How Kazakhstan curbs shadow economy

Kazakhstan has recently changed the rules to measure the grey economy to meet the international standards. While sectors such as commerce and construction take the most share in the grey economy, the Kazakh Finance Ministry seeks ways to diminish the level of grey economy within the country through different ways.

According to the Kazakh vice finance minister “dishonesty”, “tax evasion” are the main reasons to cause the shadow economy. Among the main objectives of the Finance Ministry is to lower the level of shadow economy to the level of the OECD countries.

In the wake of the Government measures for 2019-21, the government bodies jointly with Atameken National Chamber of Entrepreneurs work on improving the tax and customs policy, increasing the share of non-cash payments, pulling small and medium businesses out of the shadow.

According to first vice minister Berik Sholpankulov these measures aim at digitalizing the tax and customs administration, integrating information technologies.

It is expected that development of information systems, labeling, electronic invoices, virtual warehouses, online control cash machines will bring in great results.

“A goods control system will allow protecting the economy from counterfeiting goods. For instance, an e-invoices system will make it possible to track a movement of goods until goods reach the final user,” the vice finance minister said.

Since the introduction of the virtual warehouse system back in April 2018, the e-invoices module has helped prevent false invoices. As of today, the virtual warehouse module uses 224 produce items, gradually increasing to 335. The virtual warehouse system has around 349 thousand taxpayers registered.

Also, work is ongoing in terms of labeling. Following the pilot project, in 2018 revenues from leather items have risen by a factor of 1.5 per cent. The same pilot projects are underway regarding tobacco and alcohol products. The list of products subject to labeling will be further complemented.

In order to prevent illegal production of alcohol and oil products, 3 refineries and 16 small refineries, 1764 gas stations and 47 plants producing alcohol have introduced the accounting control tools, resulting in a decrease in excises by 563 million tenge.

Thanks to the measures undertaken in terms of digitalization, the number of checks has fallen by 9%, and budgetary revenues have risen by 20%.

Since 1 January this year, the work on tax amnesty covering small and medium businesses has been ongoing. With over 90 thousand taxpayers are subject to the amnesty, 45% of them have already benefited from it. The amnesty’s pivotal objective is to raise tax revenues.   

In early 2020, it is planned to fully switch to online control cash machines rounding out the tracking of goods’ movement, making it possible to control taxes remotely. The number of control cash machines will equal 482 000, including online ones 311 000.

In order to increase non-cash payment between people and businesses, a number of measures have been adopted, they include non-cash payments for real estate purchases, the rolling out of e-wallets to ease tax payments.

It is also planned to create a unified system to transit goods through the EAEU territory as a pilot project aimed at using navigational electronic seals to control transit goods moving from Kyrgyzstan to Russia via Kazakhstan has been launched this year.

All the measures enabled a reduction in value-added taxes on imports, a reduction by 115% following the first quarter of 2019, by 120% in May and by 122% in June.

“One of the main tasks of the Ministry aimed at reducing shadow turnover is narrowing the differences in mirror customs statistics,” Berik Sholpankulov said.

Over one-third of the revenues from goods imported from third countries come from China. In this regard, the Finance Ministry’s Statistics Committee and China’s General Administration of Customs signed the relevant protocols to exchange electronic information. It is believed that the proposed initiatives will produce additional revenues to the budget amounting to 800 billion tenge.

“The ongoing initiatives and measures will allow to reduce the shadow economy, increase tax and customs revenues to the budget,” the vice finance minister assured.

Author: Adlet Seilkhanov