist, said in Almaty on Thursday when presenting the first volume of WB report on the Kazakh tax system.

"They disrupt the taxation base, hinder fair competition, make the taxation administration more complicated and the tax system exposed to corruption," he said.

"Such cases when the officials have the right to decide whom to give preferences and benefits and whom not to give, lead to lobbying, etc." Litwak thinks.

According to the authors of the report, Kazakhstan should cancel most of the benefits, preferences and special tax regulations and at the same time preserve the simplified tax regulations for small businesses.

"In some cases it may be difficult because the investors provided their monies when promised they would enjoy tax benefits. However, there are mechanisms which may allow a smooth transition. Besides, there is a one-time compensation to be paid to the company if it decides to switch to the regular taxation system," Litwak said.

The experts from the World Bank think that the other preferences for investments should be applied to all taxpayers.

Besides, WB recommends that the corporate income tax should be reduced at the expense of taxation base expansion, the individual income tax and the social tax should be combined with the flat rate, the period of loss carryover should be extended to 10 year and longer (today it is 3 years) in order to support new companies, and the rates of many excise duties, land and property taxes should be raised.

"Our experts believe that the corporate income tax rate in Kazakhstan is too high as compared to other countries, including those situated in the region, and suggest that it be reduced to 20-25% depending on how much the taxation base will be expanded," Litwak said.

The authors of the report are confident that Kazakhstan will benefit from the simplified taxation system and the shift in the tax burden from direct taxes to indirect taxes, he added.

The first volume of WB report deals with the taxation of the non-extractive industries. The second volume which deals with administration issues will be presented in July this year, Litwak said.

As reported, following the president's instruction Kazakhstan is developing a new tax code that is expected to come into force starting January 1, 2009.

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