Some experts believe that formal income declarations, which are planned to be introduced for most Kazakhstanis in 2025, should be postponed. The effect of declarations by officials and employees of quasi-public sector enterprises hasn’t yet been noticeable, as The Times of Central Asia looks into the situation.

Many officials and employees of quasi-government companies are transferring assets to wives and relatives, authorities said at the start of the tax reform. The filing of declarations was supposed to bring the personal assets of this contingent into the light of the formal government record, but the effect has so far been imperceptible. The introduction of declaration for small and medium enterprises (SMEs) and sole proprietorships is reportedly leading to a further plunge of the private sector into the shadows, as entrepreneurs and business owners look for loopholes.

Additionally, outreach has largely lagged behind the public efforts. In particular, it’s not clear whether persons who receive only a salary or pension will have to submit declarations. Finally, Kazakhs complain that they don’t see the impact of compliance with the law, and in some regions, civil movements like “No Roads – No Taxes” are very popular. It may be added that reforms affecting the entire working population are often deadlocked inside the bureaucracy. The clearest example is the state health insurance system (OSMS), where billions of dollars of violations and imputations are revealed year after year.

In 2021, submissions of income documents began by civil servants and persons of equal stature, as well as their spouses. From 2023, employees of state institutions and the quasi-public sector, as well as their spouses, followed suit. From 2024, declarations will be made by managers and founders of legal entities conducting business, sole proprietorships, as well as their spouses. And culminating in 2025, all Kazakhstanis will start to declare their income. According to preliminary calculations, there will be about 13 million of these declarations.

Trying to bring order in the sphere of taxation, the Kazakh authorities focused on the methods and frameworks in the U.S. and other Western countries. Nevertheless, in the States, earlier noted in the press by tax expert Dmitry Kazantsev, the fiscal base from individuals is about 60% of tax revenues, in some European countries this figure exceeds 90%. In Kazakhstan, the tax base of individuals is about 6%, the expert explained.

In his opinion, although the main purpose of declaration in any country is to fight corruption and bring business out of the shadow economy, most citizens don’t understand the benefits of the reform. “It is necessary to explain to people what it is for, where we spend taxes, where it all goes. Because people don’t understand and don’t believe it. I think the main problem is that the state does not tell all this, financial literacy is at zero, and that’s why there is such resistance to declaration,” explained Kazantsev.

Now, as the universal declaration draws nearer, financial consultant Rasul Rysmambetov suggested postponing its implementation. “I think it is necessary to postpone universal declaration, continuing the declaration of civil servants. The point of declaring is to reduce the invisible (gray) part of the economy, including its illegal part. I am not mistaken if I say that we have the most cashless economy in the CIS [Commonwealth of Independent States]. Therefore, a significant part of the economy is in the foreseeable sector. The largest gray zones are outside Kazakhstan: these are usually intermediary firms in offshore zones, where profits from the export of raw materials are deposited. An attempt to impose forced declaration of individual entrepreneurs and other small firms – will not bring significant revenues to the budget,” wrote Rysmambetov in a social media post.

In addition, he drew attention to the lack of required training. “In my opinion, the introduction is premature because of the lack of preparation of the system of collection and processing of information, and most importantly — because of the lack of awareness of the population. We have to submit the declaration in mid-September, but many people still do not understand why this tool is needed and how to use it for their benefit,” Rysmambetov pointed out. He also referenced the failure of OSMS, which still has many “blind spots.”

According to the analyst, it takes time to train staff — employees of tax authorities, to train those filing declarations — “and this is hardly 70-80 percent online,” as well as the preparation of software. “The failure of the Ministry of Digital Development and Digital Components during the pandemic is forgivable, but now we are dealing with an even more important component of government life. We need to audit the tax systems, there are too many bugs, lags and other issues. I personally don’t trust the identity protection system at EGov and others. There is leakage on all fronts. If the Ministry of Digital Development doesn’t consider data leakage through Chinese equipment to be its problem, then it is deluded. Ministry is the body that should regulate absolutely all aspects of digital security, prescribe the policy of collecting and storing personal data,” Rysmambetov explained.

If those who have something to declare are rightly afraid of data leakage, most Kazakhstanis live from paycheck to paycheck, from pension to pension. They are concerned with two main questions: why must they declare obvious income? Purely on principle, should they even have to?

The answers are still vague. According to past clarifications by the Ministry of Finance, an entry declaration on Form 250 will have to be filed by all Kazakh citizens, even if they live only on earned salary or pension. A total of 13 million people will enter the universal declaration system, the ministry explained, but in, for example, 2026 or 2027, if a pensioner receives only a pension and no business income, then, according to some information, government agencies will consider canceling the need to keep filing declarations.

Compounding the problem is the fact that practically no preparation work is being carried out, and the uncertainty is eliciting nervousness and negatively coloring everyday Kazakhs’ opinion of the plan. Additionally, parallels with the introduction of the flawed OSMS system are inevitably being drawn. Funds have been allocated for a long time, but in February 2024, President Tokayev emphasized that over five years of mandatory social health insurance, the quality and accessibility of medicine in Kazakhstan haven’t improved. OSMS is still confusing and cumbersome, doesn’t meet expectations, and often complicates access to medical care. According to some reports, another reform of the healthcare financing system is being prepared.

Experts believe that everything needs to be carefully considered to ensure that universal income declaration does not share the fate of OSMS. In neighboring Kyrgyzstan, the first stage of transition to mass tax documentation started in 2023. The Unified Tax Declaration (UTD) must now be submitted by legal entities, state and municipal employees, as well as individual entrepreneurs. According to official information, all Kyrgyz citizens will notify the tax authorities of their income until 2026.