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Reducing tax burden and increasing salary: How are Five Social Initiatives of Elbasy implemented

Monday, 30 September 2019, 19:04:50

In the spring of 2018, the First President of Kazakhstan, Elbasy Nursultan Nazarbayev addressed the Kazakhstanis with Five Social Initiatives. This is a large program document, which outlines significant and important tasks. PrimeMinister.kz launches a series of reviews on the results of the implementation of the Five Initiatives. In the reviews, we will describe how student dormitories, the main gas pipeline from the Kyzylorda region to the central regions of Kazakhstan, and first of all, to the capital, are built, how many new jobs were created, and how many Kazakhstanis improved their living conditions under the 7-20-25 program, etc.

Today we’ll talk about the results of the implementation of the second initiative of Elbasy — Reducing the Tax Burden to Increase the Wages of Low-Paid Workers.

In order to support working Kazakhstanis with relatively low wages, Nursultan Nazarbayev proposed starting from Jan. 1, 2019, to reduce their tax burden by 10 times — to 1%.

“Reducing the tax burden through an individual income tax should be done for those who receive wages no more than 25 times the minimum estimated figure per month. At the same time, it is necessary that the released funds from such a reduction be directed at increasing their wages. As a result, at least one third of the country's wage earners, more than 2 million people, increase wages without increasing the burden on employers. In the future, the Government needs to explore the possibilities of introducing a progressive income tax scale,” the Five Social Initiatives said.

Implementation mechanism

The Ministry of National Economy was appointed responsible for the implementation of the second initiative.

According to the ministry, in order to implement this initiative, joint work was carried out by government bodies and the Atameken National Chamber of Entrepreneurs.

Based on the results of the work, the procedure for individual income taxation of workers with low wages was determined. Also, amendments were made to the Code of the Republic of Kazakhstan “On Taxes and Other Obligatory Payments to the Budget,” and to the Law of the Republic of Kazakhstan “On Enactment of the Code of the Republic of Kazakhstan“ On taxes and other obligatory payments to the budget ”, which provide for determining the income of an employee not exceeding 25 times the monthly the calculated indicator established by the law on the republican budget and effective on January 1 of the corresponding fiscal year, the application of adjustments to the employee's taxable income is 90% of the amount of such income. This norm entered into force on January 1, 2019.

So, since 2019, an adjustment of 90% of the employee's taxable income is applied if the employee’s income does not exceed 25 MCI, respectively, the employee’s income is above the limit of this adjustment and is subject to individual income tax at a rate of 10%. If an individual will work at several jobs at different employers and at each work the employee's income does not exceed 25 MCI, then an adjustment of 90% of the amount of taxable income of the employee will be applied by each employer.

Thus, taxable income will decrease by 90%. The remaining salary will be taxed at a rate of 10%. That is, the tax burden will be reduced by 10 times.

Consider the proposed calculation of income tax on a simple example for 2019.

Suppose an employee’s salary per month is 63,125 tenge (25 MCI). The amount of mandatory pension contributions in the amount of 10%, that is, 6,313 tenge, is deducted from this amount, and 56,812 tenge remains. 1 minimal non-taxable income is deducted — the minimum non-taxable income is 42,500 tenge. There remains 14,312 tenge, which is taxable income. According to the current mechanism, the tax amount will be 10%, that is 14,312 * 10% = 1,431 tenge.

According to the proposed new mechanism, the tax amount will be reduced by 90%: 14,312 - (14,312 * 90%) = 1,431 tenge. This amount will be taxed at a rate of 10%. Thus, at the rate of 1,431 * 10%, the tax will amount to 143 tenge.

The use of this mechanism involves the instant and guaranteed receipt of additional income by the employee (at the time of receiving the main salary) and will not increase the financial burden on the employer.

At the same time, the administrative costs of the employer are minimized.

In general, workers in the republic will receive additional wages of about 29 billion tenge.

Increasing salaries of employees

Starting from Jan. 1, 2019, in accordance with the order of the First President of the Republic of Kazakhstan, Elbasy, announced in the Address dated Oct. 5, 2018, the minimum wage was increased by 1.5 times or to 42,500 thousand tenge. It should be noted that since Jan. 1, 2018, the size of the minimum wage was 28,284 tenge, in comparison with 2017, its size increased by 15.6%.

The increase in the minimum wage has affected the growth of incomes of more than 1.3 million workers.

According to the Ministry of Labor and Social Protection of the Population, in order to ensure an inter-bit balance of wages for workers, taking into account the increase in the minimum wage and their qualifications, an analysis was carried out to determine the low-paid categories of workers.

The results of the analysis showed that in 2,250 large enterprises up to 1 million workers, as well as in 441 thousand medium and small enterprises, 1.9 million workers receive wages higher than the minimum wage, but lower than the average wage in the country.

At present, the akimats and organizations are carrying out explanatory work for the indicated companies to increase the wages of employees.

Monitoring of the work is carried out by the republican and regional headquarters established under the Ministry of Labor and Social Protection of the Population and akimats.

According to akimats, as of September 1 of the current year, 200 thousand employers in the republic (total number of employees 2.5 million people) increased the salaries of 1.1 million employees, of which 1,916 enterprises are large businesses, 2,910 are medium 195 thousand small businesses.

As the analysis shows, at the above enterprises, the average salary of low-paid workers increased by 31% (from 46.5 thousand to 61 thousand tenge).

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