Kyrgyz Tax Change to Hit Smaller Businesses

Officials say previous rules were too lax and allowed private firms to evade taxes.

Kyrgyz Tax Change to Hit Smaller Businesses

Officials say previous rules were too lax and allowed private firms to evade taxes.

Businesses in Kyrgyzstan are questioning new rules that require more of them to fill out an exhaustive tax return, saying the move comes at a very bad time for an economy that is already suffering the effects of the international financial crisis.

From January 1, the government has reduced from 122 to 71 the list of categories of business allowed to buy a certificate as proof of payment of taxes. In addition, the fee for the certificate has been raised several times over. The increase will vary from twice the previous rate to sevenfold.

The changes are being introduced in line with a new tax code which parliament passed in October.

The certificate or license, known as a “patent”, was introduced in 1996 as a fast-track taxation system to make live easier for small and medium-sized companies such as food shops, cafes, billiard halls and saunas.

The document was issued by the tax authorities as proof that the business concerned had paid all its dues, with the exception of taxes on property, land taxes and advertising and the refuse collection fee. Once they had undergone an initial tax inspection, firms were freed from the obligation to maintain detailed bookkeeping and file tax returns.

Erkin Sazykov of the tax committee’s press office said the decision was taken to improve tax collection rates.

He said the licensing system had encouraged tax evasion, and predicted that it would be scaled down further.

“The voluntary approach to acquiring a license has allowed entrepreneurs to avoid bookkeeping and submitting accounts, and to conceal a certain amount of their profits,” he said. “This in turn led to a loss of state revenues.”

Private firms say this is not the right time to be putting them under more pressure, and warn that some will now opt to retreat into the black economy and pay no taxes whatsoever.

“In the current environment of global crisis, which affects us too, the leaders of other countries are – unlike ours – trying to support businesses,” said Tursuntay Salimov, deputy head of the Union of Kyrgyz Entrepreneurs. “By taking such decisions, our government is making life more difficult for businessmen, most of whom work just to feed their families.”

Salimov said the extra workload of accounting, and the higher fees charged to those still able to buy tax licences, might prove too much of a strain for some businesses and drive them to the wall.

He said his association had received many phone calls from businessmen who were prepared to work together to voice their concerns.

“Right now, we are drafting a petition to Prime Minister Igor Chudinov asking the government to reconsider its decision,” he said. “If it doesn’t, the pressure on small and medium businesses will result in an army of unemployed and a deterioration in the general economic situation.”

Nurlan Abdyshev, an economic analyst with the business magazine of AKIpress news agency, agreed that the timing was poor. “We have been in a difficult economic situation since last November, and businesses are finding it harder and harder to function.”

He predicted, “Businesses will go underground and the budget will not get the revenue it anticipates.”

Sazykov issued a stern warning that any company that tried operating outside the tax system would be caught.

“The financial police do a good job, and if they identify an entrepreneur who is operating in the shadow economy, they’ll impose massive fines,” he said. “I believe businesses would rather operate legally than pay large sums in penalties or bribes.”

Some Kyrgyz parliamentarians have questioned the government decision. On January 15, Alisher Sabirov of the governing Ak Jol party asked for an explanation of how the increase in the license price had been calculated.

The owner of a small bakery in the capital Bishkek, who gave her name only as Mansura, told IWPR of her fears that her business would no longer remain competitive.

“We’ve heard a lot of complaints from customers who want bread prices to go down, given that the cost of flour has fallen. No one cares that electricity, fuel and rent costs have increased – and now the [tax] license is going to cost us twice as much,” she said.

“Under such circumstances, we can’t consider lowering the prices of our products. It would be enough to maintain our current prices and still stay afloat.”

Asyl Osmonalieva is an IWPR-trained journalist in Bishkek.
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