KYRGYZSTAN TODAY Policy briefs on - Department of Geography

authority to levy tax backlogs without any court decision; despite the fact that this Draft
Tax Code is a systematized document that levies a smaller number of taxes, the tax
burden is not reduced, and administrative control becomes harder.
Another evidence of corrupt procedures is that the tax bodies are trying to restart
practices of their increased authorities to inspect and audit entrepreneurs. Thus, on
September 8 th 2008, the president of the country signed his Decree [4] that enlarges
the list of inspections for tax services performed during a moratorium. This invites the
question, “why should there be a moratorium if, four months later, the tax inspectors
again had the authority to carry out desk inspections?”
Such interaction between, and sometimes merging of, criminals and government
officials is worrisome. It is not a secret that young people try to find jobs in inspection
and law enforcement bodies. These young people do not think of lofty goals or service
or creativity; in most cases, they only have in mind quick profits from taking bribes.
One example is the current murder of tax inspection personnel. The police statement,
published in the mass media on September 13 th 2008, reported that two tax inspection
officers in the Lenin district of the capital of Kyrgyzstan were killed. The car they were
shot in held more than 20 reports on private trade inspection made by a tax inspection
employee who was also a member of an organized criminal group [5].
Corrupt elements in banking system
The banking system is relatively transparent in the financial arena, and they have
managed to reduce the impact of this negative factor on their activities. Thus, if at the
beginning of developing the banking system in 1990, this sector was totally corrupt, but
the level of corruption in this sphere has significantly decreased. In previous years, the
general problem in banking system was the difficulty in obtaining credits, and the high
proportion of government banks in the system. At the same time, limited credit resources
created a situation in which a positive decision that granted credit, the credit receiver had
to make a so-called “hat payment” (in other words, interest or commission share).
Non-target credit granting, credit granting without mortgage with further credit
non-repayments, resulted in mass bank bankruptcy in the mid-1990s. As a result of nonrepayments
of government credits granted to agriculture workers Agroprombank went
bankrupt; such banks as Mercury, Insan, Orient, Maksat, KRAMDSbank, Adil-bank and
Central Asian Bank of Development and Cooperation were liquidated due to low level
management and removal of assets.
With the beginning of bank reform in 2000, the level of corruption started to drop in
the banking system because of measures taken by the National Bank of Kyrgyzstan: e.g.,
introduction of international standards of accounting and reporting, liquidation of banks
with problems, strict bank inspection. At the present time, we can state that the banking
system in Kyrgyzstan is the most transparent of all financial systems. It especially refers to
the system created by the national bank regulator in the area of bank inspection, i.e. direct
government interference in the activity of commercial banks. During this period, no cases
of bribe-taking by bank inspectors were detected. This is evidence of a highly efficient
government bank inspection system that should be incorporated into the inspection–
auditing system that exists between business and the government.
However, over time the banking system has fallen under the influence of other
negative factors: government inspection of banks became very weak [6]; and growing
risk when the banking system takes a leading role in money-laundering. Measures
such as adopting the Law On Counter Money Legalization and Terrorism Financing,
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