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Thursday October 9, 5:04 PM Kyrgyz Parliament Approves New Tax Code BISHKEK Oct 9 Asia Pulse - The Kyrgyz parliament has approved a new Tax Code, which was submitted to the President for signing. The Tax Code's draft has been debated during the last four years, and even now the discussions continue. However, both supporters and critics alike believe that the new document is more promising than the previous one. The number of taxes was reduced by almost one half. In addition, VAT was reduced from 20 per cent to 12 per cent. As a result of the reduction to VAT and the elimination of several taxes, the country's budget revenues, according to the government's estimation, will be reduced by 6 billion som (US$163.6 million). The government plans to compensate for these losses through the sales tax and a new real-estate tax. Despite the effort to compensate for these losses, economists calculate that Kyrgyzstan will have a 3.5 billion som deficit under the new Tax Code. Askarbek Shadiyev, the chairman of the parliamentary committee for economy, budget and finance, explained the advantages of the new Tax Code during the Parliament's meeting. He explained that taxation under the new Tax Code will be the same for all entrepreneurs regardless of whether they work in the Free Economic Zone (FEZ) or not. Several years ago, when FEZs first began to appear, the laws concerning them were very favorable - in particular, FEZ enterprises were free from some taxes. As these enterprises grow stronger and became more independent, they will also be required to pay taxes. Parliament officials believe that the new real-estate tax won't be a burden to the poor. The same opinion was expressed by Tatyana Kim, chairperson of the Kyrgyz Tax Consultant Chamber who said "for 90 per cent of the Kyrgyz population the real-estate tax won't be burdensome." "Many Kyrgyz citizens won't be required to pay this tax. In particular, a family living in a two-room apartment won't have to pay the real-estate tax," she added. This tax will mostly apply to the well-to-do citizens who live in luxurious houses. For example, the owners of a private residence of 200 square meters living space will pay roughly US $300 a year in tax. A special coefficient will be applied to citizens living in suburbs. The new Tax Code will require many organizations and citizens that were not previously required to submit a tax return, to submit a tax return. Beginning in 2009, state employees will not be the only people that will be asked to submit a tax return. Private entrepreneurs, citizens that combine several jobs and citizens who have taxable property will also be required to submit a tax return. Beginning in 2010, all Kyrgyz citizens will be required to submit tax returns to the tax services. However, the representatives of the country's business community believe that their opinions were not considered during the Tax Code's adoption. They issued a joint appeal, asking the Kyrgyz President and Prime Minister to consider making changes to the new Tax Code's draft. The appeal was signed by the Union of Entrepreneurs, Union of Banks, Union of Builders, Guild of Directors, the Kyrgyz Oil Traders Association and other large business associations. Businessmen pointed to contradictions in the new version of the Tax Code. The business community believes that the sales tax will cause a price increase among foodstuff and manufactured goods, and also lead to an increase in interest rates for credits. These factors could cancel the positive effect of VAT's reduction on businesses. Business representatives suggested the extinguishment of the sales tax and the introduction of a temporary sales tax, which would be in force until the real-estate tax could be implemented. It is necessary to point out the sales tax will only be valid for two more years, as it will be extinguished in stages throughout a two year period. According to Usen Kydyraliyev, the Kyrgyz Entrepreneurs Union chairman, the tax service should not be the only government body authorized to consider the complaints of tax-payers. If a businessman appeals the amount of taxes he is being charged, the new Tax Code states that he has no right to appeal to the courts regarding his taxes until the tax service makes their own judgment, which often takes a lot of time. Business representatives also made remarks concerning the real estate tax. They believe consideration should be made to the peculiarities of property's usage in different fields, as well as property's different functions (manufacturing, administrative, subsidiary). Business people believe that the real estate tax should be introduced stage-by-stage, and its rates should be divided according to the property's usage and function. The appeal says that the Tax Code should reduce the number of statutory legal acts and help to make the tax services run more effectively. Authors of the appeal believe that the new Tax Code contains a greater number of instructions, regulations and other statutory documents. Business people are also not happy with the introduction of raid control that, according to them, will allow the government to raid businesses any time it seems fit. (TCA)