Institute for War and Peace Reporting | Giving Voice, Driving Change

Small Firms Feel Effects of Tax Change

Reporter Nurlan Abdaliev discovered that private firms are going underground or cutting jobs because of a recent change in Kyrgyzstan’s tax laws.
From January, the government substantially increased the costs for small companies that want to benefit from a fast-track tax system where they buy a license known as a “patent”. After an initial tax inspection, this document serves as proof that a business had paid the bulk of its taxes. The arrangement frees small businesses of onerous bookkeeping and tax submissions.

The threefold increase in the fee for a “patent” seems to have hit small-time operators like hairdressers, saunas and taxi drivers the hardest.

Managers at one hairdresser’s shop said they had cut staff numbers and raised prices – and were losing customers as a result.

The reason the government has made the “patent” scheme more expensive is that people were misusing it to conceal their real taxable income.

Bakyt Turdubaev, who sits on the Kyrgyz parliament’s budget and finance committee, says money collected under the “patent” system contributes a meagre four per cent of total tax revenues. How, he asks, is the government to underwrite increases in pensions and public-sector pay if it cannot collect taxes?

But if the main aim is to increase total revenues, it is hard to tell whether the latest change will achieve this since at present, it seems to be driving businesses to cut back on overheads, close down or slip away into the black economy – none of which is good for tax collection.

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