Kazakhstan Is Gradually Moving Away from Its Social Priorities

Kazakhstan, as a country that emerged from the Soviet Union, has always been counted among the socially oriented states. This was especially true of labor relations. Kazakhstan's labor legislation was geared more toward protecting employees than employers. As a result, trade unions lost their influence, because they were simply not needed.

The proposals voiced during the presentation of the draft of the new Labor Code in the Mazhilis significantly curtail workers' rights and expand employers' options, especially when it comes to dismissing staff.

Unfortunately, I have not seen the draft of the new Labor Code itself; all my conclusions are based solely on information available online.

It is hard to judge whether the state is doing the right thing, but, as I understand it, the new Labor Code is in fact intended to promote the development of trade unions and collective agreements. However, given the new realities, a new law on trade unions is also needed, one that could protect workers' rights. Most likely, the new Labor Code has been designed to let companies react quickly to economic shocks and downturns (such as the one we are seeing in 2015).

More broadly, recent trends suggest that the state is moving away from a social orientation. In recent years, the authorities have already capped maternity payments, raised the retirement age and increased pension contributions, and now they are expanding employers' rights. I will not presume to say whether this is right or wrong; time will show how justified these changes are.

Little attention has been paid to the press comments by Marat Kussainov, Vice Minister of National Economy, on the work to amend tax legislation. His interview suggests that Kazakhstan is also tightening fiscal policy as revenues decline (I think many entrepreneurs have already noticed how the fiscal authorities have mobilized and are now trying to impose fines for nearly every action). According to the Vice Minister, VAT will be reformed first (the plan is to tighten VAT collection and abolish most VAT exemptions). In addition, the taxation procedure for SMEs and the agro-industrial complex will be changed. Let me remind you that we already know about the introduction of a new "pension tax" of 5% for all business entities.

I am not sure that the planned innovations can be considered the right decision, especially the provisions on joint liability for VAT payment. This is a matter for the judicial system and law enforcement, not the tax service, because to establish joint liability one must prove that an entity acted in collusion and intended to evade taxes by concluding fictitious contracts. Otherwise, this new rule will become yet another trump card for the tax authorities.

In Kazakhstan, the share of undeclared sales is very high; virtually all "shuttle traders" and household farms sell goods without paying taxes. Naturally, this is a source of potentially significant budget revenue. But tighter tax administration in this area will affect, first and foremost, inflation in the country, since any additional taxes will be passed on to consumers.

Another problem is that officials want to require SMEs to keep tax records, which is practically unfeasible and has no economic benefit at all. Around the world, a presumptive taxation system is used for this purpose: an imputed income is calculated for each type of activity and each place where services are provided, and that income is then taxed. In this context, it would be better to hand the setting of tax rates for SMEs to local authorities. This would give them an additional tool for developing small and medium-sized businesses, for example by setting high taxes for shops in "expensive" locations and low ones on the outskirts. This, incidentally, offers many advantages.

All of the initiatives proposed from above indicate that the task is to balance the national budget, but the decision has been made to take the path of tighter fiscal policy rather than expanding the tax base.

In my opinion, we should do the opposite: use fiscal policy to create conditions for the development of SMEs and the agro-industrial complex, and also change the taxation system for subsoil users, rather than tightening tax policy.