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\pard\li2893\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li2893\ri0\sl-213\slmult0 \fs
18\cf0\par\pard\li2893\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li2893\ri0\sl-213\s
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0\sl-573\slmult0 \fs32\cf0\f0\charscalex100 {CHAPTER 2}\par\pard\li1293\ri0\sl-2
13\slmult0 \fs18\cf0\par\pard\li1293\ri0\sl-600\slmult0 \fs36\cf0\f0\charscalex1
00 {THE BASIC OBJECTIVES AND}\par\pard\li1333\ri0\sl-466\slmult0 \fs36\cf0\f0\ch
arscalex100 {PRINCIPLES OF }\fs36\cf0\f0\charscalex100 {TAX POLICY}\par\pard\li2
253\ri0\sl-466\slmult0 \fs36\cf0\f0\charscalex100 {FOR KAZAKSTAN}\par\pard\li242
6\ri0\sl-400\slmult0 \fs28\cf0\f0\charscalex100 {C}\fs18\cf0\f0\charscalex100 {H
ARLES}\fs28\cf0\f0\charscalex100 { E. M}\fs20\cf0\f0\charscalex100 {C}\fs28\cf0\
f0\charscalex100 {L}\fs20\cf0\f0\charscalex100 {URE}\fs28\cf0\f0\charscalex100 {
, J}\fs20\cf0\f0\charscalex100 {R}\fs28\cf0\f0\charscalex100 {.}\par\pard\li680\
ri0\sl-213\slmult0 \fs18\cf0\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\par
d\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0
\par\pard\li680\ri0\sl-386\slmult0 \fs24\cf0\f0\charscalex100 {INTRODUCTION}\par
\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs
22\cf0\f0\charscalex100 {Much of Eastern Europe and the FSU began the process of
tax}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {reform witho
ut having a clear idea of the basic objectives of reform}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {nor a coherent strategy for reaching the
ir objectives. That strategy}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\ch
arscalex100 {might be likened to starting on a trip without having a map or}\pa
r\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {even a destination.
As a result, these countries have groped about,}\par\pard\li680\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {enacting first one tax law and then another. Th
ese countries then}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{had little regard for either consistency with the proper objectives}\par\pard\
li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of tax reform or the stabil
ity of their tax systems in the enactment}\par\pard\li680\ri0\sl-266\slmult0 \fs
20\cf0\f0\charscalex100 {of such laws. The result has been inequity, complexit
y, and}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {distortion
s of economic decisions.}\fs10\cf0\f0\charscalex100 {1}{ }\fs20\cf0\f0\charscale
x100 { Perhaps worse, the constantly}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {changing signals emanating from the tax systems of these cou
ntries}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {have disco
uraged investors, already wary due to the uncertain}\par\pard\li680\ri0\sl-266\s
lmult0 \fs20\cf0\f0\charscalex100 {political environment and economic difficulti
es of the former Eastern}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charsca
lex100 {bloc.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Ra
ther than following this ill-advised approach, the Government}\par\pard\li680\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of Kazakstan, with the help of West
ern advisors, prepared a}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charsca
lex100 {Concepts Paper that set forth the objectives, principles, and basic}\pa
r\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {outline of its tax r
eform before starting to draft the new tax code.}\par\pard\li680\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {This is in keeping with the Kazakstan government
s commitment}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {to t
he stability of its tax code. Chapter 2 summarizes the objectives}\par\pard\li6
80\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and principles that Western ad
visors argued in early 1994 should}\par\pard\li1133\ri0\sl-386\slmult0 \fs10\cf0
\f0\charscalex100 {1}\fs16\cf0\f0\charscalex100 { On the complexity that has res
ulted, see McLure (1995).}\par\pard\sect\sectd\sbkpage
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0 {6 8 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100 {IN}\fs16\cf0\f0\c
harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex100
{underlie tax reform in Kazakstan;}\fs12\cf0\f0\charscalex100 {2}{ }\fs22\cf0\f0
\charscalex100 { while most were reflected in}\par\pard\li600\ri0\sl-266\slmult
0 \fs20\cf0\f0\charscalex100 {the Concepts Paper, }\fs20\cf0\f0\charscalex1
00 {some were }\fs20\cf0\f0\charscalex100 {not. This chapter pr}\fs20\cf0\f0\
charscalex100 {ovides a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {useful set of standards against which to measure the success of}\par\pard
\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {Kazakstans tax reform.}\pa
r\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {It should be noted a
t the outset that objectives and principles}\par\pard\li600\ri0\sl-266\slmult0 \
fs20\cf0\f0\charscalex100 {are not sufficient to answer some questions. In par
ticular, it is}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {im
possible to know, simply as a matter of principle, the tax rates}\par\pard\li600
\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {that will be needed to finance g
overnment in a noninflationary}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {manner. To achieve this, it is necessary to have a capacity to}\
par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {estimate expenditu
re needs and revenue collections (see}\par\pard\li600\ri0\sl-266\slmult0 \fs22
\cf0\f0\charscalex100 {Chapter 4).}\par\pard\li600\ri0\sl-400\slmult0 \fs24\cf0\
f0\charscalex100 {REVENUE ADEQUACY}\par\pard\li960\ri0\sl-213\slmult0 \fs18\cf0\
par\pard\li960\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {Revenues must be a
dequate to finance the proper functions of}\par\pard\li600\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {government without resorting to inflationary finance,
such as the}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {print
ing of money, to finance budget deficits. The experience of}\par\pard\li600\ri0\
sl-266\slmult0 \fs20\cf0\f0\charscalex100 {countries in transition from socialis
m that have failed to heed this}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\
charscalex100 {simple tenet drives the lesson home.}\par\pard\li960\ri0\sl-266\s
lmult0 \fs16\cf0\f0\charscalex100 {E x a c t l y h o w m u c h t a x r e
v e n u e w i l l b e n e e d e d f o r}\par\pard\li600\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {noninflationary government finance is by no mean
s obvious. It}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {w
ould be a serious mistake to assume that budgetary expenditures}\par\pard\li600\
ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {are fixed and immutable, even in
real (inflation-adjusted) terms.}\par\pard\li600\ri0\sl-413\slmult0 \fs24\cf0\f0
\charscalex100 {Transition and the Need for Revenue}\par\pard\li960\ri0\sl-213\s
lmult0 \fs18\cf0\par\pard\li960\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {T
he very process of transition to a market economy will have a}\par\pard\li600\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {profound effect on both the proper
level of government}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex10
0 {expenditures and the ease of raising revenues. As state enterprises}\par\par
d\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {are commercialized, enter
prise managers will express a strong and}\par\pard\li600\ri0\sl-266\slmult0 \fs2
0\cf0\f0\charscalex100 {appropriate desire to cease providing many services that
are}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {commonly pro
vided by governments in countries with market}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {economies; education and health care are two of the
most important}\par\pard\li1066\ri0\sl-440\slmult0 \fs8\cf0\f0\charscalex100 {2
}\fs14\cf0\f0\charscalex100 { This chapter is based on material the Internationa
l Tax and Investment Center}\par\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\char
scalex100 {prepared for the Minister of Finance in early 1994. Reflecting its
genesis, this}\par\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {dis
cussion is, for the most part, not technical. This statement of the basic objec
tives of}\par\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {tax refo
rm is reproduced here with relatively minor additions and editorial revisions}\p
ar\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {(plus the omission
of a brief discussion of intergovernmental tax issues, covered at}\par\pard\li66
6\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {length in Chapters 7-10) to pre
serve the historical record. Thus, use of the future}\par\pard\li666\ri0\sl-226\
slmult0 \fs14\cf0\f0\charscalex100 {tense is preserved, even though it may seem
inappropriate in a general statement of}\par\pard\li666\ri0\sl-226\slmult0 \fs14
\cf0\f0\charscalex100 {principles. In a few cases, footnotes have been added to
bring the discussion up to}\par\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\char
scalex100 {date. See also the protocol the Government of Kazakstan and the Tax
Foundation}\par\pard\li666\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {signed
in March 1993 (McLure 1993), specifying areas of basic agreement on the}\par\pa
rd\li666\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {need for stability and c
ertainty in tax policy.}\par\pard\sect\sectd\sbkpage
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\margtsxn666\margbsxn186\pard\li1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\ch
arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {6 9}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {of many such examples. These
desires will become even stronger}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {(and more appropriate) as enterprises are privatized. New pri
vate}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises
generally should not be saddled with the responsibility}\par\pard\li680\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {of providing such services, for such expe
nditure mandates are, in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charsca
lex100 {essence, a form of taxation that can have very adverse consequences.}\pa
r\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {One exception to thi
s general principle is that investors operating}\par\pard\li680\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {in remote areas may be required to construct the
roads needed to}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {s
ervice their facilities.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charsc
alex100 {The move to a market economy will render many enterprises}\par\pard\li6
80\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {unprofitable. Provided enter
prises face prices that approximate}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0
\f0\charscalex100 {world prices (or their equivalent, in the case of nontraded g
oods}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and services
), unprofitable enterprises should be forced to go out}\par\pard\li680\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {of business.}\fs10\cf0\f0\charscalex100 {3
}{ }\fs20\cf0\f0\charscalex100 { Bankruptcy will cause unemployment and hardshi
p}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {for affected wo
rkers who should be cushioned by a social safety}\par\pard\li680\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {net that includes a system of unemployment compe
nsation. Such}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {a
system will require budgetary resources, as will increases in}\par\pard\li680\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {pensions, scholarships, and salarie
s of certain government}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {employees needed to compensate for increases in the prices of}\par\pard\l
i680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {basic goods.}\par\pard\li104
0\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {An explicit social safety net r
equires fewer budgetary resources}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {than do two alternatives that have found populist support in ma
ny}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {countries in t
ransition from socialism. Many countries have allowed}\par\pard\li680\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {unprofitable enterprises to continue to op
erate, to avoid}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {u
nemployment. This generally requires more budgetary resources}\par\pard\li680\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {to finance subsidies to the enterp
rises than would an explicit system}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0
\f0\charscalex100 {of unemployment compensation. Moreover, once prices reflect
}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {true costs and v
alues, subsidization of unprofitable state enterprises}\par\pard\li680\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {prolongs the pain and economic cost of tra
nsition, and makes it}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex
100 {more likely that transition will be reversed. In some cases, state}\par\p
ard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises actually pr
oduce negative value added, if all inputs and}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {outputs are valued at world market prices or their
equivalents.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The
second, distinctly inferior, alternative to a social safety net}\par\pard\li680
\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {is state control of certain pric
es at artificially low levels. Goods}\par\pard\li680\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {most commonly subject to price controls are energy and bas
ic foods.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Price c
ontrols are commonly accompanied by subsidies to}\par\pard\li680\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {enterprises producing the price-controlled goods
. There are several}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex1
00 {problems with this approach. First, goods subject to price controls}\par\pa
rd\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {are generally consumed b
y the entire population, not just by those}\par\pard\li680\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {threatened by poverty. As a result, subsidies to goo
ds generally}\par\pard\li1106\ri0\sl-226\slmult0 \fs8\cf0\f0\charscalex100 {3}\f
s14\cf0\f0\charscalex100 { A problem not reflected in this statement is the cont
inued accumulation of}\par\pard\li693\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex
100 {arrears (unpaid credit to ot}\fs14\cf0\f0\charscalex100 {her state-owned en
terprises). In Western }\fs14\cf0\f0\charscalex100 {economies,}\par\pard\li693\
ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {continuation of sales to customer
s who do not pay their debts would result in}\par\pard\li693\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {bankruptcy, or at least replacement of management.}\
par\pard\sect\sectd\sbkpage
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\margtsxn666\margbsxn213\pard\li600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex10
0 {7 0 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100 {IN}\fs16\cf0\f0\c
harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex100
{require more budgetary resources than does a targeted social safety}\par\pard\l
i600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {net that provides transfer p
ayments only to the disadvantaged.}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {Second, price controls distort economic decisions and cause wa
ste.}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Examples are
well known; energy is wasted, because there is an}\par\pard\li600\ri0\sl-266\sl
mult0 \fs20\cf0\f0\charscalex100 {inadequate incentive to conserve it, and it is
common to hear stories}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {of subsidized bread being fed to animals where the price of bread}\par\pa
rd\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {is controlled. Finally,
it is difficult to force producers of goods that}\par\pard\li600\ri0\sl-266\slm
ult0 \fs20\cf0\f0\charscalex100 {benefit from subsidies to operate efficiently,
instead of relying on}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex
100 {subsidies to cover losses resulting from inefficiency.}\par\pard\li600\ri0\
sl-426\slmult0 \fs24\cf0\f0\charscalex100 {Transition and Revenue Potential}\par
\pard\li960\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li960\ri0\sl-293\slmult0 \fs20
\cf0\f0\charscalex100 {The transition to a market economy will, at least initial
ly, make}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {it more
difficult to raise tax revenues. In a socialist system, payments}\par\pard\li60
0\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {for most transactions are condu
cted through a highly concentrated}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {banking system. Transactions occur among enterprises, and betw
een}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises a
nd the government. They also obtain the money needed}\par\pard\li600\ri0\sl-266\
slmult0 \fs20\cf0\f0\charscalex100 {to meet payrolls. It is relatively simple to
use the banking system}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {to divert a portion of transaction payments to the budget, especially}\pa
r\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {because enterprise m
anagers have relatively little interest in resisting}\par\pard\li600\ri0\sl-266\
slmult0 \fs22\cf0\f0\charscalex100 {the payment of taxes.}\par\pard\li960\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {In a market economy, there is commonly
(and ideally should}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex10
0 {be) much less concentration of economic activity among enterprises,}\par\par
d\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {banks, and so on. Banks
may be involved in a far smaller fraction}\par\pard\li600\ri0\sl-266\slmult0 \fs
20\cf0\f0\charscalex100 {of business transactions. Moreover, owners of private
enterprises}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and m
anagers of commercialized state enterprises have strong}\par\pard\li600\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {incentives to resist paying taxes, by bot
h legal and illegal means.}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\chars
calex100 {Unfortunately, the tax administration inherited from the socialist}\pa
r\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {system is not adequa
te for these new circumstances. This implies}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {that it may be necessary for a country in transitio
n to be satisfied}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{with less tax revenue than a country with the same level of national}\par\pard\
li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {income that has a long hist
ory of tax compliance and a better tax}\par\pard\li600\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {administration. This implies, in turn, that the country m
ay be forced}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {to d
evote a smaller percentage of GDP to public services than it}\par\pard\li600\ri0
\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {might like, if it had a better tax a
dministration.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {It
may be possible for a country in transition from socialism to}\par\pard\li600\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {use revenues from privatization to
bridge the gap between tax}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\char
scalex100 {revenues and expenditures when the tax system is being modernized}\pa
r\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and made fully effec
tive. This is, however, a very risky strategy, and}\par\pard\li600\ri0\sl-266\s
lmult0 \fs20\cf0\f0\charscalex100 {one not to be adopted lightly. The risk is h
igh that revenues from}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscale
x100 {privatization will be employed to temporize, by postponing the}\par\pard\l
i600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprise reforms, privatiz
ation and tax reforms that are necessary}\par\pard\li600\ri0\sl-266\slmult0 \fs2
2\cf0\f0\charscalex100 {to make the economic system viable in the long run.}\par
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arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {7 1}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-386\slmult0 \fs24\cf0\f0\charscalex100 {ECONOMIC NEUTRALITY}\par\pard
\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs22\cf
0\f0\charscalex100 {One of the primary benefits of a market economy is that mark
ets}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {produce a rel
atively good allocation of a nations scarce resources:}\par\pard\li680\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {what to produce and how to produce it. T
his is true, however,}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex
100 {only if prices truly reflect values, instead of being set artificially, as}
\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {under central pla
nning, and enterprise managers face a hard budget}\par\pard\li680\ri0\sl-266\slm
ult0 \fs20\cf0\f0\charscalex100 {constraint, the threat of bankruptcy, and dismi
ssal if they}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {cons
istently incur losses. The failure of socialism, with its artificial}\par\pard\
li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {control of prices and its s
oft budget constraints, is one of the}\par\pard\li680\ri0\sl-266\slmult0 \fs22\c
f0\f0\charscalex100 {strongest endorsements of using markets to allocate resourc
es.}\par\pard\li680\ri0\sl-413\slmult0 \fs24\cf0\f0\charscalex100 {Principles of
Neutral Taxation}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\
ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {Markets can allocate resources to
their best uses only if taxes}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {and subsidies (which can be seen as negative taxes) do not unduly}
\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {interfere with ma
rket choices; that is, if they are neutral. The}\par\pard\li680\ri0\sl-266\slm
ult0 \fs20\cf0\f0\charscalex100 {design of neutral taxation is a highly technica
l and complicated}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{topic. It seems, however, that guidelines for tax policy in this area}\par\par
d\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {should include the follow
ing principles.}\fs12\cf0\f0\charscalex100 {4}\par\pard\li1400\ri0\sl-440\slmult
0 \fs20\cf0\f0\charscalex100 {In general, neutrality requires that indirect taxe
s on}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {consumption
apply equally to all forms of consumption}\par\pard\li1400\ri0\sl-266\slmult0 \
fs20\cf0\f0\charscalex100 {and that direct taxes on income apply equally to all
income,}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {without
regard to its source or use. (VAT is an indirect tax;}\par\pard\li1400\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {the enterprise and individual income taxes
are direct taxes.)}\par\pard\li1400\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex1
00 {This can be called the}{ }\fs22\cf0\f0\charscalex100 {principle of uniform t
axation.}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {There a
re exceptions to this rule of equal taxation. It is}\par\pard\li1400\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {appropriate, where feasible, to use taxes
related to the}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {b
enefits of public services to finance provision of such}\par\pard\li1400\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {services. This can be called the}\fs20
\cf0\f0\charscalex100 { benefit principle}\fs20\cf0\f0\charscalex100 {. (It i
s}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {even better to
use fees and charges to finance public}\par\pard\li1400\ri0\sl-266\slmult0 \fs2
0\cf0\f0\charscalex100 {services, but this is generally not feasible.) This is
fair, and}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {it enc
ourages rational decision making in the provision of}\par\pard\li1400\ri0\sl-266
\slmult0 \fs20\cf0\f0\charscalex100 {such services. The use of taxes on motor f
uels to finance}\par\pard\li1093\ri0\sl-226\slmult0 \fs10\cf0\f0\charscalex100 {
4}\fs16\cf0\f0\charscalex100 {Some academic critics may object that optimal taxa
tion generally does not call}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\cha
rscalex100 {for uniform taxation. While this is true, uniformity seems to be an
appropriate goal for}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex
100 {Kazakstan. First, the information needed to implement optimal taxation gen
erally is}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {not ava
ilable in Kazakstan. Second, Kazakstan lacks the capacity for tax administratio
n}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {and compliance
required to implement a highly differentiated system of optimal}\par\pard\li680\
ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {taxation. Third, the literature
of optimal taxation generally ignores the horizontal}\par\pard\li680\ri0\sl-226\
slmult0 \fs16\cf0\f0\charscalex100 {inequities and the perception of inequity th
at result from highly differentiated taxation.}\par\pard\li680\ri0\sl-226\slmult
0 \fs16\cf0\f0\charscalex100 {Finally, once the theory of optimal taxation is us
ed to justify differentiation, it is}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf
0\f0\charscalex100 {difficult to prevent indefensible differentiation from enter
ing the tax code.}\par\pard\sect\sectd\sbkpage
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0 {7 2 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
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harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li1320\ri0\sl-21
3\slmult0 \fs18\cf0\par\pard\li1320\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex10
0 {highways is a common example of a tax that is related to}\par\pard\li1320\ri0
\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the benefits of public services. An
other example is the use}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charsc
alex100 {of taxes related to activities that cause public costs or}\par\pard\li1
320\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {damage to compensate for such
costs and damage.}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex10
0 {It is especially important to avoid distortions in the choice}\par\pard\li132
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arscalex100 {of businesses; faced with prices that are distorted by}\par\pard\li
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by employing inefficient}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\chars
calex100 {techniques of production. This causes misuse of the}\par\pard\li1320
\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {countrys scarce resources. An i
mportant principle guiding}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\char
scalex100 {tax policy should be to levy no taxes on business purchases}\par\pard
\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of capital equipment, int
ermediate goods, or other supplies,}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {other than those required to compensate for public services}
\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {or costs imposed
by the use of the taxed product (for}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {example, motor fuels). This can be called the}{ }\fs20\cf
0\f0\charscalex100 {principle of}\par\pard\li1320\ri0\sl-266\slmult0 \fs22\cf0\f
0\charscalex100 {tax-free business purchases.}\par\pard\li1320\ri0\sl-266\slmult
0 \fs20\cf0\f0\charscalex100 {Economic rents are defined as the earnings in exce
ss of the}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {amount
needed to bring forth an investment: what}\par\pard\li1320\ri0\sl-266\slmult0 \
fs20\cf0\f0\charscalex100 {economists call the normal return to capital. By}
\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {comparison, the
base of an income tax includes the normal}\par\pard\li1320\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {return to equity capital. Whereas a conventional inc
ome}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax reduces
the return to incremental investment, a tax on}\par\pard\li1320\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {economic rent does not. For this reason, taxes
on}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {economic rent
s are often preferred over income taxes on}\par\pard\li1320\ri0\sl-266\slmult0 \
fs20\cf0\f0\charscalex100 {economic grounds, especially in the natural resource
area.}\par\pard\li1320\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {This can b
e called the}{ }\fs22\cf0\f0\charscalex100 {principle of taxing economic rents.}
\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Some think it un
fair to exempt the normal return to capital}\par\pard\li1320\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {from taxation. Taxes on output of natural resources
are}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {even worse t
han income taxes in distorting choices. Such}\par\pard\li1320\ri0\sl-266\slmult
0 \fs20\cf0\f0\charscalex100 {taxes reduce the attractiveness of marginal, but e
conomically}\par\pard\li1320\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {viab
le resources and cause them not to be exploited.}\par\pard\li600\ri0\sl-306\slmu
lt0 \fs24\cf0\f0\charscalex100 {Achieving Neutral Tax Policy}\par\pard\li960\ri0
\sl-306\slmult0 \fs20\cf0\f0\charscalex100 {The achievement of tax neutrality re
quires implementation of}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charsca
lex100 {the principles mentioned above: the principle of uniform taxation,}\par\
pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the benefit principle,
the principle of tax-free business purchases,}\par\pard\li600\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {and the taxation of economic rents. The followi
ng describe the}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {i
mplications of these principles for the design of major taxes.}\par\pard\li960\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Value-added Tax.}\fs20\cf0\f0\char
scalex100 { In the case of VAT, neutrality requires that}\par\pard\li600\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {(i) there should be only one tax rate;
(ii) VAT should apply to all}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\cha
rscalex100 {consumption, with as few exceptions as administratively feasible;}\p
ar\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and (iii) immediat
e credit (and refunds, where credits exceed tax}\par\pard\sect\sectd\sbkpage
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arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {7 3}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {on sales) should be allowed f
or all taxes paid on purchases by}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f
0\charscalex100 {business, including capital investments.}\par\pard\li1040\ri0\s
l-266\slmult0 \fs22\cf0\f0\charscalex100 {Income Tax.}\fs22\cf0\f0\charscalex100
{ The definition of the base for the income tax}\par\pard\li680\ri0\sl-266\s
lmult0 \fs22\cf0\f0\charscalex100 {should be as comprehensive as possible. Ded
uctions should be}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{allowed for all reasonable expenses of earning income, but for}\par\pard\li680\
ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {little else.}\fs12\cf0\f0\charsca
lex100 {5}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Natura
l Resources Tax.}\fs20\cf0\f0\charscalex100 { Consideration should be given to
taxing}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {economic r
ents, instead of income, as conventionally defined. Taxes}\par\pard\li680\ri0\s
l-266\slmult0 \fs22\cf0\f0\charscalex100 {on output of natural resources are to
be avoided, except as needed}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\cha
rscalex100 {to compensate for costs, for example, to repair damage to the}\par\p
ard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {environment.}\par\pard\
li680\ri0\sl-400\slmult0 \fs24\cf0\f0\charscalex100 {ENCOURAGEMENT OF SAVING AND
INVESTMENT}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl
-293\slmult0 \fs22\cf0\f0\charscalex100 {To revitalize its economy, Kazakstan wi
ll need large amounts}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex
100 {of saving and investment. Part of the required saving will be from}\par\pa
rd\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {domestic sources, but mu
ch of it must come from abroad. Local}\par\pard\li680\ri0\sl-266\slmult0 \fs22\
cf0\f0\charscalex100 {residents must be persuaded to save and to invest their sa
vings at}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {home, ra
ther than abroad. Foreign investment will be especially}\par\pard\li680\ri0\sl
-266\slmult0 \fs22\cf0\f0\charscalex100 {important in the natural resource area,
where it will be accompanied}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\ch
arscalex100 {by modern technology. In some cases, the tax treatment of}\par\pa
rd\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {expatriate employees wil
l directly affect the attractiveness of}\par\pard\li680\ri0\sl-266\slmult0 \fs22
\cf0\f0\charscalex100 {investment in Kazakstan. For all these reasons it is im
portant to}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {enact
a tax code that is conducive to saving and investment and}\par\pard\li680\ri0\sl
-266\slmult0 \fs22\cf0\f0\charscalex100 {that does not treat expatriate workers
unduly harshly.}\par\pard\li1040\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {
The treatment of losses under the income tax deserves special}\par\pard\li680\ri
0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {consideration, as overly restrictiv
e treatment of losses can create a}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\
f0\charscalex100 {serious impediment to saving and investment. The issue is whe
ther}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {to allow los
ses incurred in one year to be carried forward to offset}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {income earned in future years. It is es
pecially important in capital-}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\c
harscalex100 {intensive industries that must make large investments long before}
\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {starting to reali
ze net income from operations.}\par\pard\li1040\ri0\sl-266\slmult0 \fs22\cf0\f0\
charscalex100 {Both fairness and economic analysis favor unlimited}\par\pard\li6
80\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {carryforward of losses.}\fs12\
cf0\f0\charscalex100 {6}{ }\fs22\cf0\f0\charscalex100 { An asymmetric system in
which the}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {govern
ment shares in profits, but not losses, is patently unfair.}\par\pard\li680\ri0\
sl-266\slmult0 \fs22\cf0\f0\charscalex100 {Moreover, such a system discourages i
nvestment, especially in}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charsca
lex100 {capital-intensive and risky ventures. To be fully ef}\fs22\cf0\f0\chars
calex100 {fective, loss}\par\pard\li1093\ri0\sl-226\slmult0 \fs10\cf0\f0\charsca
lex100 {5}\fs16\cf0\f0\charscalex100 { The important questions of tax holidays
and inflation adjustment in the}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\
charscalex100 {measurement of income are discussed briefly in Chapter 3.}\par\pa
rd\li1093\ri0\sl-226\slmult0 \fs10\cf0\f0\charscalex100 {6}\fs16\cf0\f0\charscal
ex100 { Common sense also suggests that carryforward of losses should be allowed
;}\par\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {after all, it i
s the arbitrary division of time into years that causes losses to be realized}\p
ar\pard\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {in some periods and
profits in others. There would be very little need for carryforwards}\par\pard
\li680\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {of losses if accounting st
atements covered 100 years.}\par\pard\sect\sectd\sbkpage
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0 {7 4 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100 {IN}\fs16\cf0\f0\c
harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex100
{carryforwards should be protected from inflation; otherwise, they}\par\pard\li6
00\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {will lose value in times of ra
pid inflation.}\par\pard\li600\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li600\ri0\s
l-320\slmult0 \fs24\cf0\f0\charscalex100 {LOW STATUTORY RATES}\par\pard\li960\ri
0\sl-213\slmult0 \fs18\cf0\par\pard\li960\ri0\sl-280\slmult0 \fs20\cf0\f0\charsc
alex100 {It is important that Kazakstan adopt tax rates that are as low as}\par\
pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {possible, given other
objectives of tax policy, including revenue.}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {Low tax rates minimize the adverse incentive effects
of taxation,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {inc
luding incentives for evasion, and the inequities and distortions}\par\pard\li60
0\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of economic activities produced
by the failure to tax all activities}\par\pard\li600\ri0\sl-266\slmult0 \fs22\c
f0\f0\charscalex100 {equally.}\par\pard\li600\ri0\sl-506\slmult0 \fs24\cf0\f0\ch
arscalex100 {Benefits of Low Rates}\par\pard\li960\ri0\sl-213\slmult0 \fs18\cf0\
par\pard\li960\ri0\sl-333\slmult0 \fs20\cf0\f0\charscalex100 {Incentive effects
are potentially very important for work effort,}\par\pard\li600\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {where there is a significant risk of emigration o
f skilled workers}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{commonly called brain drain in the West: saving, where capital}\par\pard\li600\
ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {flight is a potential problem; in
vestment, especially by foreign}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\
charscalex100 {multinational corporations; and entrepreneurial activity. Rates
must}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {be kept low
enough that these activities, which are crucial to the}\par\pard\li600\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {future economic development of Kazakstan,
are not unduly}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {im
peded.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {It is gene
rally impossible to follow all the rules for neutral tax}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {policy outlined above. This is true for
technical and political reasons.}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {Thus, some distortions of economic decisions are inevitable. L
ow}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax rates mini
mize the distortions caused by both intentional and}\par\pard\li600\ri0\sl-266\s
lmult0 \fs22\cf0\f0\charscalex100 {unintended departures from neutrality.}\par\p
ard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The same departures fro
m uniformity that create distortions}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {tend also to create inequities, as some people pay taxes and
others}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {do not.
Low statutory rates also tend to minimize inequities. With}\par\pard\li600\ri0\
sl-266\slmult0 \fs20\cf0\f0\charscalex100 {low tax rates, departures from unifor
mity matter less for equity, as}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\
charscalex100 {for neutrality.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {International considerations alter these conclusions somewhat.}\pa
r\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {It is appropriate
to levy taxes on enterprises that approximate}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {those in countries from which Kazakstan hopes to at
tract investment.}\par\pard\li600\ri0\sl-306\slmult0 \fs24\cf0\f0\charscalex100
{Implications for Policy}\par\pard\li960\ri0\sl-440\slmult0 \fs20\cf0\f0\charsca
lex100 {Care should be taken not to tax high incomes excessively; to}\par\pard\l
i600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {do so runs the risk of causi
ng serious disincentives, distortions,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {and inequities. Although hard and fast rules are not pos
sible, it}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {seems t
hat marginal income tax rates in excess of 40 percent should}\par\pard\li600\ri0
\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {be avoided.}\par\pard\sect\sectd\sbk
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f0\f0\charscalex100 {on income taxes. In virtually all countries in transition
from}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {socialism,
the taxes levied to finance social welfare are more}\par\pard\li680\ri0\sl-266\s
lmult0 \fs20\cf0\f0\charscalex100 {important than income taxes, except at the ve
ry top of the income}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex1
00 {tax rate schedule (McLure 1995). VAT also discourages work, by}\par\pard\li6
80\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {reducing its benefits. Care
must be taken that these taxes, in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {combination with income taxes, do not stifle work effort and}\
par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {entrepreneurship.}
\par\pard\li680\ri0\sl-440\slmult0 \fs24\cf0\f0\charscalex100 {FAIRNESS}\par\par
d\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs20\c
f0\f0\charscalex100 {Fairness is an important characteristic of any tax system.
In}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {addition to
the obvious attractions of fairness, a system that is not}\par\pard\li680\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {fairand that is seen not to be fairwill
not be respected. The}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {lack of respect for the tax system will undermine respect for}\par\pard\l
i680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {government, as well as the a
bility to collect taxes.}\par\pard\li680\ri0\sl-480\slmult0 \fs24\cf0\f0\charsca
lex100 {Horizontal Equity}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard
\li1040\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {It is common to distingui
sh several aspects of fairness or equity.}\par\pard\li680\ri0\sl-266\slmult0 \fs
20\cf0\f0\charscalex100 {Horizontal equity involves the relationship between the
tax liabilities}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {
of taxpayers who are similarly situated. A tax system meets the}\par\pard\li6
80\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {test of horizontal equity if t
axpayers in similar circumstances pay}\par\pard\li680\ri0\sl-266\slmult0 \fs20\c
f0\f0\charscalex100 {roughly the same amount of tax. A tax system that does not
pass}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {this minima
l test is not likely to be perceived as fair.}\par\pard\li1040\ri0\sl-266\slmult
0 \fs20\cf0\f0\charscalex100 {If income taxation is the object of discussion, si
milarity of}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {circu
mstances is commonly measured in terms of income; those}\par\pard\li680\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {with equal incomes should pay similar amo
unts of tax. This rule}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {may be modified reasonably to take into account family}\par\pard\li680\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {circumstances, such as the number o
f children and certain hardships.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {If, however, the rule is modified too much, to justify allowanc
es}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {that cannot re
asonably be defended (such as deductions for personal}\par\pard\li680\ri0\sl-266
\slmult0 \fs22\cf0\f0\charscalex100 {expenditures on automobiles), it becomes a
mockery.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Horizon
tal equity can also be used to appraise indirect taxation.}\par\pard\li680\ri0\s
l-266\slmult0 \fs20\cf0\f0\charscalex100 {One taxpayer should not pay less VAT s
imply because of a}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{preference for goods and services that happen to be excluded}\par\pard\li680\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {from the tax base. By comparison,
it is fair that those who impose}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f
0\charscalex100 {added costs on society pay higher benefit-related excises.}\par
\pard\li680\ri0\sl-306\slmult0 \fs24\cf0\f0\charscalex100 {Vertical Equity}\par\
pard\li1040\ri0\sl-466\slmult0 \fs20\cf0\f0\charscalex100 {Vertical equity invol
ves the relationship between the tax}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {liabilities of taxpayers who are in different situations, us
ually as}\par\pard\sect\sectd\sbkpage
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\margtsxn666\margbsxn186\pard\li600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex10
0 {7 6 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100 {IN}\fs16\cf0\f0\c
harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex100
{measured by income. Unlike horizontal equity, vertical equity does}\par\pard\l
i600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {not lend itself to technical
verification. A tax system meets the test}\par\pard\li600\ri0\sl-266\slmult0 \
fs20\cf0\f0\charscalex100 {of vertical equity if differences in the tax liabilit
ies of taxpayers}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {
with different amounts of income accord with social norms. Given}\par\pard\li60
0\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the common existence of horizon
tal inequities, it is generally}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\
charscalex100 {necessary to appraise vertical inequity by looking at broad avera
ges,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {for example,
by comparing the fractions of income taken by taxes}\par\pard\li600\ri0\sl-266\
slmult0 \fs22\cf0\f0\charscalex100 {from households at various income levels.}\p
ar\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Vertical equity is
commonly thought to require that those below}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {some socially defined poverty level pay no tax. Abo
ve the tax}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {thresh
old, it is commonly thought that there should be at least}\par\pard\li600\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {some progressivity in the pattern of ta
xation, but there is no}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscal
ex100 {scientifically correct degree of progressivity.}\fs10\cf0\f0\charscalex10
0 {7}{ }\fs20\cf0\f0\charscalex100 { The presence of a}\par\pard\li600\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {tax threshold creates some progressivity;
graduated rates (marginal}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\chars
calex100 {rates that rise as income rises) are commonly used to give more}\par\p
ard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {progressivity.}\par\par
d\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The concept of vertical e
quity can be applied to a single tax, to}\par\pard\li600\ri0\sl-266\slmult0 \fs2
0\cf0\f0\charscalex100 {selected taxes, or to an entire tax system. It is perh
aps most}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {meaningf
ully applied to an entire system for several reasons. First,}\par\pard\li600\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {there may be very good reasons that
a single tax is not progressive,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {and may even be regressive; benefit-related taxes on fuel used
in}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {motor transpor
t is one such example. Second, the entire system}\par\pard\li600\ri0\sl-266\sl
mult0 \fs20\cf0\f0\charscalex100 {may pass the test of vertical equity, even if
some components do}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{not. Finally, it is generally impossible to judge the vertical equity}\par\pa
rd\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of a tax system without
some knowledge of the distribution of}\par\pard\li600\ri0\sl-266\slmult0 \fs20\c
f0\f0\charscalex100 {benefits of public spending. For example, using a mildly p
rogressive}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax sy
stem to finance expenditures that benefit primarily the poor}\par\pard\li600\ri0
\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {may be more redistributive, on balan
ce, than a more progressive}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\char
scalex100 {system that finances benefits primarily for the affluent.}\par\pard\l
i960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Excessive use of progressive
taxation can be problematic. The}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {adoption of high individual income tax rates on redistributive
}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {grounds can, as
noted above, magnify disincentives, distortions,}\par\pard\li600\ri0\sl-266\slmu
lt0 \fs20\cf0\f0\charscalex100 {incentives for evasion, and inequities. Moreov
er, individual tax}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{rates that are substantially higher than the tax rates applied to the}\par\par
d\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {income of enterprises cre
ates incentives for manipulation of income}\par\pard\li600\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {flows to take advantage of the lower enterprise rates.
It is better if}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{the gap between individual and enterprise rates can be kept to a}\par\pard\li60
0\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {minimum.}\par\pard\li960\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {Vertical equity (as well as horizontal
equity) is often undermined}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\char
scalex100 {by the proliferation of tax benefits that are of special value to the
}\par\pard\li1040\ri0\sl-226\slmult0 \fs8\cf0\f0\charscalex100 {7}\fs14\cf0\f0\c
harscalex100 { A tax or tax system is progressive if the fraction of income take
n by taxesthe}\par\pard\li600\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100 {ave
rage tax raterises as income rises, and it is proportionate if this fraction doe
s not}\par\pard\li600\ri0\sl-226\slmult0 \fs16\cf0\f0\charscalex100 {vary with i
ncome. It is regressive if the fraction falls as income rises.}\par\pard\sect\se
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arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {7 7}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {affluent. It is a mistake to
attempt to overcome this problem by}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {raising tax rates at the top of the income scale. If this i
s done, the}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {resul
t is the perpetuation of horizontal inequity between high-}\par\pard\li680\ri0\s
l-266\slmult0 \fs20\cf0\f0\charscalex100 {income taxpayers who can and cannot ut
ilize the tax benefits, along}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\ch
arscalex100 {with the disadvantages of high tax rates described above. A much}\
par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {more appropriate r
esponse is to eliminate the tax benefits that}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {create the inequities.}\par\pard\li1040\ri0\sl-266\
slmult0 \fs20\cf0\f0\charscalex100 {Indirect taxes are commonly regressive, even
if exemptions}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {ar
e allowed for necessities, such as basic foodstuffs. Even so,}\par\pard\li680\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {consideration of neutrality and sim
plicity suggests that the blunt}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\
charscalex100 {instrument of exemptions should not be used to temper regressivit
y.}\par\pard\li680\ri0\sl-400\slmult0 \fs24\cf0\f0\charscalex100 {Vertical Equit
y in Kazakstan}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0
\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {As in many other areas of tax policy
, the unique circumstance}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charsc
alex100 {of Kazakstan is likely to color local views on the desirability of}\par
\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {progressive taxation.
There are good reasons that vertical equity}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {may be either more or less important as a goal of p
ublic policy in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {K
azakstan than in advanced countries of the West. On the one}\par\pard\li680\ri
0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {hand, policies undertaken under soc
ialism appear, at least on the}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {surface, to give all economically active citizens a relatively eq
ual}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {start in the
post-socialist economic game of life; there is relatively}\par\pard\li680\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {little private property and educational
opportunities have been}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charsca
lex100 {widely available. This suggests that there may be less need for}\par\p
ard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {progressive taxation to
achieve a given degree of equality in after-}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {tax income than in the West. The need to provide
economic}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {incentiv
es for work, saving, investment, and entrepreneurship}\par\pard\li680\ri0\sl-266
\slmult0 \fs20\cf0\f0\charscalex100 {suggests that the costs of progressive taxa
tion may also be greater}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charsca
lex100 {in Kazakstan.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscale
x100 {On the other hand, the social consciousness created by socialism}\par\pard
\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {may be less tolerant of in
equality in the distribution of income.}\par\pard\li680\ri0\sl-266\slmult0 \fs20
\cf0\f0\charscalex100 {Moreover, economic opportunities are not equal; they are
much}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {greater for
members of the previous nomenclature and for managers}\par\pard\li680\ri0\sl-266
\slmult0 \fs20\cf0\f0\charscalex100 {and employees of potentially profitable ent
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ex100 {aside, because of the environment of economic disequilibrium}\par\pard\li
680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {created by socialism and the
enormous risks created by the transition}\par\pard\li680\ri0\sl-266\slmult0 \fs2
0\cf0\f0\charscalex100 {from socialism, the returns to investment of time and mo
ney in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {certain ac
tivities are so great that large inequalities in income may}\par\pard\li680\ri0\
sl-266\slmult0 \fs20\cf0\f0\charscalex100 {appear quite quickly. These factors
suggest that the public may}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\cha
rscalex100 {demand more progressive taxation than in advanced W}\fs22\cf0\f0\ch
arscalex100 {estern}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex10
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of total revenue; most revenue}\par\pard\sect\sectd\sbkpage
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0 {7 8 F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100 { T}\fs12\
cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100 {IN}\fs16\cf0\f0\c
harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-333\slmult0 \fs22\cf0\f0\charscalex100
{comes from the lower rates applied to the incomes of taxpayers of}\par\pard\li6
00\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {more modest means. In essence
, progressive taxation is a means}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {to implement social views of vertical equity, not a means of ra
ising}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {substantial
revenues. Without the capacity to make detailed revenue}\par\pard\li600\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {estimates, it is difficult to know whet
her this would also be true in}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {Kazakstan, but one suspects that it is, especially once one consid
ers}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {that high tax
rates may cause income to dry up because of}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {disincentive effects and evasion. This suggests tha
t it would not be}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{productive to levy highly progressive taxes in an effort to reduce}\par\pard\li
600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {inequalities in the distribut
ion of income.}\par\pard\li600\ri0\sl-413\slmult0 \fs24\cf0\f0\charscalex100 {Im
plications for Policy}\par\pard\li960\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li96
0\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {Both vertical and horizontal eq
uity, and the perception of equity,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0
\f0\charscalex100 {require an income tax system that treats all income equally a
nd a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {VAT that app
lies as widely as possible to consumption goods, but}\par\pard\li600\ri0\sl-266\
slmult0 \fs20\cf0\f0\charscalex100 {not to business purchases. These implicati
ons, the need for a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex10
0 {comprehensive definition of the tax base }\fs20\cf0\f0\charscalex100 {for bot
h income taxes and}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{VAT, are essentially the same as the implications of the objective of}\par\par
d\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {neutrality.}\par\pard\li9
60\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The choice of income tax rates
is, as noted above, essentially a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\
f0\charscalex100 {question of social policy that is unique to each country, and
not a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {technical i
ssue. It must be remembered, however, that highly}\par\pard\li600\ri0\sl-266\s
lmult0 \fs20\cf0\f0\charscalex100 {progressive taxation can be seen as punitive,
especially by those}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex1
00 {whose labor, saving, investment, and entrepreneurship Kazakstan}\par\pard\li
600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {needs to recover from its leg
acy of socialism to put it on the road}\par\pard\li600\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {to market-oriented economic development. For this reason,
it seems}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {best th
at the country adopt a rate schedule for its individual income}\par\pard\li600\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax that is only mildly progressiv
e, with a top rate of about 30 to 40}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {percent. This is especially true if higher rates would not
yield}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {substantia
l revenues.}\par\pard\li600\ri0\sl-306\slmult0 \fs24\cf0\f0\charscalex100 {SIMPL
ICITY}\par\pard\li960\ri0\sl-480\slmult0 \fs20\cf0\f0\charscalex100 {Simplicity
should be the most important single objective of tax}\par\pard\li600\ri0\sl-266\
slmult0 \fs20\cf0\f0\charscalex100 {policy in Kazakstan, aside from revenue. Th
is is especially true for}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charsc
alex100 {local taxpayers, who have no experience with tax compliance and}\par\pa
rd\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {who understandably may n
ot trust the government or understand}\par\pard\li600\ri0\sl-266\slmult0 \fs20\c
f0\f0\charscalex100 {why it needs large amounts of information. Simplicity is al
so}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {important beca
use Kazakstan does not have enough well-trained}\par\pard\li600\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {and experienced tax administrators needed to impl
ement a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {complicat
ed system. This is relevant even in the case of foreign}\par\pard\li600\ri0\sl
-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises; while foreign taxpayers ma
y have the expertise needed}\par\pard\sect\sectd\sbkpage
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arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {7 9}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {to contend with a complicated
system, Kazakstan does not have}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0
\charscalex100 {the capacity needed to administer such a system.}\par\pard\li68
0\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li680\ri0\sl-320\slmult0 \fs24\cf0\f0\ch
arscalex100 {Simplicity for Enterprises}\par\pard\li1040\ri0\sl-213\slmult0 \fs1
8\cf0\par\pard\li1040\ri0\sl-320\slmult0 \fs20\cf0\f0\charscalex100 {The treatme
nt of several issues in the measurement of income}\par\pard\li680\ri0\sl-266\slm
ult0 \fs20\cf0\f0\charscalex100 {of enterprises and other capital income has the
potential to greatly}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex
100 {complicate or simplify the income tax system. Depending on how}\par\pard\l
i680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {these issues are handled, th
e system will be fair and neutral or}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf
0\f0\charscalex100 {unfair and distortionary. The search for an ideal system t
hat is}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {simple, fa
ir, and neutral will be difficult. A cash-flow tax (CFT), a}\par\pard\li680\ri0\
sl-266\slmult0 \fs20\cf0\f0\charscalex100 {system that is arguably simpler than
a conventional income tax,}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\chars
calex100 {would likely be precluded by the probability that the US would}\par\pa
rd\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {not allow credit for tax
paid to Kazakstan (McLure and Zodrow}\par\pard\li680\ri0\sl-266\slmult0 \fs22\c
f0\f0\charscalex100 {1997).}\par\pard\li680\ri0\sl-413\slmult0 \fs24\cf0\f0\char
scalex100 {Simplicity for Individuals}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\
cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {Relatively fe
w individuals should be required (or even allowed)}\par\pard\li680\ri0\sl-266\sl
mult0 \fs20\cf0\f0\charscalex100 {to submit income tax declarations. Those req
uired to submit}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {d
eclarations should be essentially those who are believed to have}\par\pard\li680
\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {substantial income from self-emp
loyment and those who have high}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\
charscalex100 {incomes, from whatever source. To the extent possible, Kazakstan
}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {should rely on w
ithholding for the collection of income taxes from}\par\pard\li680\ri0\sl-266\sl
mult0 \fs22\cf0\f0\charscalex100 {individuals.}\par\pard\li1040\ri0\sl-266\slmul
t0 \fs20\cf0\f0\charscalex100 {If the system is to rely heavily on withholding,
and not on tax}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {de
clarations, it must be designed with this objective in mind. It will}\par\pard\l
i680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {not be possible to subject a
ll taxpayers to a truly global income}\par\pard\li680\ri0\sl-266\slmult0 \fs20\c
f0\f0\charscalex100 {tax, in which all the income a person receives, from whatev
er}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {source, is add
ed together and subjected to a system of graduated}\par\pard\li680\ri0\sl-266\sl
mult0 \fs20\cf0\f0\charscalex100 {rates. Rather, it will be necessary to accep
t certain schedular}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex10
0 {elements in the income tax; that is, to tax various types of income}\par\pard
\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {under separate schedules,
without attempting to impose a global}\par\pard\li680\ri0\sl-266\slmult0 \fs20\c
f0\f0\charscalex100 {income tax, except on the relatively few individual taxpaye
rs}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {mentioned abov
e.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {A withholding
system has the dual advantage of avoiding}\par\pard\li680\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {complexity for the vast majority of the population and
concentrating}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {ta
x collection, and thus administrative effort, on a relatively small}\par\pard\li
680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {number of enterprises and age
ncies that are responsible for}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {withholding. It is thus more appropriate for Kazakstan than a}\p
ar\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {global system which
, while conceptually preferable, is not}\par\pard\li680\ri0\sl-266\slmult0 \fs20
\cf0\f0\charscalex100 {administratively feasible at this time. (A global system
, if feasible,}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {ac
cords more with accepted tenets of tax equity and is commonly}\par\pard\sect\sec
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harscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\par\pard\li600\ri0\sl-213
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{seen as being more modern than a system with schedular}\par\pard\li600\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {elements. Kazakstan should resist the t
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lex100 {more modern system that is not appropriate for its unique}\par\pard\li60
0\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {circumstances.) If declaratio
ns are required only of individuals}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0
\f0\charscalex100 {with incomes in excess of a given amount (the declaration}\pa
r\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {threshold), in addit
ion to certain self-employed individuals, the}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {requirement for submitting declarations could be br
oadened}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {gradually
to include more of the economically active adult}\par\pard\li600\ri0\sl-266\slm
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hreshold, or by}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {h
olding it constant in monetary terms, in an inflationary period.}\par\pard\li960
\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {If taxpayers (or their represent
atives in the parliament) are to}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0
\charscalex100 {make informed decisions on the budget, they must be aware of the
}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {taxes they pay.
For this reason, it is important that VAT be stated}\par\pard\li600\ri0\sl-266\
slmult0 \fs20\cf0\f0\charscalex100 {on invoices, where feasible; if this is not
done, the VAT rate, and a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charsc
alex100 {list of the goods and services to which it applies, should be}\par\pard
\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {prominently posted in reta
il establishments.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{Even though most individual income taxes are to be collected}\par\pard\li600\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {through withholding, taxpayers sho
uld see these taxes as something}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0
\charscalex100 {that reduces their earnings, rather than a cost borne by their}\
par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {employers (such as
a payroll tax) that is of no concern to them.}\par\pard\li600\ri0\sl-266\slmult
0 \fs20\cf0\f0\charscalex100 {The tax should be a legal liability of the individ
ual, not just a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {l
iability of the withholding agent. Of course, the withholding agent}\par\pard\l
i600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {must also have joint liabili
ty to remit the tax. Ideally, individuals}\par\pard\li600\ri0\sl-266\slmult0 \f
s20\cf0\f0\charscalex100 {would receive statements annually (if not more often)
indicating}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the am
ount of tax that has been withheld from their earnings. There}\par\pard\li600\r
i0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {is, of course, some risk that this
policy could lead to excessive}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\
charscalex100 {taxpayer discontent and to yearning for the good old days, when}\
par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {there were no inco
me taxes. An educational campaign is needed}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {to make people aware that under the command economy,
income}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {taxes wer
e very high, but mostly disguised, taking the form of}\par\pard\li600\ri0\sl-266
\slmult0 \fs22\cf0\f0\charscalex100 {wage suppression.}\par\pard\li960\ri0\sl-26
6\slmult0 \fs20\cf0\f0\charscalex100 {If the individual income tax is not to be
just a payroll tax, it}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscale
x100 {must be personalized; that is, it must take into account the personal}\par
\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {circumstances of the
taxpayer. Yet, for a system of this type to}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {operate efficiently, it is necessary to avoid the c
omplications found}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{in the tax systems of many countries, including countries in transition}\par\p
ard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {from socialism, as well
as advanced countries of the West and less-}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {developed countries. In particular, it is appropri
ate to provide}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {al
lowances in the form of deductions or credits for the taxpayer}\par\pard\li600\r
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dependents, to create a tax-}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\ch
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arscalex100 {T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100 { B}\fs
12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100 { O}\fs12\cf0\f0\charsc
alex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100 {AND}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {RINCIPLES}{ }\fs12\cf0\f0\charscalex100 {OF}\fs
16\cf0\f0\charscalex100 { T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscal
ex100 { P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100 {FOR}\
fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab \fs16\cf
0\f0\charscalex100 {8 1}\par\pard\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li
680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {greatly facilitates withholdi
ng; that is recommended, provided it is}\par\pard\li680\ri0\sl-266\slmult0 \fs20
\cf0\f0\charscalex100 {not inconsistent with cultural and social norms in Kazaks
tan.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {(Actually, t
ax administration would be vastly simplified if the function}\par\pard\li680\ri0
\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of providing the equivalent of a tax
-free amount could be transferred}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f
0\charscalex100 {to a system of family allowances; that would allow a flat rate}
\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {withholding tax o
n wages, with no need for personal allowances.)}\par\pard\li680\ri0\sl-466\slmul
t0 \fs24\cf0\f0\charscalex100 {Proliferation of Taxes}\par\pard\li1040\ri0\sl-21
3\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex10
0 {It is almost certain that Kazakstan will derive most of its tax}\par\pard\li6
80\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {revenues from relatively few t
axes: VAT, income taxes on enterprises}\par\pard\li680\ri0\sl-266\slmult0 \fs20\
cf0\f0\charscalex100 {and individuals, excises, and taxes on natural resources.
A few}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {other fo
rms of taxes may be needed for regulatory reasons or to}\par\pard\li680\ri0\sl-2
66\slmult0 \fs20\cf0\f0\charscalex100 {raise additional revenues. It is equall
y certain that there is little}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\c
harscalex100 {reason to levy as many taxes as are now found in Kazakstan. Some}
\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of these taxes ra
ise almost no revenue and serve no useful purpose.}\par\pard\li680\ri0\sl-266\sl
mult0 \fs20\cf0\f0\charscalex100 {They can best be described as nuisance taxes a
nd should be}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {repe
aled.}\par}