Kyrgyzstan has developed a draft government decree on methods for assessing the effectiveness of tax incentives, covering the issues of sustainable development of the country in accordance with the innovations of the new Tax Code on the implementation of principles, performance assessment and reporting on tax incentives and preferences. This was made possible through cooperation between the Ministry of Economy and Commerce of the Kyrgyz Republic and the Integrated National Financing Framework (INFF) program, run by the Government of the Kyrgyz Republic jointly with UNDP and UNICEF.

“The tax policy of any country includes both a regulatory and stimulating function to support priority sectors of the economy. Kyrgyzstan has many tax incentives despite a possible shortfall in budget revenues,” Kubanychbek Isabekov, head of the tax policy department of the Ministry of Economy and Commerce of the Kyrgyz Republic, said on January 28 at a discussion of tax relief policies.

According to him, during the development of the new tax code, proposals were made to eliminate many benefits. However, it was decided to maintain the existing benefits, but to introduce an assessment of their effectiveness.

“Following the discussions, it was decided to sustain all existing tax benefits, and moreover, at the suggestion of business, new benefits were included. At the same time, we identified the need for a more thorough and regular assessment of the effectiveness of benefits based on various parameters and criteria,” he said.

Therefore, Kyrgyzstan expects an increase in the effectiveness of state support for sectors of the economy. “We will continue supporting this policy if such incentives show efficiency, expand industries, and increase exports. Our state will be interested not only in maintaining benefits, but also in increasing them,” Isabekov said.

To that end, a draft new government decree on assessing the effectiveness of benefits is being prepared to replace the one passed in 2016. The draft proposes to define the concept of the effectiveness of tax incentives as the ratio of the results of industry activities to the period over which tax incentives are applied to the taxpayer's performance in the previous period, and to introduce rules for periodic assessment of effectiveness. The effectiveness of tax incentives will be subject to annual assessments, the results of the evaluation will be submitted to the authorized state agency, according to which the termination or extension of certain benefits can be proposed.

In the draft resolution, the main goals of tax incentives were determined to stimulate the sustainable development of the economy of the Kyrgyz Republic, attract investment in priority sectors of the economy, achieve the main priorities of the national development strategy, social support for the population and encourage charitable activities, expand priority economic activities and create conditions for those who hire vulnerable groups population.

Starting in mid-2020, the Kyrgyz government, together with UNDP and UNICEF, has been developing an INFF to improve the efficiency, effectiveness, and transparency in the use of public funds and governance of private finance to support the implementation of Kyrgyzstan’s National Development Strategy and the Sustainable Development Goals.

For reference: Tax relief is an advantage provided by the state or local government to a certain category of taxpayers in order to reduce the tax burden, which is one of the elements of tax policy for solving social and economic challenges.