Kazakhstan Needs Revenue Boost for Long-Term Investments, Says WB Report

Kickin' It with Kazakhstan: Tax Reforms for Long-Term Prosperity

Welcome folks! Let's dive into the World Bank's latest scoop on Kazakhstan's economic landscape, called "Funding the Future: Boosting Revenues for Lasting Investments". This report paints a mixed picture for the country, predicting growth to accelerate from 4% in 2024 to 4.5-5% in 2025, thanks to increased oil production and continued fiscal support. But don't pop the champagne just yet — after 2025, growth is expected to slow due to low productivity and declining investments.

Inflation is gradually decreasing, but it's still higher than the target, hovering around 7.5-8% in 2025 and 6% in 2026. Fiscal expansion and increased currency volatility might keep inflationary pressures afloat. Keen on potential speed bumps, the report spots three major risks: declining global oil demand, prolonged fiscal expansion, and the effects of extreme weather events on critical infrastructure and business activities.

Now, here's the juicy part. Kazakhstan's tax revenues are pretty weak compared to its peers, which limits funding for essential public services and growth opportunities. The report sheds light on revenue mobilization reforms to tackle this issue head-on.

So, what's the game plan? First and foremost, transitioning to a progressive income tax system. Next on the list: phasing out inefficient tax incentives, revamping VAT, aligning excise taxes with environmental goals, and beefing up tax administration.

The current infrastructure deficit calls for a hefty investment boost to enhance productivity and provide uninterrupted, resilient public services. To cover these costs, it's crucial to ramp up revenues for long-term sustainability.

Kazakhstan's government has laid out a three-year fiscal plan up until 2027, promising increased spending in social assistance, healthcare, agriculture, and small and medium-sized enterprises. Although oil production is set to rise, oil-related revenues might remain constrained due to stable yet modest oil prices through 2027. Non-oil revenues will likely benefit from improved administration efforts and ongoing digitalization, but this increase in expenditure is predicted to outpace revenue gains, widening the fiscal deficit to 3.1% in 2025 before easing slightly to 2.7% in 2026. The deficit will likely be funded through a blend of domestic borrowing, external loans, and additional withdrawals from the National Oil Fund. Debt is projected to rise gradually from an estimated 22.2% of GDP in 2024 to 24% by 2027, which is still lower than global averages and manageable, according to the report.

That's the rundown! The World Bank's report and related discussions suggest a 3-pronged approach: targeted tax rate adjustments, enhanced administration, improved compliance mechanisms, and a focus on sectors beyond extractive industries to create a fairer, more efficient, and investment-friendly tax system in Kazakhstan.

[1] Kaivilav film's lightbulb moment: tax system disruption[3] The real deal: fiscal planning and enforcement[5] The tax code: draft of changes and rate adjustments

To ensure financial sustainability and foster business growth in Kazakhstan, the World Bank suggests implementing a 3-pronged approach that includes targeted tax rate adjustments, enhanced administration, and improved compliance mechanisms, with a focus on sectors beyond extractive industries, aiming to create a fairer, more efficient, and investment-friendly tax system.
For Kazakhstan to address its weak tax revenues and fund essential public services and growth opportunities, the government is currently working on revenue mobilization reforms, such as transitioning to a progressive income tax system, phasing out inefficient tax incentives, revamping VAT, aligning excise taxes with environmental goals, and strengthening tax administration.