Individual Tax Income Tax: When and Why Do They Want to Introduce Progressive Taxation in Kazakhstan?
Today, 06:51, author Saule Isabaeva
In his recent Address to the People of Kazakhstan, the President of the country paid much attention to issues related to taxation and tax administration. Among other things, he proposed establishing differentiated rates of individual income tax (IIT), adding that the need for this had been long overdue. What prompted this initiative? Who will it affect? What might be the reaction of Kazakhstanis if the corresponding decision is made? How will it affect the revenue side of the budget? We tried to find answers to these questions together with Vyacheslav Dodonov, Chief Researcher at the Institute of Philosophy, Political Science and Religious Studies of the Kazakh National Research University of Higher Education.
- Vyacheslav Yuryevich, what do you think is the likelihood that such a decision will be made? And how will it be perceived by society?
- If the President of the country has posed the question in this way and, moreover, included it in the text of the Address, then, obviously, the decision on it will be positive. How will it be perceived by society? I think, without much interest, with the exception of those citizens who will be directly affected by this measure, that is, those whose income is so high that the PIT rate for them will increase.
- Most likely, the authorities are pursuing two main goals: firstly, to increase the revenue side of the budget, and secondly, to demonstrate to citizens their desire to reduce the difference in income between the richest and the poorest within the framework of the course on building a "Fair Kazakhstan". To what extent and under what conditions are these goals achievable? What are the risks here ?
- Since the proposal of the head of state was made, as you noted, including within the framework of the course on building a "Fair Kazakhstan", then, perhaps, a campaign will be organized to provide information support and explanation, emphasizing that differentiated rates are fairer. And if this campaign is large enough and properly structured, then, probably, it will be possible to reach "society", part of which will perceive this measure as correct.
In general, the change in rates (or rather, their increase for citizens with higher salaries) is unlikely to lead to a significant increase in the budget revenue. Yes, the individual income tax is considered one of the main taxes and the third in terms of tax revenue (after the value-added tax and corporate income tax). Last year, it brought in 8 percent of the state budget revenue. But, as it seems to me, the increase in rates will still cover a small amount of revenue, and the additional charges will not be noticeable on the scale of the state budget. Although they are extremely important now.
However, there is one nuance here. The situation with the republican budget is complicated and tense. Whereas the individual income tax goes to local budgets, where there are no particular difficulties today. On the contrary, their revenues exceed the planned ones. And in general, they are in surplus. Therefore, even if we assume that the differentiation of rates will lead to an increase in tax revenues, they will not affect the problems of the republican budget.
- Will such a decision lead to some Kazakhstanis concealing their real income?
- Changing the rates does not affect the difference in income, because this difference arises before taxation. Ensuring greater fairness of tax collections than now by differentiating rates, of course, may be the goal of such a step.
Many countries have a differentiated income tax scale, and this is normal practice. It used to work in Kazakhstan too. But when the transition to the so-called flat scale was carried out, the main argument was that with its low level (and 10 percent is a really low level, by world standards), a significant part of income will come out of the shadows. Whether there will be the opposite effect when introducing higher rates for high incomes is an open question.
- What do you see as the optimal scheme of differentiated PIT rates, in which both the risks of going into the shadows will be minimal and there will be more social justice? Or is this not the case when something needs to be changed?
- Much depends on what scheme will ultimately be adopted, how many people it will affect, etc. I am not prepared to give a forecast in this part, nor to propose a corresponding scheme. If the changes are insignificant, for example, affect a small number of wealthy citizens, and the rates are not too high (say, up to 15 percent), then the risks of going into the shadows may be small.
