Kyrgyz Republic: Memorandum sets out economic and financial policies for 2015 to 2018

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In connection with a request for IMF support the Kyrgyz Republic has issued a memorandum setting out the economic and financial policies for 2015 to 2018. This includes the aim of reducing the operational balance by increasing tax revenues and streamlining current expenditures.

The memorandum notes that the economic crisis in Russia; the impact of accession to the Eurasian Economic Union (EEU); and other factors have contributed to a less favorable outlook for 2015. Economic growth is expected to fall significantly to below 2% owing to a drop in gold production and a slowdown in services, with inflation estimated to be around 10%.

The Kyrgyz Republic became a member of the EEU on 9 May 2015. A set of exclusions and deferrals from customs duty has been agreed to protect imports in sensitive areas. The Kyrgyz Republic will be entitled to a 1.9% share of the total EEU customs revenues.

Legislation is to be prepared in 2015 to strengthen the value added tax (VAT) by reducing the number of exemptions, and the sales tax will be gradually phased out. Simplified record keeping and reporting requirements are to be drawn up. Tax exemptions that expire will not be renewed and there will not be any new tax exemptions or favorable tax regimes for selected sectors or activities.

Tax administration will be strengthened by coordinating customs and tax policies especially with regard to the value added tax where customs will continue to be involved. Excise and property taxes will be increased for some categories of taxpayer. The taxation of mineral resources will be reformed in line with best practice. There will be increased capacity for analysis of tax policy and revenue forecasting which may involve international support to develop the tools and train staff.

As part of the overall institutional and structural reforms the State Tax Service will be reorganized and the Large Taxpayer Unit (LTU) will be strengthened. The institutional structure of the tax service will be reorganized to ensure that functions are not duplicated in the interregional tax service departments. The taxpayer population will be analyzed to ensure that the correct number of taxpayers can be administered by the LTU. There will be LTU coverage of all large taxpayers and these taxpayers will be able to file their returns electronically.

There will also be measures to improve the business environment to deal with the key weaknesses identified in a recent World Bank report. Procedures will be improved for starting a business and streamlining the licensing process and inspection regime; registration of property; and protection of investors. The business environment will be monitored by regular business surveys to identify obstacles to growth. There will also be legislation to combat corruption and enhance governance.

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