A New Tax Code Makes Sense Only If We Change the Underlying Principles Completely

I read today's statement by the Minister of National Economy on the innovations in the new Tax Code.

Many of the proposals are interesting, and most of them are fairly positive. But one thing is clear: none of them amounts to a new Tax Code. All of the proposed changes could simply be introduced as amendments to the current version of the Tax Code.

This is, of course, a quick analysis, and a more detailed study will take more time.

In my view, a new Tax Code makes sense only if we completely change, at a conceptual level, the principles and the very system of taxation.

In the proposed version, all taxes are retained, the principles for calculating most of them are unchanged, no new taxes are introduced, and the old ones are not optimized.

The President recently noted in a speech the need to move to a progressive tax system. That, at least, could be an argument for a new code.

I have long written that one of the main functions of a tax, besides the fiscal one, is to provide incentives. A progressive tax system is precisely an incentive-based system: it encourages spending, which raises purchasing power in the country. This is especially relevant for individuals. The higher a person's income, the stronger the incentives should be to spend that income in Kazakhstan. This is achieved through a higher rate combined with a system of deductions, such as deductions for buying a home and for mortgage interest, and for spending on education, health care and so on.

VAT needs to be addressed separately. It would make sense to introduce a reduced VAT rate alongside the standard one, as is done in Russia.

The taxation of the mining sector needs to be completely reformed, moving away from the cost-plus system, as I have written many times.

The taxation of the oil industry needs to change, and domestic processing of raw materials should be encouraged.

Social taxation needs a complete overhaul: the social tax, social contributions and mandatory social health insurance (MSHI).

On MSHI, I also support the criticism voiced by the President and by the public.

It would be better to introduce a fixed insurance cost per person rather than a percentage of income, because everyone receives the same care but pays different amounts. Those who have voluntary health insurance (VHI) should be allowed to opt out of MSHI. This would increase competition in health insurance and spare employers the double cost of MSHI and VHI. People would then perceive it as genuine insurance rather than as a tax.

Among the positive points, I would note the introduction of tax breaks for the exploration period, the ability to carry forward subsoil use losses within a single legal entity, and the proposals for the financial sector.