While budget revenues have grown dramatically, the Kazakh government is still dismayed by the amount of revenue it believes it is losing through transfer pricing and other nontransparent accounting practices. With transfer pricing a commodity exporter in Kazakhstan sells the commodity to a subsidiary in Bermuda or another location at below market prices in order to avoid Kazakh profit tax on the transaction. The subsidiary is then free to sell the product to a third party at market prices with the profits split between subsidiary and mother company. One estimate has placed Kazakh tax losses due to these practices at over US$500 million each year. Nazarbaev has threatened to investigate the accounts of large foreign and Kazakh companies in order to stop this practice. Well-known companies such as Tengizchevroil have been mentioned as possible “underpayers” (Reuters, August 31). It remains to be seen, however, whether government objections will lead to greater transparency.
In June, the government announced that it was creating an oil fund to hold some of the proceeds from its accumulating oil wealth. The fund will have a long-term horizon of thirty to forty years and will help guarantee, according to government officials, that the government does not squander oil-related revenues. The fund is to be split into three parts. The first would be called the strategic reserve fund, placed in a foreign bank account and used in case of a financial shock such as the aftermath of the Russian financial crisis. The second savings fund would be used to provide money for future generations. These funds would be invested conservatively in securities such as U.S. treasury bonds and blue chip stocks. The third fund would be used to invest in Kazakhstan over the years, for (among other things) training, developing infrastructure and paying down debt. The funds will be managed by a board of directors representing the government, the presidential administration and the parliament. The estimated US$650 million which Kazakhstan is to receive from Chevron from the government’s sale of the state’s 5 percent stake in the Tengizchevroil venture and the early payment of bonuses will reportedly provide the first inflows into the funds. All revenues and expenditures from the funds will be off budget (Reuters, June 29).
A new tax code making the rounds in parliament this fall has been generally endorsed by the IMF. Nazarbaev, who submitted the tax code with a package of socioeconomic bills on September 1, has stated his desire to see the code approved by the end of this year (Russian agencies, October 30). The approval of the code would be a significant step forward for reform. While the government took IMF and other suggestions into account, it has also tried to make its tax code consistent with Russia’s. This, in the words of Prime Minister Tokaev, would enable the Kazakh economy to start working at full capacity and “use the potential of the Russian market” (Russian agencies, June 1). The new tax code has not been used for budget projections and would alter revenues considerably.
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