Kyrgyzstan: Government puts tax plan on ice amid protests
Officials say measures to make traders use cash registers will nevertheless come into force in July 2024.
The government of Kyrgyzstan tried to face off with bazaar traders in an attempt to boost revenues, but it has blinked amid concerns that their anger could escalate into large-scale protests.
The trouble began in November, when the authorities moved to scrap a system under which numerous commercial activities were exempt from sales taxes and instead paid flat rates for an operating license, immaterial of their turnover.
A list of 12 types of business drawn up by the Tax Service included market stalls, street-side traders, auto parts shops, fast food outlets, and bakeries.
With the current system, a shawarma stand, for example, is liable to pay a 10,000 som ($110) fee to the government regardless of whether they are located in a popular downtown location or a hidden-away spot in a residential area.
Officials have for some time been hinting at a shake-up of this arrangement, which they say makes it impossible to keep track of how money is circulating in the economy.
“The state has not introduced a single new tax over the past few years. We ask only that entrepreneurs install and operate cash registers as required under current legislation,” Akylbek Japarov, the head of the Cabinet, said at a government meeting in March. “Businesses must operate transparently and honestly, without resorting to various shadowy schemes.”
Under the proposed new order, which was to come into effect on January 1, retailers registering an annual turnover of less than 8 million soms ($90,000) were to be tax exempt so long as they installed a cash register. Anything above that and up to 50 million soms would be taxed at a rate of 0.5 percent. If revenue was even higher than that, the rate was 1 percent.
In order for all that money to be accounted for, the authorities want to make it mandatory for all retailers to install cash registers, issue receipts and report all their sales to the taxman. Business owners will also be required to fill out electronic waybills, to account for the provenance and destination of their goods, and compile invoices. The requirement to submit waybills is being introduced in part so Kyrgyzstan complies with rules imposed by the Moscow-led Eurasian Economic Union trading bloc.
But many bazaar traders say they are not ready for these changes.
Alexander Lee, 46, has been selling auto spare parts at the Kudaibergen market in western Bishkek for more than 20 years. He told Eurasianet that many retailers are uncomfortable using computers and prefer the old-fashioned way of dealing with just hard cash. Even if an operating license ends up costing more, many are prepared to bear the expense just to be spared the paperwork that comes with dealing with sales taxes, said Lee, who asked to be identified by a pseudonym.
“[I would like] to just pay once a month and for nobody to come checking, for nobody to come… No receipts, nothing to fill out, no quarterly reports,” said Lee. “The authorities say that people are hiding how much they earn. Maybe some people are doing that, but it’s only a few of them.”
Another source of unwillingness to hand money over to the state stems from perceptions of how those funds will be spent — or possibly misappropriated.
“How is this money being used? People aren’t blind,” said Lee. “Now they’re going to buy a new plane [for the president], and that costs a lot of money. Do we really need that?”
The low proposed tax rates are not softening attitudes either. Suspicions linger that the rates are being kept low for the time being to persuade traders into declaring their income and that they will be jacked up later on.
Opponents of the fiscalization push began to mobilize in earnest toward the end of last month. From November 29 onward, bazaar traders across the country — in the cities of Bishkek, Osh, Karakol, Talas, Tokmok, Kara-Balta and Naryn — mounted rallies and at times shut up shop.
The culmination of this wave of protests was a mass rally at the huge Dordoi bazaar in Bishkek on December 5. Around 1,000 people turned up.
Since coming to power in October 2020, President Sadyr Japarov, who is not related to the head of the Cabinet, Akylbek, has taken a firm stand against the type of street politics that, ironically, paved his way to office. So the sight of large, unapproved protests had him spooked.
To allay the concern of traders, he went to the Dordoi rally to pledge that his proposed tax rule changes would be postponed for at least six months. In a speech to traders, he took a noticeably conciliatory line.
Japarov is still determined to have his way in the end, though.
“We all whine that life is bad, that salaries are poor, that pensions and benefits are too small, and that the state is not keeping tabs on all this,” he told the crowd. “Well how can the state keep tabs? Through taxes and customs tariffs of course. When we amass money and replenish the treasury, we can lift up the country. Over the past two years, the salaries of government workers have been increased threefold, and pensions and benefits almost doubled. We want to raise them further, and for that we need your help.”
This is not the government’s first run at this effort.
An earlier attempt to make the use of cash registers universal in 2022 was similarly put on ice following demonstrations.
The head of the tax service, Altynbek Abduvapov, said last month that in those places where the registers have been installed — such as shopping malls — they are yielding good results. In the first ten months of 2022, the state has generated 220 billion soms ($2.4 billion) in tax revenues, an increase of 34 billion soms over the same period in 2021.
Ayzirek Imanaliyeva is a journalist based in Bishkek.