KYRGYZSTAN TODAY Policy briefs on - Department of Geography

As for governmental audit and inspection activities, estimates provided by the
Investment Council Secretariat are instructive: for ten government inspection bodies’,
the efficiency ratio to gross national product is negative, equaling minus 0.1 per cent.
Taking into consideration that efficiency, the GNP ratio of this government (tax bodies)
audit, inspection of private sector for the years 2004-2005 was minus 0.6 per cent, total
GNP losses as a result of audits/inspection are minus 0.7 percent. Government inspection
bodies (excluding tax bodies and social fund) held 23,918 inspections during year 2006.
Total budget expenses, both direct and indirect, are 78.1 million KGS, and 88.2 thousand
man-days were spent on inspections, compared to budget revenues of 2.8 million KGS.
Inspection efficiency was minus 75.3 million KGS, or minus 0.067 percent to GNP.
There are also examples of low efficiency among inspections by Law Enforcement
bodies. Thus, according to the data from the General Prosecutor Office, such law
enforcement bodies as the Ministry of Internal Affairs, National Security, Finance
Police, State Customs Committee and Drug Control Agency completed investigation
of 987 economic crime and corruption cases. The cumulative damage amount was 448.2
million KGS (or $12.1 million); 293.4 million KGS or $7.9 million of this was repaired.
Can one call the activities of law enforcement ministries and agencies efficient?
The Investment Council Secretariat also made a negative note after a recent license
system assessment: “During current years the scope of paid services of government
bodies is constantly growing. Government bodies are actually doing business when
providing such services. In addition, government bodies establish norms and standards
and it is also they who monitor these norms. Permit documents registry issued by the
government bodies include a list of 136 permits. The actual number of different permits,
sublicenses and other documents is much bigger, and most of them do not comply with
the current legislation” [3].
Corruption in tax and fiscal interrelations
The second largest area of corruption is the tax system. Gaps in the current tax system
open the way for different corruption deals with no punishment. This happens because
government officials who are responsible for budget levies collection and payment
allocation (and who are considered by the public the most corrupt officials, along with
customs officers) abuse their authorities quite legally for personal gain. Tax administrative
bodies developed a Tax Code for themselves, inspect themselves and punish themselves.
Newly-introduced taxes mentioned in the current edition of the Tax Code argue for
an increase of tax burden on both entrepreneurs and the nation’s general population. For
example, a newly-established tax such as a real estate tax, scheduled for implementation
in the beginning of 2009, is a potential risk of growth in corruption. This conclusion
reflects the fact that there was no identification of the government body that would
be in charge of assessing and evaluating the real estate to be taxed. If such assessment
is the responsibility of the tax service, this will become another tool of corruption. We
can compare this with the restrictions of traffic rules that allows fines to be charged for
traffic rules, when infringement became high. High traffic fines did not result in quick
road accident rate reduction, but merely made it possible for road police officers to
increase the size of unofficial levies. The same thing will happen with tax real estate tax
introduction: it will not increase budget revenues but will enrich some tax officials.
During a meeting held on June 24 th , 2008 between the International Business Council
and the Union of Entrepreneurs of Kyrgyzstan and USAID, new Draft Tax Code issues
were discussed. According to participants of this meeting, tax bodies are given excessive
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