Kazakhstan’s 2026 Tax Reform:

This level of deficit reflected weak public finance planning. The Government continued to plan high levels of expenditure, including social commitments and infrastructure projects, without having a sufficiently stable revenue base to finance them.

The gap between revenues and expenditures was covered through transfers from the National Fund and additional borrowing. As a result, the National Fund, which should serve as the country’s strategic financial buffer, was increasingly used as a tool to cover current budget shortfalls.

In practice, much of the burden of addressing these weaknesses was shifted to Kazakhstan’s business community.

Expert Views on Addressing the Budget Deficit

The International Monetary Fund (IMF) recommended that the Government of Kazakhstan implement tax reform to strengthen non-oil budget revenues. In particular, the IMF advised Kazakhstan to improve tax administration, broaden the tax base, increase the VAT rate to 16%, reduce tax exemptions, and consider higher corporate tax rates.[2]

The World Bank and the Asian Development Bank also supported fiscal and tax reforms aimed at reducing the budget deficit, increasing non-oil revenues and making Kazakhstan’s public finances more sustainable.[3][4]

However, the IMF’s recommendations were not accepted without criticism in Kazakhstan. Local experts argued that the proposed approach was too general and did not fully reflect the specific structure of Kazakhstan’s economy. In particular, they warned that a sharp increase in the tax burden could fuel inflation, weaken the business climate and create additional pressure on small and medium-sized enterprises.[5]

Experts also noted that any increase in the VAT rate should be gradual. A sudden rise in VAT could create a tax shock for business, increase prices and reduce the ability of companies to adjust their operations in an orderly manner.[5]

However, neither international institutions nor local experts appeared to expect that the Government would go so far in using tax reform to compensate for weaknesses in public finance planning. What began as a justified need to strengthen non-oil revenues evolved into a much broader increase in the tax and compliance burden on Kazakhstan’s business community.

Key Changes Introduced by the Tax Reform

To address the budget deficit, the Government developed, and Parliament adopted, a new Tax Code, which entered into force on 1 January 2026.[6]

The reform introduced a wide range of changes to Kazakhstan’s tax system. In this article, however, we focus on the measures that, in our view, are the most important for businesses.

Restriction on Deductions for Payments to Simplified-Regime Taxpayers

In simple terms, if a company purchases goods, works or services from a counterparty applying the preferential simplified tax regime, the company may no longer be able to deduct those expenses for corporate income tax (CIT) purposes.[7]

As a result, such payments do not reduce the company’s taxable income, even if the expenses are real, commercially justified and properly documented.

Although the statutory CIT rate remains 20%, the effective tax burden may be significantly higher for companies working with simplified-regime counterparties.

For example, a company with KZT 600 million in revenue, KZT 380 million in ordinary deductible expenses and KZT 120 million in payments to simplified-regime contractors would have an actual economic profit of KZT 100 million. However, if the KZT 120 million is not deductible, the taxable profit increases to KZT 220 million, resulting in KZT 44 million of CIT. In this case, the effective CIT burden equals 44% of the company’s real profit, even though the statutory CIT rate remains 20%.

This creates a conflict between the general tax regime and the simplified tax regime. Businesses operating under the general tax regime may become reluctant to work with counterparties applying the simplified regime, because payments to such counterparties may not be deductible for corporate income tax purposes.

This issue is particularly sensitive for small and medium-sized B2B businesses. In practice, such businesses may be excluded from commercial relationships not because of the quality, price or reliability of their services, but because their tax status makes them less attractive as counterparties.

The National Chamber of Entrepreneurs of Kazakhstan has also indicated that this amendment has become one of the most frequent concerns raised by businesses. This confirms that the rule has created significant practical difficulties for ordinary commercial relationships, especially in the B2B segment.[8]

Increase of the VAT Rate and Reduction of the VAT Registration Threshold

Another heavily criticised element of the reform is the increase in the VAT rate. The standard VAT rate was increased to 16%. The initial draft of the new Tax Code proposed an even higher rate of 20%. However, following strong criticism from the business community, the proposed rate was reduced to 16%.

The threshold for mandatory VAT registration was also reduced to 10,000 MCI, which is approximately USD 90,000.[9] As a result, more companies and individual entrepreneurs may fall within the VAT system.

For smaller businesses, this creates not only an additional tax burden, but also a higher compliance burden, including VAT accounting, invoicing and reporting obligations.

The VAT increase directly raises the tax burden on VAT payers and may also affect final prices for consumers, depending on how much of the additional tax cost is passed on through pricing.
However, the first five months of 2026 do not yet allow for a clear assessment of the real effect of the VAT increase. By 1 June 2026, the Ministry of Finance reported that more than KZT 11.4 trillion had been received by the state budget in January–May 2026. This was 16% higher than in the same period of the previous year.[10]

Nevertheless, it would be premature to present these figures as evidence that the tax reform is already working. The Government itself acknowledged that the increase was largely driven by VAT collected at the previous 12% rate for the fourth quarter of 2025, as well as by favourable global oil prices.[10]

Therefore, the stronger budget performance in the first five months of 2026 appears to be influenced mainly by transitional and external factors, rather than by the structural effect of the new Tax Code. The real impact of the VAT increase will become clearer only after revenues generated under the new 16% rate are fully reflected in budget data.

Comparative Perspective: Uzbekistan’s Tax Environment

Kazakhstan’s tax reform should also be assessed in comparison with the tax environment in neighbouring Uzbekistan.

Kazakhstan remains the largest economy in Central Asia and continues to lead the region in accumulated foreign investment. However, Uzbekistan is increasingly positioning itself as a more dynamic and business-friendly jurisdiction, actively seeking to attract entrepreneurs, service companies and foreign investors.

This comparison is particularly relevant in light of Uzbekistan’s more favourable tax environment. Uzbekistan has maintained a corporate income tax rate of 15% and a VAT rate of 12%. In addition, it offers a preferential turnover tax regime at a general rate of 4%, which is available for certain businesses in the services and trade sectors.

Importantly, from 1 June 2026, the threshold for applying the simplified tax regime was increased from UZS 1 billion to UZS 5 billion, which is approximately USD 417,000.[11] This significantly expands the practical availability of the preferential regime for small and medium-sized businesses.

This should be carefully considered by Kazakhstan’s policymakers. The existence of a neighbouring jurisdiction with a lighter tax burden creates real tax planning opportunities, especially in a digital economy where business activities are becoming less tied to physical borders.

As a result, some Kazakhstani businesses may find it more attractive to structure part of their operations through Uzbekistan and pay taxes there at lower rates. At the same time, foreign investors comparing regional options may increasingly prefer a jurisdiction with a more predictable and less burdensome tax environment.

In this sense, Kazakhstan’s tax reform creates not only domestic pressure on business, but also a regional competitiveness risk. If the tax and compliance burden in Kazakhstan becomes too heavy, business activity and investment interest may gradually shift to more flexible neighbouring jurisdictions.