KYRGYZSTAN TODAY Policy briefs on - Department of Geography

to transfer to schools, hospitals, and other charitable institutions as charitable gifts. To
make such donations more attractive for business, it can be advised to calculate the
amount of donations based on gross proceeds, i.e. 0.1 or 0.2 percent, which is practiced in
Germany (5 percent of taxable income or 0.2 percent of proceeds), Finland, and Portugal.
However, this alternative will make sense only if such deductions can be waived until
the next tax period. If a business doesn’t have taxable income in the accounting year
when a donation was made, such income may come one year later.
As far as in-kind donations are concerned, there are a few issues that need to be
considered for businessmen to develop some interest in charity activities. In-kind
donations can be services (i.e. office rent or legal consultations), transfer of securities, old
equipment, floating funds (goods), land, property, items of historic, artistic, or cultural
value, transfer of copyright, etc.
Internationally, the amount of charity deductions is normally higher for physical
entities with an average of 10 to 15 percent. Unlike legal entities, natural persons enjoy
more freedom when it comes to spending their income.
However, there are a few difficulties when dealing with donations from physical
entities. Firstly, this benefit is, as a rule, enjoyed by very few individuals who fill in
income statements. Those receiving salaries from employers are not able to use it, since
there is a lack of clear mechanisms in the legislation. Secondly, what we have seen
demonstrates that only people with a high level of income are interested in this benefit,
whose income comes not from salaries, but mostly from interests. However, they find it
difficult to use the benefit because of a lack of clear legislative mechanisms.
Single tax or simplified taxation regime for NPOs
Only small-sized enterprises (individual entrepreneurs and small companies whose
annual income is less than 3 million KGS) enjoy a simplified tax regime in Kyrgyzstan
at the moment 4 . The law envisages a single tax for small-sized enterprise paid instead
of the following:
– income tax;
– deductions to the Emergency Prevention and Elimination Fund;
– road tax;
– paid service tax and retail sales tax.
It may be advised to let NPOs enjoy a similar regime, allowing them to choose
between the standard and simplified tax regimes when implementing their business
activities. This approach is common in the international arena, and is widely practiced in
the Russian Federation. If NPOs obtain the right to use a simplified tax regime, they will
be more involved in economic activities, for the most part providing different services to
the public. Currently, NPOs are reluctant to deal with any business activities, since any
income resulting from such activities is taxed heavily.
Conclusion
To sum up, we can say that there are significant drawbacks in the area of legal
financing of NPOs in Kyrgyzstan, which are as follows: (1) the existing Tax Code is
not conducive in terms of allowing NPOs to receive income from business activities,
4
Kyrgyz Law “On Simplified Taxation System for Small-sized Enterprise” as of December 7, 2001, Ref.
No. 102.
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