{\rtf\ansi\deff0\ansicpg1252

{\fonttbl
{\f0\froman times new roman;}}
{\colortbl\red0\green0\blue0;}
{\info{\author kl3}{\subject 5_Chap_2}}
\jexpand\viewkind1\viewscale100

{\shp{\*\shpinst\shpleft3093\shptop4013\shpright5626\shpbottom4013\shpfhdr0\shpwr3\
shpwrk0\shpfblwtxt1\shplid2028\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 2533}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(2533,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1346\shptop11640\shpright5226\shpbottom11640\shpfhdr0\shpwr
3\shpwrk0\shpfblwtxt1\shplid2029\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3880}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3866,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\paperw8640\paperh12960\margl666\margr133\margt666\margb253
\pard\li2893\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li2893\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li2893\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li2893\ri0\sl-
213\slmult0 \fs18\cf0\par\pard\li2893\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li2893\ri0\sl-573\slmult0 \fs32\cf0\f0\charscalex100 {CHAPTER
2}\par\pard\li1293\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1293\ri0\sl-
600\slmult0 \fs36\cf0\f0\charscalex100 {THE BASIC OBJECTIVES
AND}\par\pard\li1333\ri0\sl-466\slmult0 \fs36\cf0\f0\charscalex100 {PRINCIPLES
OF }\fs36\cf0\f0\charscalex100 {TAX POLICY}\par\pard\li2253\ri0\sl-466\slmult0
\fs36\cf0\f0\charscalex100 {FOR KAZAKSTAN}\par\pard\li2426\ri0\sl-400\slmult0
\fs28\cf0\f0\charscalex100 {C}\fs18\cf0\f0\charscalex100
{HARLES}\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\pard\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 \fs22\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 without 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 their objectives. That
strategy}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {might be
likened to starting on a trip without having a map or}\par\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\slmult0
\fs20\cf0\f0\charscalex100 {enacting first one tax law and then another. These
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 stability of their tax systems in the
enactment}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of such
laws. The result has been inequity, complexity, and}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {distortions of economic
decisions.}\fs10\cf0\f0\charscalex100 {1}{ }\fs20\cf0\f0\charscalex100 { Perhaps
worse, the constantly}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{changing signals emanating from the tax systems of these
countries}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {have
discouraged investors, already wary due to the uncertain}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {political environment and economic
difficulties of the former Eastern}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {bloc.}\par\pard\li1040\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {Rather than following this ill-advised approach, the
Government}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of
Kazakstan, with the help of Western advisors, prepared a}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {Concepts Paper that set forth the
objectives, principles, and basic}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {outline of its tax reform before starting to draft the
new tax code.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {This
is in keeping with the Kazakstan governments commitment}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {to the stability of its tax code. Chapter
2 summarizes the objectives}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {and principles that Western advisors 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 resulted, see McLure
(1995).}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2030\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1333\shptop9840\shpright5133\shpbottom9840\shpfhdr0\shpwr3\
shpwrk0\shpfblwtxt1\shplid2031\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3800}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3800,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn200\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {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\charscalex100 { 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\slmult0
\fs20\cf0\f0\charscalex100 {the Concepts Paper, }\fs20\cf0\f0\charscalex100
{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\charscalex100 {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.}\par\pard\li960\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {It should be noted at 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 particular, it is}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {impossible 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 government in a
noninflationary}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{manner. To achieve this, it is necessary to have a capacity
to}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {estimate
expenditure 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 adequate to finance the proper functions of}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {government without resorting to
inflationary finance, such as the}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {printing of money, to finance budget deficits. The
experience of}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{countries in transition from socialism 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\slmult0
\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\slmult0
\fs20\cf0\f0\charscalex100 {noninflationary government finance is by no means
obvious. It}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {would
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\slmult0 \fs18\cf0\par\pard\li960\ri0\sl-
293\slmult0 \fs20\cf0\f0\charscalex100 {The very process of transition to a market
economy will have a}\par\pard\li600\ri0\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\charscalex100 {expenditures and the ease of raising
revenues. As state enterprises}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {are commercialized, enterprise managers will express a
strong and}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{appropriate desire to cease providing many services that
are}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {commonly
provided 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 International
Tax and Investment Center}\par\pard\li666\ri0\sl-226\slmult0
\fs14\cf0\f0\charscalex100 {prepared for the Minister of Finance in early 1994.
Reflecting its genesis, this}\par\pard\li666\ri0\sl-226\slmult0
\fs14\cf0\f0\charscalex100 {discussion is, for the most part, not technical. This
statement of the basic objectives of}\par\pard\li666\ri0\sl-226\slmult0
\fs14\cf0\f0\charscalex100 {tax reform is reproduced here with relatively minor
additions and editorial revisions}\par\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\li666\ri0\sl-226\slmult0
\fs14\cf0\f0\charscalex100 {length in Chapters 7-10) to preserve 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\charscalex100 {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\pard\li666\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {need for stability and certainty in tax
policy.}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2032\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1360\shptop11293\shpright5213\shpbottom11293\shpfhdr0\shpwr
3\shpwrk0\shpfblwtxt1\shplid2033\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3853}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3853,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn186\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {6 9}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\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 private}\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-266\slmult0 \fs20\cf0\f0\charscalex100 {of
providing such services, for such expenditure mandates are,
in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {essence, a form
of taxation that can have very adverse consequences.}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {One exception to this general principle is
that investors operating}\par\pard\li680\ri0\sl-266\slmult0
\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 {service
their facilities.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{The move to a market economy will render many enterprises}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {unprofitable. Provided enterprises 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 goods}\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-266\slmult0 \fs20\cf0\f0\charscalex100 {of
business.}\fs10\cf0\f0\charscalex100 {3}{ }\fs20\cf0\f0\charscalex100 { Bankruptcy
will cause unemployment and hardship}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {for affected workers who should be cushioned by a
social safety}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {net
that includes a system of unemployment compensation. 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\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{pensions, scholarships, and salaries of certain government}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {employees needed to compensate for
increases in the prices of}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {basic goods.}\par\pard\li1040\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {An explicit social safety net requires fewer budgetary
resources}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {than do
two alternatives that have found populist support in many}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {countries in transition from socialism.
Many countries have allowed}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {unprofitable enterprises to continue to operate, to
avoid}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {unemployment.
This generally requires more budgetary resources}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {to finance subsidies to the enterprises 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 values, subsidization of
unprofitable state enterprises}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {prolongs the pain and economic cost of transition, and
makes it}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {more likely
that transition will be reversed. In some cases, state}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises actually produce 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 prices 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 basic foods.}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {Price controls are commonly accompanied by subsidies
to}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {enterprises
producing the price-controlled goods. There are several}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {problems with this approach. First, goods
subject to price controls}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {are generally consumed by the entire population, not
just by those}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{threatened by poverty. As a result, subsidies to goods
generally}\par\pard\li1106\ri0\sl-226\slmult0 \fs8\cf0\f0\charscalex100
{3}\fs14\cf0\f0\charscalex100 { A problem not reflected in this statement is the
continued accumulation of}\par\pard\li693\ri0\sl-226\slmult0
\fs14\cf0\f0\charscalex100 {arrears (unpaid credit to ot}\fs14\cf0\f0\charscalex100
{her state-owned enterprises). In Western }\fs14\cf0\f0\charscalex100
{economies,}\par\pard\li693\ri0\sl-226\slmult0 \fs14\cf0\f0\charscalex100
{continuation of sales to customers 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
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2034\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn213\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {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\charscalex100 { 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\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {net that provides transfer payments only to the
disadvantaged.}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{Second, price controls distort economic decisions and cause
waste.}\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\slmult0 \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\charscalex100 {of subsidized bread being fed to animals where the
price of bread}\par\pard\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\slmult0 \fs20\cf0\f0\charscalex100 {benefit from
subsidies to operate efficiently, instead of relying on}\par\pard\li600\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {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 initially,
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\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {for most
transactions are conducted through a highly concentrated}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {banking system. Transactions occur among
enterprises, and between}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {enterprises and 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\charscalex100 {to divert a portion of transaction payments
to the budget, especially}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {because enterprise managers 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\charscalex100 {be) much less
concentration of economic activity among enterprises,}\par\pard\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
\fs20\cf0\f0\charscalex100 {of business transactions. Moreover, owners of private
enterprises}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and
managers of commercialized state enterprises have strong}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {incentives to resist paying taxes, by both
legal and illegal means.}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {Unfortunately, the tax administration inherited from
the socialist}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {system
is not adequate 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
transition 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 history 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 may be forced}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {to devote 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
administration.}\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\ri0\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\charscalex100 {revenues and expenditures when the tax system is being
modernized}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and made
fully effective. This is, however, a very risky strategy,
and}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {one not to be
adopted lightly. The risk is high that revenues from}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {privatization will be employed to
temporize, by postponing the}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {enterprise reforms, privatization and tax reforms that
are necessary}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {to
make the economic system viable in the long run.}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2035\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1346\shptop10240\shpright5226\shpbottom10240\shpfhdr0\shpwr
3\shpwrk0\shpfblwtxt1\shplid2036\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3880}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3866,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn200\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {7 1}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\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\cf0\f0\charscalex100 {One of the primary benefits of a market
economy is that markets}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {produce a relatively good allocation of a nations
scarce resources:}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{what to produce and how to produce it. This is true,
however,}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {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
planning, and enterprise managers face a hard budget}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {constraint, the threat of bankruptcy, and
dismissal if they}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{consistently 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 soft budget constraints, is one of the}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {strongest endorsements of using markets to
allocate resources.}\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\charscalex100 {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 market choices; that is, if they are
neutral. The}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{design of neutral taxation is a highly technical 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\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {should include
the following principles.}\fs12\cf0\f0\charscalex100 {4}\par\pard\li1400\ri0\sl-
440\slmult0 \fs20\cf0\f0\charscalex100 {In general, neutrality requires that
indirect taxes 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-266\slmult0 \fs20\cf0\f0\charscalex100 {the
enterprise and individual income taxes are direct taxes.)}\par\pard\li1400\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {This can be called the}
{ }\fs22\cf0\f0\charscalex100 {principle of uniform
taxation.}\par\pard\li1400\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {There are
exceptions to this rule of equal taxation. It is}\par\pard\li1400\ri0\sl-
266\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
{benefits 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 is}\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
\fs20\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
encourages 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
fuels 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
taxation generally does not call}\par\pard\li680\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {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\charscalex100 {Kazakstan. First, the information needed to implement
optimal taxation generally is}\par\pard\li680\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {not available in Kazakstan. Second, Kazakstan lacks
the capacity for tax administration}\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 that result
from highly differentiated taxation.}\par\pard\li680\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {Finally, once the theory of optimal taxation is used to
justify differentiation, it is}\par\pard\li680\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {difficult to prevent indefensible differentiation from
entering the tax code.}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2037\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn213\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {7 2
F}\fs12\cf0\f0\charscalex100 {ISCAL}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {RANSITION}{ }\fs12\cf0\f0\charscalex100
{IN}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100
{AZAKSTAN}\par\pard\li1320\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1320\ri0\sl-
333\slmult0 \fs22\cf0\f0\charscalex100 {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. Another example is the use}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {of taxes related to activities that cause
public costs or}\par\pard\li1320\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\charscalex100 {It is especially important to avoid
distortions in the choice}\par\pard\li1320\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {of production caused by taxes that are levied on the
inputs}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {of
businesses; faced with prices that are distorted by}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {taxation, businesses respond by employing
inefficient}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{techniques of production. This causes misuse of the}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {countrys scarce resources. An important
principle guiding}\par\pard\li1320\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{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, intermediate goods, or other supplies,}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\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\cf0\f0\charscalex100 {principle of}\par\pard\li1320\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {tax-free business purchases.}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {Economic rents are defined as the earnings
in excess 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 \fs20\cf0\f0\charscalex100 {return to equity capital. Whereas a
conventional income}\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\slmult0 \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 rents 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 be 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 unfair 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 than income taxes in distorting choices. Such}\par\pard\li1320\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {taxes reduce the attractiveness of
marginal, but economically}\par\pard\li1320\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {viable resources and cause them not to be
exploited.}\par\pard\li600\ri0\sl-306\slmult0 \fs24\cf0\f0\charscalex100 {Achieving
Neutral Tax Policy}\par\pard\li960\ri0\sl-306\slmult0 \fs20\cf0\f0\charscalex100
{The achievement of tax neutrality requires implementation
of}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {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\slmult0
\fs20\cf0\f0\charscalex100 {and the taxation of economic rents. The following
describe the}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{implications of these principles for the design of major
taxes.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Value-added
Tax.}\fs20\cf0\f0\charscalex100 { 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\charscalex100 {consumption, with as few exceptions as
administratively feasible;}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {and (iii) immediate credit (and refunds, where credits
exceed tax}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2038\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1346\shptop10800\shpright5226\shpbottom10800\shpfhdr0\shpwr
3\shpwrk0\shpfblwtxt1\shplid2039\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3880}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3866,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn186\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {7 3}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {on sales)
should be allowed for all taxes paid on purchases by}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {business, including capital
investments.}\par\pard\li1040\ri0\sl-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\slmult0 \fs22\cf0\f0\charscalex100 {should be as
comprehensive as possible. Deductions 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\charscalex100
{5}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Natural
Resources Tax.}\fs20\cf0\f0\charscalex100 { Consideration should be given to
taxing}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {economic
rents, instead of income, as conventionally defined. Taxes}\par\pard\li680\ri0\sl-
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\charscalex100 {to compensate for costs, for example, to repair damage
to the}\par\pard\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 will need large amounts}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {of saving and investment. Part of the
required saving will be from}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {domestic sources, but much 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 savings at}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {home, rather 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\charscalex100 {by
modern technology. In some cases, the tax treatment of}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {expatriate employees will 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 important
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\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {consideration, as overly restrictive
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 whether}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {to allow
losses 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
especially important in capital-}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {intensive industries that must make large investments
long before}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {starting
to realize net income from operations.}\par\pard\li1040\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {Both fairness and economic analysis favor
unlimited}\par\pard\li680\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 {government
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
investment, especially in}\par\pard\li680\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {capital-intensive and risky ventures. To be fully
ef}\fs22\cf0\f0\charscalex100 {fective, loss}\par\pard\li1093\ri0\sl-226\slmult0
\fs10\cf0\f0\charscalex100 {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\pard\li1093\ri0\sl-226\slmult0 \fs10\cf0\f0\charscalex100
{6}\fs16\cf0\f0\charscalex100 { 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 is the arbitrary division of time into
years that causes losses to be realized}\par\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 statements covered 100
years.}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2040\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn173\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {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\charscalex100 { 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\li600\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {will lose value in times of rapid
inflation.}\par\pard\li600\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li600\ri0\sl-
320\slmult0 \fs24\cf0\f0\charscalex100 {LOW STATUTORY RATES}\par\pard\li960\ri0\sl-
213\slmult0 \fs18\cf0\par\pard\li960\ri0\sl-280\slmult0 \fs20\cf0\f0\charscalex100
{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 {including incentives for evasion, and the inequities
and distortions}\par\pard\li600\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\cf0\f0\charscalex100
{equally.}\par\pard\li600\ri0\sl-506\slmult0 \fs24\cf0\f0\charscalex100 {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\slmult0
\fs20\cf0\f0\charscalex100 {where there is a significant risk of emigration of
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; investment, 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-266\slmult0 \fs20\cf0\f0\charscalex100
{future economic development of Kazakstan, are not unduly}\par\pard\li600\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {impeded.}\par\pard\li960\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {It is generally 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\f0\charscalex100 {Thus, some
distortions of economic decisions are inevitable. Low}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {tax rates minimize the distortions caused
by both intentional and}\par\pard\li600\ri0\sl-266\slmult0
\fs22\cf0\f0\charscalex100 {unintended departures from
neutrality.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The same
departures from uniformity that create distortions}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\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 uniformity 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\charscalex100
{International considerations alter these conclusions
somewhat.}\par\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 attract 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\charscalex100 {Care should be taken not to tax high
incomes excessively; to}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {do so runs the risk of causing serious disincentives,
distortions,}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {and
inequities. Although hard and fast rules are not possible,
it}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {seems that
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\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2041\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn200\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {7 5}\par\pard\li1040\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li1040\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {In
considering disincentives, it is important not to focus
only}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\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\slmult0
\fs20\cf0\f0\charscalex100 {important than income taxes, except at the very top of
the income}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax rate
schedule (McLure 1995). VAT also discourages work, by}\par\pard\li680\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\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-
293\slmult0 \fs20\cf0\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\charscalex100 {lack of respect for the tax system will
undermine respect for}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{government, as well as the ability to collect taxes.}\par\pard\li680\ri0\sl-
480\slmult0 \fs24\cf0\f0\charscalex100 {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 distinguish several aspects of fairness or
equity.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\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\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {test of
horizontal equity if taxpayers in similar circumstances pay}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\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 minimal test is not likely to be perceived as
fair.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {If income
taxation is the object of discussion, similarity of}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {circumstances is commonly measured in terms
of income; those}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{with equal incomes should pay similar amounts of tax. This
rule}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {may be modified
reasonably to take into account family}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {circumstances, such as the number of children and
certain hardships.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{If, however, the rule is modified too much, to justify
allowances}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {that
cannot reasonably 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 {Horizontal equity can also be used to
appraise indirect taxation.}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {One taxpayer should not pay less VAT simply 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\ri0\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\f0\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 involves the relationship
between the tax}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{liabilities of taxpayers who are in different situations, usually
as}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2042\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv 1}}}}
{\shp{\*\shpinst\shpleft1266\shptop11520\shpright5133\shpbottom11520\shpfhdr0\shpwr
3\shpwrk0\shpfblwtxt1\shplid2043\shpz1\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 3867}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(3866,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn186\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {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\charscalex100 { 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\li600\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 liabilities 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\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the common
existence of horizontal inequities, it is generally}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {necessary to appraise vertical inequity by
looking at broad averages,}\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.}\par\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. Above the tax}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {threshold, 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 taxation, but
there is no}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{scientifically correct degree of progressivity.}\fs10\cf0\f0\charscalex100 {7}
{ }\fs20\cf0\f0\charscalex100 { The presence of a}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {tax threshold creates some progressivity;
graduated rates (marginal}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {rates that rise as income rises) are commonly used to
give more}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{progressivity.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {The
concept of vertical equity can be applied to a single tax,
to}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {selected taxes,
or to an entire tax system. It is perhaps most}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {meaningfully applied to an entire system for several
reasons. First,}\par\pard\li600\ri0\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\f0\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 transport is one such example.
Second, the entire system}\par\pard\li600\ri0\sl-266\slmult0
\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\pard\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\cf0\f0\charscalex100 {benefits of public spending. For example,
using a mildly progressive}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {tax system to finance expenditures that benefit
primarily the poor}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{may be more redistributive, on balance, than a more
progressive}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {system
that finances benefits primarily for the affluent.}\par\pard\li960\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\slmult0 \fs20\cf0\f0\charscalex100
{incentives for evasion, and inequities. Moreover, 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\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {income of enterprises creates incentives
for manipulation of income}\par\pard\li600\ri0\sl-266\slmult0
\fs20\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\li600\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\charscalex100 {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\charscalex100 { A tax or tax system is
progressive if the fraction of income taken by taxesthe}\par\pard\li600\ri0\sl-
226\slmult0 \fs14\cf0\f0\charscalex100 {average tax raterises as income rises, and
it is proportionate if this fraction does not}\par\pard\li600\ri0\sl-226\slmult0
\fs16\cf0\f0\charscalex100 {vary with income. It is regressive if the fraction
falls as income rises.}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2044\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn213\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {7 7}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\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\cf0\f0\charscalex100 {raising tax rates at the top of the income
scale. If this is done, the}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {result is the perpetuation of horizontal inequity
between high-}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {income
taxpayers who can and cannot utilize the tax benefits,
along}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {with the
disadvantages of high tax rates described above. A much}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {more appropriate response 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 {are
allowed for necessities, such as basic foodstuffs. Even so,}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {consideration of neutrality and simplicity
suggests that the blunt}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {instrument of exemptions should not be used to temper
regressivity.}\par\pard\li680\ri0\sl-400\slmult0 \fs24\cf0\f0\charscalex100
{Vertical Equity 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\charscalex100 {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 public policy
in}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {Kazakstan than in
advanced countries of the West. On the one}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {hand, policies undertaken under socialism appear, at
least on the}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{surface, to give all economically active citizens a relatively
equal}\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\charscalex100 {widely available. This suggests that there may be
less need for}\par\pard\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 {incentives for work, saving, investment, and
entrepreneurship}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{suggests that the costs of progressive taxation may also be
greater}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {in
Kazakstan.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {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 inequality 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
enterprises. Leaving that}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {aside, because of the environment of economic
disequilibrium}\par\pard\li680\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 \fs20\cf0\f0\charscalex100 {from
socialism, the returns to investment of time and money in}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {certain activities 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\charscalex100 {demand
more progressive taxation than in advanced W}\fs22\cf0\f0\charscalex100
{estern}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{countries.}\par\pard\li1040\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {In
Western market economies, the top individual income tax}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {rates yield a relatively small fraction of
total revenue; most revenue}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2045\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn200\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {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\charscalex100 { 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\li600\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\f0\charscalex100 {to implement
social views of vertical equity, not a means of raising}\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 whether this would
also be true in}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{Kazakstan, but one suspects that it is, especially once one
considers}\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 that 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\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{inequalities in the distribution of income.}\par\pard\li600\ri0\sl-413\slmult0
\fs24\cf0\f0\charscalex100 {Implications for Policy}\par\pard\li960\ri0\sl-
213\slmult0 \fs18\cf0\par\pard\li960\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100
{Both vertical and horizontal equity, 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 and a}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {VAT that applies as widely as possible to
consumption goods, but}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {not to business purchases. These implications, the
need for a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{comprehensive definition of the tax base }\fs20\cf0\f0\charscalex100 {for both
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\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{neutrality.}\par\pard\li960\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 issue. It must be remembered, however, that
highly}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {progressive
taxation can be seen as punitive, especially by those}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {whose labor, saving, investment, and
entrepreneurship Kazakstan}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {needs to recover from its legacy 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 that the
country adopt a rate schedule for its individual income}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {tax that is only mildly progressive, with a
top rate of about 30 to 40}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {percent. This is especially true if higher rates
would not yield}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{substantial revenues.}\par\pard\li600\ri0\sl-306\slmult0
\fs24\cf0\f0\charscalex100 {SIMPLICITY}\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. This is especially true
for}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {local taxpayers,
who have no experience with tax compliance and}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {who understandably may not trust the
government or understand}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {why it needs large amounts of information. Simplicity
is also}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {important
because Kazakstan does not have enough well-trained}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {and experienced tax administrators needed
to implement a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{complicated 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 may have the expertise needed}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2046\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn200\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {7 9}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\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\li680\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li680\ri0\sl-
320\slmult0 \fs24\cf0\f0\charscalex100 {Simplicity for
Enterprises}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-
320\slmult0 \fs20\cf0\f0\charscalex100 {The treatment of several issues in the
measurement of income}\par\pard\li680\ri0\sl-266\slmult0 \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\charscalex100 {complicate
or simplify the income tax system. Depending on how}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {these issues are handled, the system will
be fair and neutral or}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {unfair and distortionary. The search for an ideal
system that is}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{simple, fair, 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\charscalex100 {would likely be precluded by the probability that the
US would}\par\pard\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\cf0\f0\charscalex100 {1997).}\par\pard\li680\ri0\sl-
413\slmult0 \fs24\cf0\f0\charscalex100 {Simplicity for
Individuals}\par\pard\li1040\ri0\sl-213\slmult0 \fs18\cf0\par\pard\li1040\ri0\sl-
293\slmult0 \fs20\cf0\f0\charscalex100 {Relatively few individuals should be
required (or even allowed)}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {to submit income tax declarations. Those required to
submit}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {declarations
should be essentially those who are believed to have}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {substantial income from self-employment 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 withholding for the collection of income taxes from}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {individuals.}\par\pard\li1040\ri0\sl-
266\slmult0 \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 {declarations, it must be designed with this objective
in mind. It will}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {not
be possible to subject all taxpayers to a truly global
income}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {tax, in which
all the income a person receives, from whatever}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {source, is added together and subjected to
a system of graduated}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{rates. Rather, it will be necessary to accept certain
schedular}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {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\cf0\f0\charscalex100 {income tax, except on the relatively few individual
taxpayers}\par\pard\li680\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100 {mentioned
above.}\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 \fs20\cf0\f0\charscalex100 {complexity for the vast majority of the
population and concentrating}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {tax collection, and thus administrative effort, on a
relatively small}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{number of enterprises and agencies that are responsible
for}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {withholding.
It is thus more appropriate for Kazakstan than a}\par\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 {accords more with accepted tenets of tax
equity and is commonly}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1266\shptop906\shpright7293\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2047\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn226\pard\l
i600\ri0\sl-240\slmult0 \fs16\cf0\f0\charscalex100 {8 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\charscalex100 { 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 {seen as being more modern than a system
with schedular}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{elements. Kazakstan should resist the temptation to introduce
a}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {more modern system
that is not appropriate for its unique}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {circumstances.) If declarations 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}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {threshold), in addition to certain self-
employed individuals, the}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {requirement for submitting declarations could be
broadened}\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\slmult0
\fs20\cf0\f0\charscalex100 {population simply by lowering the declaration
threshold, or by}\par\pard\li600\ri0\sl-266\slmult0 \fs22\cf0\f0\charscalex100
{holding it constant in monetary terms, in an inflationary
period.}\par\pard\li960\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {If taxpayers
(or their representatives 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\charscalex100 {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 retail 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\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {through
withholding, taxpayers should 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\slmult0 \fs20\cf0\f0\charscalex100 {The tax should
be a legal liability of the individual, not just a}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {liability of the withholding agent. Of
course, the withholding agent}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {must also have joint liability to remit the tax.
Ideally, individuals}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100
{would receive statements annually (if not more often)
indicating}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {the
amount of tax that has been withheld from their earnings.
There}\par\pard\li600\ri0\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 income 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 were 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-266\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\charscalex100 {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 complications
found}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {in the tax
systems of many countries, including countries in
transition}\par\pard\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 appropriate to provide}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {allowances in the form of deductions or
credits for the taxpayer}\par\pard\li600\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {and perhaps for children and other dependents, to
create a tax-}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {free
amount (tax threshold), but to provide allowances for
little}\par\pard\li600\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {else.
Basing tax liability and withholding on the earnings of}\par\pard\li600\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {individuals, instead of the combined
earnings of married couples,}\par\pard\sect\sectd\sbkpage
{\shp{\*\shpinst\shpleft1346\shptop906\shpright7373\shpbottom906\shpfhdr0\shpwr3\sh
pwrk0\shpfblwtxt1\shplid2048\shpz0\shpbxpage\shpbypage
{\sp{\sn shapeType}{\sv 0}}
{\sp{\sn fFlipH}{\sv 0}}
{\sp{\sn fFlipV}{\sv 0}}
{\sp{\sn rotation}{\sv 0}}
{\sp{\sn geoRight}{\sv 6027}}
{\sp{\sn geoBottom}{\sv 0}}
{\sp{\sn shapePath}{\sv 4}}
{\sp{\sn pVerticies}{\sv 8;2;(0,0);(6026,0);}}
{\sp{\sn pSegmentInfo}{\sv 2;5;16384;45824;1;45824;32768}}
{\sp{\sn fFillOK}{\sv 1}}
{\sp{\sn fFilled}{\sv 0}}
{\sp{\sn lineWidth}{\sv 6096}}
{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineDashing}{\sv 0}}
{\sp{\sn fLine}{\sv 1}}{\sp{\sn lineColor}{\sv 0}}
{\sp{\sn lineType}{\sv 0}}
{\sp{\sn fArrowheadsOK}{\sv 0}}
{\sp{\sn fBehindDocument}{\sv 1}}
{\sp{\sn fLayoutInCell}{\sv
1}}}}\pgwsxn8640\pghsxn12960\marglsxn666\margrsxn133\margtsxn666\margbsxn666\pard\l
i1880\ri0\sl-226\slmult0 \*\tx6480\fs16\cf0\f0\charscalex100
{T}\fs12\cf0\f0\charscalex100 {HE}\fs16\cf0\f0\charscalex100
{ B}\fs12\cf0\f0\charscalex100 {ASIC}\fs16\cf0\f0\charscalex100
{ O}\fs12\cf0\f0\charscalex100 {BJECTIVES}{ }\fs12\cf0\f0\charscalex100
{AND}\fs16\cf0\f0\charscalex100 { P}\fs12\cf0\f0\charscalex100 {RINCIPLES}
{ }\fs12\cf0\f0\charscalex100 {OF}\fs16\cf0\f0\charscalex100
{ T}\fs12\cf0\f0\charscalex100 {AX}\fs16\cf0\f0\charscalex100
{ P}\fs12\cf0\f0\charscalex100 {OLICY}{ }\fs12\cf0\f0\charscalex100
{FOR}\fs16\cf0\f0\charscalex100 { K}\fs12\cf0\f0\charscalex100 {AZAKSTAN}\tab
\fs16\cf0\f0\charscalex100 {8 1}\par\pard\li680\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li680\ri0\sl-346\slmult0 \fs22\cf0\f0\charscalex100 {greatly
facilitates withholding; 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 Kazakstan.}\par\pard\li680\ri0\sl-266\slmult0
\fs20\cf0\f0\charscalex100 {(Actually, tax 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\f0\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 on wages, with no need for
personal allowances.)}\par\pard\li680\ri0\sl-466\slmult0 \fs24\cf0\f0\charscalex100
{Proliferation of Taxes}\par\pard\li1040\ri0\sl-213\slmult0
\fs18\cf0\par\pard\li1040\ri0\sl-293\slmult0 \fs20\cf0\f0\charscalex100 {It is
almost certain that Kazakstan will derive most of its tax}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {revenues from relatively few taxes: 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 forms of taxes may be needed for regulatory reasons or
to}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {raise additional
revenues. It is equally certain that there is little}\par\pard\li680\ri0\sl-
266\slmult0 \fs20\cf0\f0\charscalex100 {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 raise almost no revenue and serve no
useful purpose.}\par\pard\li680\ri0\sl-266\slmult0 \fs20\cf0\f0\charscalex100 {They
can best be described as nuisance taxes and should be}\par\pard\li680\ri0\sl-
266\slmult0 \fs22\cf0\f0\charscalex100 {repealed.}\par}