Not a New Tax Code, but Targeted Amendments

The debate over whether to change the Tax Code shows no sign of abating. It is a difficult question that calls for a comprehensive approach. Replacing the entire code would require a great many calculations and agreement on the fundamental principles and goals of a new tax policy. It would also mean amending a large number of regulatory documents. That is the most important point. After all, taxes today are not only a fiscal tool whose task is to fund the public sector. They are also a means of encouraging entrepreneurship, a means of redistributing part of income from the richer to the poorer, and a mechanism for capturing resource rent from natural resources.

Frequent changes to the Tax Code, in turn, affect the country's investment climate, even if the tax burden is falling. It is a matter of psychology: investors must be confident that tax stability is guaranteed to them. Incidentally, many subsoil use contracts of the 1990s did guarantee such stability. But it was later abolished.

The existing tax system has its strengths and weaknesses, and I would say that its strengths are many. There are weaknesses too, but it is better simply to fix them with targeted amendments to the Tax Code. These weaknesses are obvious, and everyone knows them:

1. Reform the taxation of subsoil use. This applies first and foremost to the taxation of uranium, oil and gas. Everything here is obvious, much has been written on the subject, and I see no point in adding to it. Incidentally, the Tax Code will have to be amended on subsoil use anyway, because the new Mining Code is being introduced, and it fundamentally changes the very principle of subsoil use.
2. Change the system of taxation of individuals. Personal income tax (PIT) is a very important tax. It is the most sensitive to changes and the most effective instrument for influencing domestic demand. Moreover, the richer a country is, the larger the share of budget revenue that comes from PIT. If you compare the richest countries in the world, you will see that personal income taxes account for the largest share of total revenue. Psychologically, people would rather spend money on themselves than hand it over to the state in the form of taxes. That is how domestic consumption is stimulated. For example, if a person has to choose between paying KZT 10 in tax out of KZT 100 and keeping KZT 90, or spending the whole KZT 100 and paying no KZT 10 tax, he will spend the KZT 100. That is why a progressive tax system is introduced, one that allows the taxpayer to reduce his taxes through deductions. These are typically deductions for education, medical services, real estate, mortgage interest and so on. Such deductions raise consumer demand for services within the country and thereby stimulate the economy. This is quite simple, especially given the planned universal declaration of income.
3. We should also abolish the separate tax accounting for subsoil use and grant VAT benefits for geological exploration.
4. Convert the transport tax into an excise duty. This would not only make the tax fairer, but also bring Russian and Kazakhstani fuel prices closer together, which is what the Ministry of Energy dreams of, and save on the administrative costs of collecting the transport tax.

In principle, there is no point in changing the other taxes, except perhaps to consider reducing VAT on food and children's goods along the lines of Russia, and to simplify the taxation of individual entrepreneurs and SMEs as much as possible.