Elima Karalaeva

Department: Department of Politics

Project Summary

The recent political and economic crisis in the Kyrgyz Republic offers a good opportunity to rethink a tax system development and to restate the objectives and direction of tax reform. The main goals of tax reform are the improvement of tax revenues collection and fiscal deficit reduction in short term, adaptation of the new tax system to a market economy, equal distribution of tax burden among general population, and creating favourable conditions for economic development. However, the increasing tax revenues have contributed to tax avoidance and tax evasion showing that there is still much room for improvement.

The research is motivated by the questions about main direction and barriers of tax reform in the Kyrgyzstan, how tax reform could contribute to bring public finance back to fiscal sustainability and make the tax system more equitable and growth-friendly. An important question is whether it is possible to change the tax system such a way to yield additional tax revenues, thereby contributing to the fiscal consolidation, while minimizing the distortion effects on economic growth. In general this could be best achieved by broadening of tax base, by cutting in tax expenditures, by shifting the tax structure towards taxes on property and consumption, rather than by directly raising tax rates. It is necessary to note that improving the efficiency of tax collection and administration is a significant option to increase tax revenues from existing sources without changing tax rates. However, Kyrgyzstan did not fully realize such opportunity because of corruption, weak enforcement power, absence of tax culture, lack of tax professionals and outdated technological base. Also, the research will look at the impact of the global financial and economic crisis on the tax policy of the Kyrgyz Republic.

Supervisory Team