After Kurmet, a hairdresser in Kazakhstan’s business capital, Almaty, finished a cut earlier this month, the customer reached for his phone to pay.
This has been a standard scene for years. Kazakhs young and old have embraced banking apps with a passion. But things are changing. Kurmet had to say no on this occasion.
“Sorry, brother, only cash, you understand, now it’s like that everywhere,” Kurmet told the client, a regular at his salon.
The customer had to go out to the nearest ATM to pick up some cash to pay.
“This is my fifth client today who has had to go out scrambling for cash,” Kurmet, who asked that his surname not be used in this article, said in an interview with Eurasianet. “Me and a lot of others have stopped accepting mobile transfers. That’s why we have so many inconveniences – we’ve all got so used to being without cash.”
This might be an inconvenience for Kurmet and other small business owners like him, not to speak of their customers, but tax officials will be glad.
The ascendancy of mobile phone cash transfer technology has never sat well with them. As far as they were concerned, too many commercial transactions were being conducted without adequate scrutiny. Untold revenues were accordingly being lost.
Cash transfer technology in Kazakhstan is synonymous with one brand: Kaspi. When the bank, whose commercial success has been so great that it has even listed on stock exchanges in London and New York, brought its app to the market, it was originally conceived as an easy way for friends and family to send one another money. Just like Americans and Europeans might exchange cash on Venmo or Revolut.
Businesses and service providers quickly got in on the act.
But as far back as 2019, the Finance Ministry, which oversees the State Revenue Committee, began looking at regulating this area more strictly.
In November that year, Deputy Finance Minister Ruslan Yensebayev complained to fellow government officials: “These transactions are not being recorded fiscally.”
It took until this January for things to kick into motion. At the end of 2023, tax authorities announced they were poised to undertake an extensive audit of mobile transfers as part of an intensified fight against the shadow economy.
“Using this type of payment, businessmen do not issue cash receipts, they do not reflect turnover in tax reporting. Transfers are sent to third parties who, at the time of the sale of goods or provision of services, are not related to the business or are not registered as a business entity,” the State Revenue Committee said in a statement ahead of the mass audit.
The checks are being carried out on select categories. Entities or persons receiving mobile transfers from 100 or more different people every month for three months in a row are coming under scrutiny.
At the same time, officials emphasize that traders cannot refuse payment by debit card or QR codes, as doing so would violate consumer rights. Breaking this law can incur fines of up to $330.
The effect has been instantaneous. It is mostly just large retail chains, supermarkets, online stores that still accept payments by mobile app. Smaller-scale businesses have ruefully reverted to a medium they had happily cast aside: cash.
Lines at ATMs, sometimes annoyingly long ones, have once again become a sight.
“This situation feels like a throwback to the last century,” Aruzhan Uvaliyeva, an advertising agency employee, told Eurasianet. “I would never have thought that in 2024 we would again be carrying wallets with bills and coins. It’s all so sad.”
Zooming out, this assault on fintech is part of a broader effort to implement President Kassym-Jomart Tokayev’s new economic policy.
As part of a welfare-centered growth model, Tokayev says he wants the government to expand the annual gross domestic product to $450 billion by 2029, up from $260 billion at present.
Some officials have decided that low taxes are part of the problem.
Last year, the National Economy Ministry proposed increasing VAT, the sales tax, from the current 12 percent to 16 percent starting from 2025. Their main argument is that the tax burden in Kazakhstan is among the lightest in the world, inferior even to that of fellow members of the Russia-dominated Eurasian Economic Union trading bloc.
The business community is unhappy and has argued hiking taxes will only fuel inflation and expand the shadow economy.
So Tokayev has shelved the VAT idea for now.
“You can’t just increase taxes. We need to work on improving the system for collecting them and shrinking the shadow economy,” Tokayev said at a government meeting on February 7.
Arman Beisembayev, a financier at international brokerage group Tickmill, said this tightening of the tax revenue system goes against the spirit of a long-standing, unspoken social contract between the government and Kazakhstan’s population: the authorities do not demand exorbitant taxes, and the public curtails its expectations of the state.
“Everyone understands how deeply corruption has penetrated the system of government in Kazakhstan, and they do not want to pay taxes that will be stolen by officials,” Beisembayev told Eurasianet. “Now the state wants to force citizens to share their income, but without first eradicating corruption.”
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The risk is that this will fuel discontent. There are some signs of this already. In January, more than 100 owners of small neighborhood stores around Almaty met with local government officials to demand a reduction in the retail tax. They complained that with the twin pressures of large retail chains and online retail, small stores cannot survive.
“With the start of the year, the problems with mobile transfers [even further] impacted sales,” the Atameken National Chamber of Entrepreneurs, a business lobby, quoted one of them as saying.
It is a measure of the government’s nervousness about public grumbling that this has already triggered a re-think.
At a government press conference on February 13, National Economy Minister Nurlan Baybazarov said official policies on mobile transfers would be subjected to further review.
“This is a sensitive issue,” he told reporters.
His colleague, Finance Minister Madi Takiyev, took a different tack. Paying taxes is the duty of every citizen and “mobile transfers will be checked come what may,” he said.
Skeptics remain unconvinced. Meruert Makhmutova, an economist and director of the Public Policy Research Center, said the priority should be to boost transparency and efficiency in the expenditure of budget resources.
“Unfortunately, our officials have little idea of how people live, how entrepreneurs work. It is more important for them to show rosy statistical indicators,” Makhmutova told Eurasianet. “Hence their ill-considered decisions.”
By Almaz Kumenov via Eurasianet.org
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