Economic experts from the World Bank suggest a rise in the Value-Added Tax (VAT) rate.
Fiscal Troubles Ahead for Kazakhstan: Time for Tax Reforms
The Country's budget policy is expanding, facing challenges of rising oil prices, demand, and a growing budget deficit, according to various reports. Here's the lowdown on potential reforms to tackle these issues, based on a fusion of recent data and analyst insights.
Kazakhstan's national debt remains under control, but experts warn about the increasing dependence on domestic borrowing and withdrawals from the National Fund for fiscal support. Following this, the World Bank has emphasized the importance of fiscal discipline and diversifying revenue sources.
According to analyst predictions, the budget deficit could escalate to 3.1% of GDP in 2025 from the current 1.6% in 2023 and then decrease to 2.7% in 2026. To counter this, tax reforms are required to enhance revenue collection.
Experts argue that personal income tax revenues are among the lowest globally, having dropped steadily in the last decade. To fill this gap and ensure fairness, analysts propose a reformed progressive income tax system, eliminating ineffective tax exemptions, reforming VAT, aligning excises with environmental goals, and improving tax administration.
Comparing Kazakhstan to European Union-28 countries, the latter has an average implicit tax rate on labor of 36.3%, while it is just 24.5% in Kazakhstan. Thus, extending taxes to net wealth and inheritance, and adjusting tax-exempt categories, deductions, and tax credits could generate additional revenue while enhancing fairness.
Another crucial area for reform is Value-Added Tax (VAT). Despite being the country's second-largest revenue source, VAT currently only contributes 4% to GDP. The report recommends a modest rate increase, tightening exemptions, lowering registration thresholds, and simplifying the system to improve VAT efficiency and close the gap with international norms.
To fund its ambitious infrastructure program, the country needs alternative sources of government revenue beyond oil. Strengthening VAT and excise taxes can help reduce dependence on fossil fuel incomes and provide additional funding for long-term development.
In conclusion, Kazakhstan's economy needs structural reforms to ensure long-term sustainability. By focusing on fiscal discipline, diversifying revenue sources, and enhancing tax efficiency, the country can meet its fiscal challenges and pave the way for economic growth.
Businesses and finance are key sectors that Kazakhstan needs to focus on for solving its fiscal troubles, as indicated by the need for tax reforms to enhance revenue collection. Given the low personal income tax revenues and the current state of Kazakhstan's Value-Added Tax (VAT), reforms in these areas could generate additional revenue, introduce fairness, and bring the country closer to international norms, ultimately aiding in the long-term sustainability of the economy.
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