KYRGYZSTAN TODAY Policy briefs on - Department of Geography

On the subject of barriers, it is also important to consider a number of additional
difficult issues stipulated by the following major adverse characteristics of Kyrgyzstan,
both physical and economic:
• Small internal market;
• Remote geographical location (no access to sea ports);
• Relatively poor mineral resources.
The major issues that have not yet been solved are:
• High tax rates;
• Rigorous tax administration;
• Frequent and unjustified inspections by authorities;
• Imperfect legislative and regulatory frameworks in the area of private
enterprise;
• Unstable and unpredictable policy of regulating private enterprise;
• Bureaucratic customs procedures (for example, long customs examination and
other delays at the border);
• Corruption that permeates all public offices.
Recommendations
With the goal of ensuring business development in Kyrgyzstan, the first priority
should be creating ways to help decreased the influence of existing administrative
barriers.
1. High tax load. The tax rates in Kyrgyzstan are two to approximately six times
higher than average rates in the region and in the world, respectively. The tax burden
is extremely unequal across the types and forms of businesses: currently, 60-80 percent
of taxes are gathered from 180-200 enterprises, out of a total of nearly 500,000 formallyregistered
business entities. These include 782 medium scale enterprises, 7,689 small ones,
more than 163,000 individual entities, and 300,000 farms. Current state fiscal policy does
not favor the accumulation of the means that enterprises need for their investments,
nor does it favor competitive production. The current tax code, with its high level of tax
payments, significantly contributes to an increase in domestic production costs, prices,
and inflation, and also locks down export development. Unfortunately, the current fiscal
policy of Kyrgyzstan is the main cause that corruption is flourishing in the economy,
and explains why small and mid-scale enterprises decide to change to the “shadow
economy.”
The conclusions above have been confirmed by the World Bank’s study as part of
its Doing Business Project (See Table 2 for data on the taxes, payable or deductible by
mid-scale enterprises for a number of years).
Table 2
Indicator Kyrgyzstan Region OECD
Payments (quantity) 75 47,2 13,4
Time (hours) 202 366,8 210,5
Profit tax ( percent of profit) 3,0 11,8 17,5
Salary taxes/payments ( percent of profit) 23,7 26,1 24,4
Other taxes ( percent of profit) 34,7 10,2 3,4
Total tax rate ( percent of profit) 61,4 48,1 45,3
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