JPMorgan - KASE

Public Finance
Introduction
Fiscal policy since Kazakhstan’s independence has been characterized by fiscal tightening in order
to reduce inflation and limit expenditure, initially to compensate for the loss of budgetary
transfers from the former Soviet Union that amounted to 4.5 per cent. of GDP in 1991. The
general Government deficit as a percentage of GDP has been reduced sharply, from 7.2 per cent.
of GDP in 1996 to a deficit of 0.2 per cent. in 2001. The Government has increasingly financed this
deficit through sales of Treasury bills and foreign borrowings.
These fiscal deficits have historically been mitigated, in part, through postponement or
cancellation of expenditures and increases in wage and pension arrears. However, the
Government paid all wage and pension arrears by the end of 1997 and paid all pensions due in
1998, 1999 and 2000.
The following table sets forth information on certain trends in Kazakhstan’s actual State
revenues and expenditures (excluding quasi-fiscal operations) from 1996 through 2000:
Six
months
Year ended 31 December
ended
30 June
2002 2001 2000 1999 1998 1997
(in KZT millions)
Revenues ......................... 259,303 743,550 598,700 430,900 379,623 405,623
Expenditures ...................... 250,501 749,092 602,000 498,978 451,594 469,622
Budget surplus (deficit) ............. 8,801 (5,542) (3,300) (68,078) (72,074) (63,998)
Surplus (deficit) as a percentage of
GDP............................ 0.5 (0.2) 0.1 (3.7) (4.2) (3.8)
Source: Ministry of Finance
Taxation
Kazakhstan’s tax system has been significantly reformed and simplified during recent years. A
comprehensive reform of the tax system took place in 1995 and as a result the principal taxes are
now corporate income tax (“CIT”), personal income tax (“PIT”), a value added tax on goods and
services (“VAT”) and various property taxes. The Government has developed a new tax code that
is intended to further simplify the tax structure and facilitate tax administration in order to
improve the collection rate which came into effect on 1 January 2002.
The CIT rate is currently 30 per cent., reduced to 10 per cent. for farming corporations. Dividends
are subject to a 15 per cent. withholding of CIT. PIT is levied at progressive rates, ranging from 5
per cent. to 30 per cent. This maximum PIT rate was reduced to 30 per cent. from 40 per cent. in
1998.
In general, all business activity in Kazakhstan was subject to a flat rate VAT of 20 per cent. From 1
July 2001, VAT was reduced to 16 per cent. Corporations are subject to property tax at the rate of
1 per cent. of the value of basic production and non-production assets. The rate imposed on real
property of individuals ranges from 0.1 per cent. to 0.3 per cent. Fees to the Government related
to the extraction of oil, gas and other natural resources are established by individual agreements
with the Government or its agencies.
In 1998, the Government amended the tax code to provide tax-free periods to foreign investors
investing in designated priority sectors of the economy, which do not include the oil and gas
sector. Eligible investors receive exemption on income, property and land taxes on an individual
basis.
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