International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper conducts a review of taxes on labor in Kazakhstan, which, despite the current relatively low level of collections, have the potential to become an important source of non-oil fiscal revenue. This paper focuses on one group of non-oil taxes, personal income tax and other taxes on labor, and reviews their effective burden, progressivity, and efficiency. These taxes are found to have limited responsiveness to oil-sector fluctuations, and thus help enhance the resilience of public finance to oil shocks. The existing labor tax system is characterized by a low, flat headline rate, limited progressivity except at the lower end of household income distribution due to deduction of the minimum wage, and a relatively high tax burden mainly born by the formal sector. Having a more equitable and efficient labor tax system would involve a targeted strategy for deductions and exemptions, expanding the tax base, and continuing to improve tax design, administration, and collection enforcement.
The purpose of this note is to provide a framework for improving tax policy design in fragile and conflict-affected states, which face political and institutional constraints. This note begins with an overview of experiences in revenue mobilization in fragile states, including relative to other country groups—in particular, nonfragile states and formerly fragile states; that is, countries that exited fragility during the period under study. A discussion follows of how the principles of tax policy design should be applied in fragile states, particularly the relative importance of the revenue objective vis-à-vis other objectives, such as equity and efficiency. The two sections that follow provide guidance on tax policy design in the emergency and consolidation phases, respectively, and discuss how governments can use tax policy to transition from one phase to another, eventually overcoming fragility. The note concludes with key lessons and a set of guiding principles for tax reform in fragile states.