The US-Kazakhstan incomplete similarity
Tulegen ASKAROV
ALMATY (Specially
for THE GLOBE)
After the President ordered the government to reduce in July 1VAT to 16% from the current rate of 20%, and the rate of the social tax - from 26% to 21%, our authorities’ financial policy became surprisingly similar to the anti-crisis measures taken in the U.S.A.
There is considerable enough difference – Kazakhstan still faces the upsurge of economy, while the US economy was recently passing through a kind of standstill, if not stagnation. There is commonness as well – both countries have the budget surplus. Another coincidence is related to the decisions by the central banks in the U.S.A. and Kazakhstan to reduce the refinancing rates. These measures, in the long run, are meant to stimulate the economic growth.
In his TV speech, Nursultan Nazarbayev said that the reduction of taxes would allow enterprises to replenish their working capitals and increase their competitiveness. Besides, in his opinion, the decreased social tax would allow to show the true size of salaries. As he said nothing about any concrete figures to lighten the tax burden, let us compute ourselves.
The 2001 Law on Budget provides the amount of VAT collected as 114.1 billion tenge. Suppose that VAT is being evenly deducted to the budget. In this case, the treasury plans to gain in the second half year about 57 billion as VAT. As it is planned to reduce the VAT rate by 4% (from the current 20%), it is possible to roughly suppose that the amount will decrease by one-fifth, i.e. 11.4 billion tenge. However, the real decrease may turn out to be considerably more significant, as in the economic turnover goods and services pass several times in the chain from one taxpayer to another. Another aspect is that the decrease of the VAT rate will cause reduction of Astana’s budget. Last year parliamentarians made an exception for the capital by leaving it 50% of the VAT amount collected from taxpayers registered in the city. This was deliberately done for Astana in an attempt to save the image of a city living within its means (in fact, this is not true). Now these revenues will considerably decrease.
It is more difficult to calculate the absolute figures that are supposed to lighten the social tax burden, as the law on the republican budget does not provide its amount, because it is deducted to local budgets. According to the law, due deductions may be contributed to the republican budget, which were earlier deducted to the Pension Fund, the State Pension Payment Center, the Fund of Obligatory Medical Insurance, the Fund of State Social Insurance, the Fund for Assisting the umployed, as well as deductions by road users, which were earlier were deducted to the Road Fund.
Besides, a negative balance formed as of December 31, 1998 is monthly registered as payment of the social tax within 1.5% of the payroll fund. This balance emerged as a result of excess of amounts on cases of disability, pregnancy, birth, funeral, calculated by employers and paid by the Fund of State Social Insurance, over the calculated deductions to the aforementioned Fund.
In this case, it is possible to use the data of fulfillment of the budget in 2000 recently published by the Finance Ministry so that to make approximate calculations.
As the table shows, last year the social tax deducted to the national budget came to 99.1 billion tenge. If we assume it is planned to receive the same volume this year, the volume of social tax supposed to be paid in half a year is almost 50 billion tenge. As the rate of the tax is to be reduced by 5% from present 26%, taxpayer will pay about 9.6 billion tenge less. Revenues of local budgets will reduce mainly due to the reduced social tax, while it is mainly the republican budget, which will lose due to the decreased VAT rate.
Tentatively, the total amount of economy from VAT and social tax, businessmen will have, will come to about 21 billion tenge (11.4 + 9.6). This seems to be great. Compare, this year 25 billion tenge is allocated to defense. Indeed, the absolute amount of the decreased taxes can be even more, if the economic growth continues within the whole year.
It will be interesting for us, buyers of goods and services, to watch how businessmen will use the additional assets. If the market prices remain the same, after the taxes’ rates are decreased, this will mean that we will not be able to economize the aforementioned 21 billion tenge (1,400 tenge per a Kazakh citizen), but businessmen will earn additionally the same volume. Most probably, this will happen. Moreover, immediately after the President’s statement about the forthcoming reduction of the taxes it became known about Kazakh monopolists’ intention to considerably increase the tariffs of their services. From April 1, for example, the national company KEGOC’s tariffs of power transportation are expected to rise by about 20%.
Railway companies have been persistently claiming increase of their tariffs as well. Monopolists, possibly, count to improve their financial conditions through reduced taxes and additional revenues from increased tariffs. They will not spend money to improve the quality of their services. For OKIOC, for example, the standard electricity loss increased from 6% in the last year to 8.2% this year, according to the decision of the Ministry of Energy. Apparently, monopolists are going to considerably increase salaries of their personnel, first of all salaries of the national companies’ heads. Clearly, in the result of these actions, prices will surge despite the authorities’ expectations.
As far as taxation of individuals’ income is concerned, there is no similarities either to the US or at least Russian models. Everything remains the same – taxes will grow proportionally to salaries. According to the data sounded by Nazarbayev, the tax will come to 9% of the total payroll in Kazakhstan on average (excluding 10% of salaries that must be deducted to pension funds).
53% of employees’ salaries will be taxed by 5%; another 40% of salaries will be taxed by 10%, according to the new Tax Code. The remaining 7% of working Kazakhstanis will pay the tax of 20-30%. Well, maybe, that is banal truth of Kazakh interpretation of social equity. However, fiscal bodies are hardly sure that 7% of their compatriots with high salaries will be able to compensate low income of the rest 93% of workers.
The most important thing (which our authorities will certainly not include in the new Tax Code) is deducting from the taxable amount those expenses that we have to pay currently for medical treatment, education, purchase, and repair of our flats. There is no social justness in this, as the state has transferred all these expenses to its citizens’ shoulders, without any compensation.
Cash Fulfillment Share in the
fulfillment in of the total volume,
billion tenge elaborated in %
budget, in %
Fulfillment of the national budget in 2000 (excluding the calculation period)
REVENUES 598.1 107.3 100.0
PROFITS 587.0 108.0 98.1
Taxes collected, 524.0 109.5 87.6
Including:
Income tax on legal entities 163.5 131.9 27.3
Income tax on individuals 51.0 102.0 8.5
Social tax 99.1 102.7 16.6
VAT 115.1 101.0 19.2
Excises 19.3 82.0 3.2
Non-tax revenues 38.6 94.9 6.5
Profits gained from operations with capital 24.4 100.3 4.1
EXPENSES AND CREDITING 595.8 95.6 100.0
BUDGET DEFICIT (-) /SURPLUS (+) 2.3
Fulfillment of the national budget in 2000 (excluding the calculation period)
REVENUES 381.2 109.7 100.0
PROFITS 317.7 109.0 83.3
Taxes collected 265.7 111.8 69.7
Including:
Income tax on legal entities 81.8 136.0 21.4
Income tax on individuals 1.2 103.7 0.3
Social tax 20.2 101.9 5.3
VAT 103.3 101.0 27.1
Excises 15.2 88.4 4.0
Non-tax revenues 28.7 93.8 7.5
Profits gained from operations with capital 23.3 100.4 6.1
BUDGET DEFICIT (-)/SURPLUS (+) -9.3
Fulfillment of local budgets in 2000 (excluding the calculation period)
REVENUES 313.6 102.7 100.0
PROFITS 269.3 106.9 85.9
Taxes collected 258.3 107.3 82.4
Including:
Income on legal entities 81.8 128.0 26.1
Income on individuals 49.8 101.9 15.9
Social tax 78.9 102.9 25.1
VAT 11.8 101.1 3.8
Excises 4.1 64.7 1.3
Non-tax revenues 9.9 98.1 3.2
Profits gained from operations with capital, 1.1 98.7 0.3
EXPENSES AND CREDITING 302.4 96.5 100.0
BUDGET DEFICIT (-)/SURPLUS (+) 11.2
Source: Finance Ministry of Kazakhstan.