Galim Khussainov
Inflation and the tengeBankingLending and mortgagesTaxationEconomy and public policyManagement

Taxation · 2 min read

Sales Tax Instead of VAT: A Loss of Competitiveness

Translated from Russian with the help of AI. Original: Russian version

A turnover tax is less competitive than VAT, especially within the Eurasian Economic Union, and a retail-only sales tax would raise even less than VAT given the large shadow economy. The best tax reform in a crisis is stability of taxes rather than their constant overhaul.

https://www.zakon.kz/4801819-pravitelstvo-rk-vse-eshhe-ne-prinjalo.html

Good news!

I have written about VAT and the sales tax many times. There is hardly any point in writing about it again, and it is no longer even interesting, because the issue is so simple and clear. Besides, what is being proposed is in essence not a sales tax but a turnover tax. Whatever the rate, a turnover tax within the Eurasian Economic Union means a loss of competitiveness.

And if we introduce a sales tax levied on retail only, as the rest of the world does, we are not ready for it. We would collect even less of such a tax than we do of VAT, because our shadow market is very large.

When theorists want to cut the number of stages in a trade chain to 3–5, this is practically impossible, because it can only be done in a planned economy, where trade links of this kind do not exist.

The number of stages is very easy to check: take any company and build a VAT pyramid for it. For example, we once had a company with 10 levels! Beyond that, the tax authorities simply do not check further levels.

Any differing sales tax conditions for different industries and regions will always lead to optimization and tax evasion.

Anyone who has trained as a tax specialist and knows even the basics of taxation knows that a turnover tax is a tax of third-rate countries. Yet we want to join the top 30, while proposing to introduce taxes used by countries ranked in the second hundred.

As for VAT, the solution is also very simple; all it takes is political will. It is clear that VAT credits that have not actually been paid are being cashed out. The answer is simply to allow only VAT that has actually been paid to be offset, and that is all.

Devising various shaky sales tax constructs is like patching a leaky boat with whatever material comes to hand.

The best tax reform in a crisis is stability of taxes, not their constant overhaul.

Published in: Facebook, 24 June 2016

More on this topic

The 2026 Budget After Seven Months: Where Revenues Really Fell Short

How a year-on-year comparison of the first seven months of 2026 with the same period of 2025, rather than a comparison with the plan, shows that tax revenues rose by 17%, and why the stronger tenge (484 per dollar versus 514), not the tax reform, explains most of the shortfall against plan. The reform did reduce local budget revenues, mainly through a lower personal income tax (PIT) burden, and shifted the tax base toward the national budget.

VAT Refunds for Agricultural Exporters

How a personalized VAT refund mechanism for agricultural exporters could address the current system, under which up to 80% of claimed VAT is effectively not reimbursed and large and small agricultural producers are put on unequal footing. The proposal would deny exporters a refund only for the VAT portion matching the producer's benefit (6.4% of turnover in the KZT 100 million example), rather than for all input VAT.

On the Construction Market

How the new Tax Code, including the VAT increase to 16% and the extension of VAT to apartments whose construction begins on or after January 1, 2026, will affect housing construction in Kazakhstan. It examines why the end of small-business tax breaks will raise construction costs, cut developers' net sale prices and profits, and pose risks for the regions, with the effect expected to be felt from 2027.