Budget for 7 Months of 2026: Where Revenues Really Fell Short
Translated from Russian with the help of AI. Original: Russian version
Comparing the first seven months of 2026 with the same period of 2025, rather than with the plan, shows that tax revenues rose by 17%, and that the stronger tenge, not the tax reform, explains most of the shortfall against plan. The reform did reduce revenues of local budgets, mainly because of lower personal income tax (PIT) burden, and shifted the tax base towards the republican budget.
Figures often need to be read very carefully and with deeper analysis. Time and again I read criticism of the execution of the national budget for the first 7 months of 2026, and many people link the failure to meet the plan to the tax reform. Drawing such conclusions requires a much deeper analysis of the numbers. To begin with, it is wrong to judge the tax reform against the plan, because a plan can be built on any assumptions, including entirely different macroeconomic inputs. For example, it is impossible to forecast precisely inflation, the tenge exchange rate, the base rate and so on. The right approach is to compare year on year. In other words, to assess the tax reform, we need to compare 7 months of 2025 with 7 months of 2026; only then will it be clear how the reform has worked.
Comparing the 7-month periods year on year, the picture is as follows: total growth across all tax revenues was 17%, which is above inflation and shows that revenues have, on the whole, increased. The most interesting observation is that the dollar rate in the first 7 months of 2025 was 514 tenge, while in the first 7 months of 2026 it was 484 tenge. Many of our taxes are tied to the tenge exchange rate, such as VAT on imports, customs duties, export customs duties, MET and CIT, and the strengthening of the tenge affected the budget by roughly KZT 400 billion, or 3%. In other words, had the exchange rate stayed at its 2025 level, growth over 2025 would have been not 17% but 20%. But we should understand that, in general, the exchange rate in an economy correlates very strongly with inflation, and with inflation at 11%, the exchange rate over the same period should have depreciated by roughly the inflation differential, or 6-7%, also taking into account the labour productivity factor. That is why the 2026 plan assumed a rate of 540, which would have given growth not of 20% but of 23%.
Looking at each tax separately, the picture is also interesting. First, VAT collections rose by 39% compared with 2025, but the plan was missed by 10%, and the main factor here is the tenge exchange rate, which accounted for a shortfall of roughly KZT 300 billion out of the total shortfall of KZT 457 billion. In other words, the exchange rate explains two thirds of the VAT shortfall, while the remaining third reflects a decline in the tax base relative to the plan.
There was a large overperformance in MET, driven by higher prices for the main export commodities, such as metals, gold and uranium. Had the tenge not strengthened so much, growth would have been even greater.
The situation with CIT is similar: a strong tenge hits producers hard and reduces their profits, and here the exchange rate factor fully offsets the shortfall. The CIT shortfall was KZT 90 billion against an exchange rate effect of KZT 157 billion, which means that at a rate of 540 the plan would have been met with room to spare.
The situation with local budgets is an interesting one, as we see a decline in revenues. Here we need to be precise in our wording: PIT itself did not fall over the seven months but rose by 1%; only the part withheld at source declined. But with inflation at 11% and a growing payroll base, PIT should have grown by roughly 15-17%, and these missing KZT 200-250 billion are the price of the reform for local budgets. This has nothing to do with a decline in household incomes; it is the result of a lower PIT burden. Many will of course object that a progressive tax scale was introduced and deductions were abolished. But all of that was more than offset by the increased basic deduction, which more than doubled, from 14 MCI to 30 MCI, or from KZT 55,000 to almost KZT 130,000 per month. A fairly detailed calculation of the impact is of course needed, but by my estimates the basic deduction could have reduced budget revenues by KZT 200-250 billion, and these are revenues specifically of local budgets. The reform also covered a large group of self-employed people, which likewise affected PIT, while for social tax, the abolition of its payment under the simplified regime played its part, and this too is local budget revenue.
The main decline in local budgets, however, came not from PIT but from CIT paid by small and medium-sized businesses, which fell by KZT 127 billion. This also requires more detailed analysis, but one reason is that the option of extracting profits through fragmentation of large businesses has been closed, which has led to the closure of a number of companies. That said, the full picture for CIT will only emerge next year, since the mechanism for calculating advance payments is complex and CIT will be fully settled only next year. Assessing CIT now, on the basis of 7 months, would not be entirely correct.
It is worth separately noting where exactly the increase went. The republican budget's share in total tax revenues rose from 60% to 66%. In other words, the reform did not simply increase collections; it shifted the tax base upwards, to the centre, while the social part of the reform, in the form of the higher PIT deduction, fell on the regions.
Overall, the tax reform has certainly increased budget revenues, while the reductions in local budgets are due more to a lower tax burden. The greater influence on budget execution came from the tenge exchange rate against the dollar, specifically its strengthening against the backdrop of 11% inflation. Any significant currency appreciation amid high inflation eventually leads to imbalances in the economy and can result in sudden shocks.