Businesses Seek Subsidies in Lieu of Tax Breaks

As the end looms for tax breaks for commerce, Kazak businesses have made a plea for key sectors of the economy to receive subsidies. However, economists say that the success of subsidised sectors depends very much how the money is used.



On July 9, the economic chamber of the Atameken Union of Entrepreneurs issued a statement that was generally supportive of the government’s plans to abolish taxation for domestic producers, but arguing that certain essential areas of the economy like agriculture and associated industries and the engineering sector need to be supported by state subsidies.



The proposals from the business group will now go to parliament for review.



Agriculture has been heavily subsidised in recent years, to cover losses incurred due to climatic fluctuation and the changing cost of fuel and machinery.



Prime Minister Karim Masimov announced plans to change taxation legislation and abolish tax breaks back in January.



NBCentralAsia analysts agree that some non-mineral based economic sectors need support before Kazakstan joins the World Trade Organisation, WTO – expected to happen this year or next – and is then required to reduce protectionist measures, including subsidies.



However, they warn that the end goal has to be to make these sectors competitive, and that means subsidies have to be properly targeted and used.



“Subsidies can help rebuild industrial infrastructure, but the problem is now how to allocate them but how to use them,” said political expert Maksim Kaznacheev. “The lion’s share of these funds are going to be retained [ie stolen] by officials, so it is hard to see this as a decisive change.”



Gulnur Rakhmatullina, head of the economics department at the Kazak Kazakstan Institute for Strategic Studies, also points to the direct correlation between the controls placed on how money is used and the success of subsidies as a policy.



“Managers on the ground must distribute the subsidies properly, so that the process is supervised by both local and national government,” she said.



Other commentators say that Kazakstan is unlikely to make its agricultural sector to internationally competitive by the time it joins the WTO and the doors open to imports, so it should focus on the most viable areas such as wheat production.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)