One of the most pressing issues in Kazakhstan today is the possible increase in Value-Added Tax (VAT) from 12% to 20%. On one hand, this move could help reduce the country’s budget deficit, but on the other, it could have a serious impact on businesses and consumers.
In my view, there are several key reasons why such a sharp increase in VAT is being considered:
1. Budget Deficit
Since 2019, Kazakhstan’s government revenues and expenditures have nearly doubled, but at the same time, the budget deficit has increased even more significantly—from 1.4 trillion to 3.7 trillion tenge, a 2.6-fold rise.
Table 1. Revenues and expenditures of the republican budget for 2019-2024
|
Years |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
Revenues (trillion tenge) |
10,5 |
11,9 |
12,4 |
15,7 |
19,1 |
20,2 |
|
Tax revenues (trillion tenge) |
6,9 |
5,6 |
6,9 |
9,8 |
14,3 |
12,6 |
|
Share of tax revenues in the structure of the republican budget |
66% |
47% |
56% |
62% |
75% |
63% |
|
Expenditures (trillion tenge) |
11,5 |
13,9 |
14,9 |
18,1 |
21,6 |
23,5 |
|
Budget deficit (trillion tenge) |
-1,4 |
-2,5 |
-2,8 |
-3 |
-3,2 |
-3,7 |
|
Budget deficit to GDP ratio |
2% |
3,5% |
3,3% |
2,9% |
2,7% |
3% |
Source: Law “On the Republican Budget”
According to the World Bank, Kazakhstan’s budget deficit could reach around 3.1% of GDP in 2025, which is approximately $8.5 billion. If the economy grows by 4.5%, the country’s GDP is projected to reach $255 billion.
2. Decline in National Fund Reserves
Kazakhstan’s National Fund was created to ensure stable economic development, accumulate financial reserves for future generations, and reduce dependency on external economic shocks. However, recent years have seen a decline in its reserves.
According to the National Bank of Kazakhstan, by the end of 2024 the National Fund’s foreign currency assets will amount to $59 billion—$3 billion less than in 2019.
By law, the minimum required balance in the National Fund must be at least 30% of GDP. In 2024 Kazakhstan’s GDP is estimated at $245 billion, meaning the fund should hold at least $73 billion. However, due to excessive government spending, the reserves have dropped to just $59 billion.
Table 2. National Fund assets for 2019-2024
|
Years |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
Foreign currency assets (billion USD) |
61.7 |
58.7 |
55.3 |
55.7 |
60 |
59 |
Source: National Bank
Over the past 10 years, National Fund assets have shrunk by $18 billion, from $77 billion to $59 billion.
3. Rising Government Expenditures and Public Debt
Over the past five years, government spending has increased significantly. The largest increases were seen in:
• Transfers (+3.3 times),
• Public debt servicing (+3.2 times),
• Education sector funding (+2.7 times).
Таблица 3. Данные о расходах республиканского бюджета за 2019-2024 гг.
|
Expenditure categories |
2019 (billion tenge) |
2024 (billion tenge) |
Рост (раза) |
|
Public services |
502,6 |
961,4 |
1,9 |
|
Defense |
702,4 |
1163,4 |
1,7 |
|
Public order |
674,3 |
1271,1 |
1,9 |
|
Education |
615,1 |
1657,2 |
2,7 |
|
Healthcare |
1203 |
2339,6 |
1,9 |
|
Social protection |
3245,2 |
5358 |
1,7 |
|
Housing and utilities |
331,3 |
445,1 |
1,3 |
|
Culture, sports, tourism, and information space |
139,2 |
252,8 |
1,8 |
|
Fuel and energy complex and subsoil use |
85,1 |
160,3 |
1,9 |
|
Agriculture |
265,4 |
309 |
1,2 |
|
Industry and construction |
22 |
20,4 |
0,9 |
|
Transport and communications |
634,4 |
903,8 |
1,4 |
|
Other expenditures |
786,8 |
1180,3 |
1,5 |
|
Debt servicing |
686 |
2190,9 |
3,2 |
|
Transfers |
1584,5 |
5265 |
3,3 |
|
Total |
11477 |
23478 |
2 |
Source: Law “On the Republican Budget”
By the end of 2024, Kazakhstan’s total public debt will exceed 30.5 trillion tenge (about $60 billion or 25% of GDP). Of this, 75% is domestic debt, while 25% is external debt.
According to the National Bank, as of late 2024 Kazakhstan’s external debt consists of:
• Government debt: $14 billion,
• Debt of state-controlled banks and organizations: $16.9 billion,
• Private sector external debt: $135 billion.
Due to the growing budget deficit, the cost of servicing public debt is also increasing. In 2019, debt payments accounted for 6% of total government spending, but by 2024, this share had risen to 9.3%.
Despite these trends, Kazakhstan maintains a relatively conservative debt policy. The country’s public debt remains below 25% of GDP, which is considered a safe level. The IMF, for example, suggests that public debt should stay below 40% of GDP for sustainable development.
Alternative Solutions
I believe that Kazakhstan can address its budget deficit without raising VAT. Instead, the government could consider the following measures:
1. Reducing the use of cash transactions to shrink the shadow economy, which currently accounts for about 18% of GDP according to official statistics.
2. Expanding the use of digital tenge for financing public spending and subsidies.
3. Creating a portfolio of ready-to-go investment projects for foreign investors.
4. Improving transparency in government spending by introducing tax money tracking systems. This would allow businesses, particularly large taxpayers, to see exactly where their tax contributions are being spent.
Raising VAT is just one way to address the budget deficit, but it is not the only option. By focusing on structural reforms and increasing transparency, Kazakhstan can strengthen its economy without placing an additional burden on businesses and consumers.
Prepared by Yerlan Karimov, Independent Expert, exclusively for www.economyKZ.org
