KYRGYZSTAN TODAY Policy briefs on - Department of Geography
KYRGYZSTAN TODAY Policy briefs on - Department of Geography
KYRGYZSTAN TODAY Policy briefs on - Department of Geography
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On the subject <strong>of</strong> barriers, it is also important to c<strong>on</strong>sider a number <strong>of</strong> additi<strong>on</strong>al<br />
difficult issues stipulated by the following major adverse characteristics <strong>of</strong> Kyrgyzstan,<br />
both physical and ec<strong>on</strong>omic:<br />
• Small internal market;<br />
• Remote geographical locati<strong>on</strong> (no access to sea ports);<br />
• Relatively poor mineral resources.<br />
The major issues that have not yet been solved are:<br />
• High tax rates;<br />
• Rigorous tax administrati<strong>on</strong>;<br />
• Frequent and unjustified inspecti<strong>on</strong>s by authorities;<br />
• Imperfect legislative and regulatory frameworks in the area <strong>of</strong> private<br />
enterprise;<br />
• Unstable and unpredictable policy <strong>of</strong> regulating private enterprise;<br />
• Bureaucratic customs procedures (for example, l<strong>on</strong>g customs examinati<strong>on</strong> and<br />
other delays at the border);<br />
• Corrupti<strong>on</strong> that permeates all public <strong>of</strong>fices.<br />
Recommendati<strong>on</strong>s<br />
With the goal <strong>of</strong> ensuring business development in Kyrgyzstan, the first priority<br />
should be creating ways to help decreased the influence <strong>of</strong> existing administrative<br />
barriers.<br />
1. High tax load. The tax rates in Kyrgyzstan are two to approximately six times<br />
higher than average rates in the regi<strong>on</strong> and in the world, respectively. The tax burden<br />
is extremely unequal across the types and forms <strong>of</strong> businesses: currently, 60-80 percent<br />
<strong>of</strong> taxes are gathered from 180-200 enterprises, out <strong>of</strong> a total <strong>of</strong> nearly 500,000 formallyregistered<br />
business entities. These include 782 medium scale enterprises, 7,689 small <strong>on</strong>es,<br />
more than 163,000 individual entities, and 300,000 farms. Current state fiscal policy does<br />
not favor the accumulati<strong>on</strong> <strong>of</strong> the means that enterprises need for their investments,<br />
nor does it favor competitive producti<strong>on</strong>. The current tax code, with its high level <strong>of</strong> tax<br />
payments, significantly c<strong>on</strong>tributes to an increase in domestic producti<strong>on</strong> costs, prices,<br />
and inflati<strong>on</strong>, and also locks down export development. Unfortunately, the current fiscal<br />
policy <strong>of</strong> Kyrgyzstan is the main cause that corrupti<strong>on</strong> is flourishing in the ec<strong>on</strong>omy,<br />
and explains why small and mid-scale enterprises decide to change to the “shadow<br />
ec<strong>on</strong>omy.”<br />
The c<strong>on</strong>clusi<strong>on</strong>s above have been c<strong>on</strong>firmed by the World Bank’s study as part <strong>of</strong><br />
its Doing Business Project (See Table 2 for data <strong>on</strong> the taxes, payable or deductible by<br />
mid-scale enterprises for a number <strong>of</strong> years).<br />
Table 2<br />
Indicator Kyrgyzstan Regi<strong>on</strong> OECD<br />
Payments (quantity) 75 47,2 13,4<br />
Time (hours) 202 366,8 210,5<br />
Pr<strong>of</strong>it tax ( percent <strong>of</strong> pr<strong>of</strong>it) 3,0 11,8 17,5<br />
Salary taxes/payments ( percent <strong>of</strong> pr<strong>of</strong>it) 23,7 26,1 24,4<br />
Other taxes ( percent <strong>of</strong> pr<strong>of</strong>it) 34,7 10,2 3,4<br />
Total tax rate ( percent <strong>of</strong> pr<strong>of</strong>it) 61,4 48,1 45,3<br />
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