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Kyrgyzstan Review, 10 years ago

[14.02.23] Who Will Pay VAT?

Tax reforms engulfed Kyrgyzstan right after the referendum. While real estate tax is looming in the near future, new VAT on agricultural turnout is already a present day reality. There are just a few technical details left: for APR to approve it and for the President to sign
All agricultural producers with yearly turnout of over 300 thousand soms, like industrial producers, will now pay VAT. Finance ministry estimated that about 156 farms will be the payers
Deputy A. Madumarovs protests against the new tax were backed up with solid evidence. He stated that nobody has done any preliminary calculations or prognosis. A. Madumarov argued that everybody is talking of some major producers while the republic is importing flour, noodles, wheat, juices and even mineral water from Kazakhstan. The deputy believes that regular people, not some major producers will be the ones to suffer consequences of the new tax.
His colleague N. Bailo, on the contrary points out all the positive aspects of the new tax and the benefits that it will incur. In particular, it will put an end to the common practice of local akims who report overestimated performance of agricultural sector. For instance, in Bishkek area, crop capacity of some lands exceeds that of the Soviet times while peasants dont have money for fertilizers, same types of crop are planted and harvested for several years running and many fields are simply overgrown by weed.
N. Bailo states that we yield record crops every year, but already in spring they mysteriously dissolve
E Bytsko, chairman of the agricultural enterprise Rassvet:
- Levying VAT from major agricultural producers will result in their bankruptcy. Naturally, agricultural sector of the country will suffer as well. Time has proved that minor landowners can not be the leading force of the sector. Most of agricultural produce is now the output of big farms that managed to survive through the reforms, keep their equipment and people.
Besides, most of the villages now are only living off such enterprises. They create jobs and support rural population. For instance, we invest into the World Bank project to reconstruct water supply system, help the orphanage and hold competitions for the school students.
New VAT will force us to split into smaller enterprises that will no longer be able to support such projects
Of course I understand that the state is in need of financial resources. We proposed to increase the land tax with regard to climate and district of the country up to two times. It can be treated as a fixed VAT rate and will cost the farms only 2 soms per hectare a day. Now, on average this tax is 360-370 soms ( about 1 som a day)
We have contributed 4.3 mln soms of different taxes into the budget just last year. Our people earn good salary. Does anybody feel bad about it? If the new VAT law is enacted, the state wont even get the money it collects now. Agricultural enterprises will simply fall apart
M. Ismailov, deputy to finance minister:
- We say that everybody is equal to the law. However, in Kyrgyzstan industrial producers are the ones to bear the tax burden 51% of all budget revenues, while agricultural sector, accounting for 55% of GDP, has a very small share in the budget revenues. Agricultural producers only pay the unified agricultural tax - just 4% of all taxes collected.
The new VAT sets equal terms for all producers. Besides, it is a preventive measure against smuggling of fuel and lubricating materials as all expenditures for purchase material resources will be registered to lower their VAT payments. Of course, they will have to provide the necessary documents, like invoice to prove the purchase of fuel and lubricating materials. Who can provide such prove? Only those enterprises that are conducting legal activities.
A. Japarov, head of Legislative Assembly Committee on tax and customs duties:
- We are in too much of a hurry to introduce the new VAT. However, to collect it, it is first necessary to settle the invoice system in the agricultural sector. That will allow major agricultural producers receive offsets in VAT. Otherwise the consequences of new VAT might have a negative impact, including the rising prices on agricultural produce. Besides, the Finance Ministry has to familiarize peasants with the new legislature.
The Government misinterprets the adopted strategy of tax reforms. It only introduces new taxes without canceling the old ones. Therefore I believe that new VAT is a big political gesture that we have to make under conditions set by the IMF.

Gazeta KP v Kyrgyzstane, February 14, 2003

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