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Kazakhstan's small and medium-sized businesses (SMEs) are grappling with the repercussions of a new tax reform، which experts warn is creating an "ideal storm" detrimental to their survival. While the government suggests that many closures are a natural process of weeding out non-operational entities، business owners and analysts point to the tax overhaul as a primary driver of hardship.

"Non-Working Business" or Economic Foundation؟

The assertion by Minister Serik Zhumangarin that the widespread closure of individual entrepreneurs (IEs) at the start of the year is a "natural process" has sparked debate. The Minister contends that most of these businesses lacked revenue and employees. However، this perspective is not universally shared within the entrepreneurial community.

National Bank Data and Entrepreneurial Complaints

A recent survey by the National Bank revealed that over 38% of surveyed entrepreneurs identified high taxes as their most significant problem. Elena Bakhmutova، head of the Association of Financiers of Kazakhstan، noted that in developed economies، new businesses emerge to replace those that close. This is not happening in Kazakhstan، where many entrepreneurs are forced into a "hibernation mode" or bankruptcy due to economic difficulties.

Expert Opinions on the Reforms

Economist Arman Beisembaev acknowledges some truth in the minister's statement but emphasizes it's not the whole picture. He explains that many small companies have exited the market because they couldn't cope with the new tax regulations. Particularly affected are those who previously benefited from simplified tax systems and could deduct B2B expenses. Without this ability، they are compelled to pay additional taxes on expenses like rent or goods purchases.

Fellow economist Marat Abdrakhmanov estimates that approximately 50،000 IEs ceased operations in the first quarter، directly attributing this to the tax reform. He argues that the new Tax Code lacks mechanisms to stimulate entrepreneurship.

A "Triple Blow" to Business

As of 2026، SMEs are facing pressure from multiple factors. Firstly، the fiscal reform has increased the tax burden and reduced profitability. Secondly، aligned with banking reforms، banks are now obligated to pay a 25% corporate income tax on lending to consumers. Thirdly، the National Bank has tightened prudential norms، restricting consumer lending. This has diminished consumers' purchasing power، consequently reducing demand for small business products and services.

Furthermore، reductions in state budget expenditures are negatively impacting the economy. The simultaneous occurrence of these factors has created an "ideal storm" for small businesses.

A Chain Reaction

Kuat Dombay، director of the Center for Research of Central Asian Countries، disputes Minister Zhumangarin's characterization of the mass closure of IEs as a "natural process." He points out that over 80،000 IEs closing in the first quarter is not merely an economic issue but a social one، affecting the livelihoods of families and employees، potentially leading to increased social tension.

Who is Sinking، and Who is Swimming؟

The retail sector has been the hardest hit by this "ideal storm،" with the highest number of small companies closing due to the prohibition on deducting expenses. Businesses are experiencing a sharp increase in tax burdens and a decline in profitability، forcing many entrepreneurs to cease operations or wait for better times.

The service sector has also suffered، though to a lesser extent than retail. Many small construction firms have also closed. Contractors for large enterprises and retail chains، especially those operating under simplified tax systems، have been severely impacted by the reform.

Some business types، like warehouse rentals، have weathered the "storm" due to a shortage of space and stable demand. Regions focused on oil production have also fared better. However، Almaty، with its high concentration of small businesses، has borne the brunt of the impact.

Who Benefits؟

A primary outcome of the "ideal storm" is the redistribution of domestic income، not in favor of those in need. Economic changes benefit large businesses، while small businesses are left behind. This situation reduces employment and negatively affects the population's well-being.

Another consequence of small company closures is a decrease in real wages. On one hand، SMEs may reduce or freeze their payrolls to cope with increased tax burdens. On the other hand، closing companies force employees to seek new jobs، increasing labor supply. With more candidates for fewer openings، employers gain leverage to lower wages.

Has the Reform Become a "Minus"؟

Have budget revenues increased as a result of the tax reform؟ Currently، this remains speculative. The Ministry of Finance is expected to report on budget revenues on June 1st، which will allow for initial conclusions. Economists' forecasts are skeptical.

Preliminary calculations suggest that the increase in VAT (Value Added Tax) has not yet fulfilled its function، with potentially lower VAT revenues for the budget. Marat Abdrakhmanov predicts a 1-2% decrease in VAT collection، with the most significant drop occurring in the third quarter.

Kuat Dombay warns that despite rising oil prices due to the conflict in Iran، the Ministry of National Economy of the Republic of Kazakhstan may have made miscalculations. Oil production has decreased، consumer activity has slowed، and retail trade has stagnated، leading to reduced economic growth.

According to preliminary forecasts by economists، surviving businesses will begin raising prices from August due to accumulated costs. This will fuel inflation، and by September، all Kazakhstanis will feel the consequences in their pockets. Another wave of mass business closures، particularly in the retail sector، is possible by the end of the year.

Expanding state support for small businesses could offer a lifeline، such as radically simplifying access to loans and gradually lowering the base interest rate. However، for now، the authorities seem to be leaving SMEs to fend for themselves. The full economic and social Darwinism of this approach will become clear by year's end.

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