Deputy chairman of NCE RK "Atameken" Rustam Zhursunov speaks on the tax reform

A draft law "On taxes and other obligatory payments to the budget and Customs Regulation" is developed in Kazakhstan, which will combine the Tax and Customs Codes. One of the major reforms that is widely discussed in Kazakhstan is replacement of VAT with a sales tax.

Deputy Chairman of the Board of the National Chamber of Entrepreneurs of Kazakhstan "Atameken" Rustam Zhursunov believes that reforms in the tax legislation of Kazakhstan are overdue. "Tax relations reflect the relations between the state and business, and, therefore, must comply with the current and projected economic realities. Definitely, since 2014 economic realities have changed. Background of these occurred before. Each country, when viewed as a whole, is a big store. We sell by various estimates (of total exports) 58% of oil and gas, about 20% of ores and metals, and 10% of agricultural products. This is the structure of our export basket. It is clear that when the cost of our main products, which we sell to the world, is reduced, the structure of replenishment of the state budget also changes. Accordingly, the fiscal policy should be changed ", - he said.

However, the representative of "Atameken" noted that business does not like extreme and sudden changes. "Because, the entire business process and the chain needs to be changed, which is very expensive. If you look at the statistics, in principle, we use it all the time. Since 2009 111 packages of changes we introduced to the Tax Code. It is about 14-15 times each year. The time difference between changes reaches from 3 to 7 days. The change of the regulatory environment, and the taxes are paid by all, very tactile thing for business. It looks like just 111 changes. And when the rules of the game change almost every day, it results in high risks", - he said.

Zhursunov stressed that business needs stability, and the Minister of National Economy of Kazakhstan Erbolat Dosayev understands. "We say, it is necessary to make changes to the tax code once a year. Do not worry, no one will die. Once a year, and the main law. What is our problem? When changing the Land Code or any law, the changes are also introduced in the tax code as a consequence. Last year, Mazhilis passed about 90 laws", - he explained.

In addition, the deputy chairman opined that Kazakh business needs a medium-term fiscal policy, as the basic document. "This document, which will be a key element of the system of state planning and will be calculated on average for 3-5 years. It is necessary that our state shows the horizon - for example, how big will be the appetite of the treasury in the next three years. (...) Roughly speaking, so that business knows. I will go in this direction this year as the coefficient of the tax burden is such", - he said.

"But, more importantly, budgets should be made under this policy. I'm talking about the basic document for the medium term, which has data for each year. For example, Russia adopted the basic directions of tax policy for 2016 and the planning period for 2017-2018. And such practice exists in many countries. Four policies are critical for business. This is monetary, budgetary, fiscal and tariff policy. The life of the business depends on them. And if we know the medium-term policy of the state respectively, we will adjust to it", - added Zhursunov.

The expert noted that for the development of the economy it is necessary to have competitive sectors of the economy, be it oil industry, mining, agriculture, transport or banking sector. "The world has now become small, and the investor does not care where to invest money. They are interested in return and in an acceptable rate of return. To this end, the tax load ratio should be competitive and adequate to realities. And better than in the competitive countries ", - he said.

At the same time Zhursunov noted that "now it is not the best time" and we can’t increase the burden on business. "Now we need to wait a year or two, to recover. And the head of the state said in his address to the people of Kazakhstan in November of last year that "raising of taxes - is not a way out of this situation". But after we need to sit down and to talk specifically, who has which tax burden, to calculate the fiscal capacity and to set up the process. And, speaking of the tax potential, we should take into account the geographical remoteness, so that business does not go to other neighboring countries", - he said.

Speaking about the work with the Ministry of National Economy of Kazakhstan Zhursunov said that the Chamber is in "great relationship” with it. "There is a direct dialogue. And we talk about this openly with the Minister of National Economy. On our behalf, we have already prepared a draft of the main directions of fiscal policy, how business sees our fiscal agenda. We compared the load with the OECD countries by industry, defragmented the strategy of "Kazakhstan-2050", and tried to build the potential. How much money and where it will be possible to collect it within 5-6 years. We submited a proposal on how to withdraw business from the shadows", - he said.

Speaking about the transition from VAT to the sales tax, the representative of "Atameken" stated that that the method, which is stipulated by the new legislation does not exist anywhere in the world. "I studied taxes in Japan, and the United States. Everywhere the classic sales tax is practiced. According to the estimates of the World Bank, the shadow economy in Kazakhstan is 38% of GDP. In such circumstances, the transition to the classic sales tax – is a failure. We simply do not collect. This is a potential area of ​​risk, and the Russians have already twice stepped on the same rake. It won’t work. In the current variation, the sales tax, in fact, is VAT, as the cascade method is proposed. And we, as a Chamber, see five major risks ", - he said.

Firstly, according to Zhursunov, the reform will affect the prime cost. "For this, we took real enterprises and specific chains and analyzed the possible effect. For example, what we have on the milk. At a rate of the sales tax of 5%, the growth of the prime cost will be 9%. For gasoline A-92 the increase of the prime cost will be 9%, phosphorus - 13%, poultry meat - 10%, kilowatts of electricity - 4%. The rise of the prime cost to 9-15% will definitely be at the rate of 5% ", - he said.

"Secondly, the situation in the country. It's no secret that right now we have "trade wars" with competitors from neighboring countries. And if two years ago, the front zone was in the area of Omsk and Barnaul, now the front line has decreased almost to Astana. It will be cheaper to import than to produce. A manufacturer gets into position when he initially looses to the importer ", - said the expert.

Thirdly, Zhursunov drew attention to the risks associated with pricing for export positions. "As for oil, it is five global pricing centers. Metals - London Stock Exchange. Accordingly, if the cost grows, and the world price falls, then the competitiveness drops. And, most of all, our exporters will suffer serious losses. That is in terms of competitiveness", - he said.

"Then we gradually move on to the fourth point. What will you do in the new environment, as a businessman? Optimize your trading chain. According to our forecast,  2-3 participants will have to close down. Who are they? Individual entrepreneurs are not VAT payers. We have them 930 thousands of them, 41% of them in trading. It turns out about 400 thousand individual entrepreneurs, who according to the new Code will be subject to the sales tax. And if the third and fourth link in the chain leaves the market, we are talking about approximately 100 thousand individual entrepreneurs. On average, the ratio is 1.5 people per one individual entrepreneur. According to our estimates, it is about 120-150 thousand people. It is clear that it is only a risk which can’t be realized in a single day", - said deputy chairman of the Chamber.

Zhursunov named the fifth risk leaching of money from the economy. "With the sales tax, it won’t be put in records, it means it will be withdrawn at every level. We're trying to understand the limits, but one of the consequences will be compression of the economy as a whole", - he said.