Introduction
On May 8, 2024 Kazakhstan adopted Decree of the President of the Republic of Kazakhstan РК № 542 “On measures for economic liberalization” (hereinafter “Decree”), which has entered into force simultaneously. The new Decree of the President suggests measures aimed at improving the country’s business climate and support entrepreneurship by limiting the state control, amending the legal, economic and social conditions and guarantees that ensure freedom of entrepreneurship in Kazakhstan.
Brief Review Of The Reforms
Some government bodies are obliged to reduce state participation in the economy in the coming years, especially in terms of public procurement, the authority of the quasi-state sector in the country’s economy, excess enterprises will be privatized, and some tax and administrative issues related to freedom of enterprise will be reformed in favor of business.
More Details About the Liberalisation Measures:
Moratoriums
The Decree restricts the creation of new quasi-public sector entities, except for the cases explicitly provided by the Law of the Republic of Kazakhstan “On the return of illegally acquired assets to the state,” as well as special cases provided by direct orders of the President of the Republic of Kazakhstan. Moreover, the creation of private monopolies during the privatization process is prohibited, except for entities classified as natural monopolies.
Audit of the state property
The measures require an audit of the state property state property and quasi-state assets based on the results of which the Agency for the Protection and Development of Competition of the Republic of Kazakhstan shall create a National Privatization Office until June 1, 2024, which must provide criteria for state facilities subject to mandatory privatization, and will conduct an analysis of the activities of existing state-owned enterprises and legal entities with more than 50% shares (shares in the authorized capital) of which belong to the state and their affiliates, regarding the possibility and feasibility of transferring non-core assets into a competitive environment, taking into account regional specifics by December 31, 2024.
Based on the audit results, a list of state assets eligible for privatization will be created. This list will outline the conditions and methods for privatizing each asset, including options like IPOs, SPOs, auctions, and others. Any approval or adjustment of this list can only be made by the Supreme Council for Reforms under the President of the Republic of Kazakhstan.
Additionally, private entrepreneurs will have the opportunity to propose assets for privatization. This will be managed by creating and submitting an application list of state assets, with the process monitored by the relevant Agency.
The state will support markets with low competition and supply by temporarily participating in market entities. However, all state-participated market entities must eventually be privatised, except for strategic and social facilities, financial market infrastructure, and those essential for interbank payment systems and the financial market.
Measures for Enhancing Independence of Samruk-Kazyna Fund
The government, along with the Agency for Strategic Planning and Reforms of Kazakhstan, has planned several measures to enhance the independence and autonomy of the Samruk-Kazyna National Welfare Fund and its subsidiaries. By July 1, 2024, the process for forming the boards of directors of the Fund and its subsidiaries will be revised. This revision will establish a system of transparent and predictable appointments, including setting criteria for selecting independent directors and conducting selection competitions. By August 1, 2024, additional systemic measures will be implemented to reduce the possibility of the Fund’s interference in the operational activities of its subsidiaries, covering personnel decisions, procurement, and production processes. Furthermore, by August 1, 2024, the regulated procurement system of the Fund will be reviewed in collaboration with the National Chamber of Entrepreneurs “Atameken” and relevant agencies, focusing on increasing process transparency and the domestic value share.
Tasks for Ensuring Fair Competition in Business Sectors
In the fuel-energy, transport, communication, and other sectors, steps will be taken to reduce the quasi-governmental sector’s market share in oil supply to refineries by December 31, 2024. Equal and non-discriminatory access for private oil suppliers to services such as oil processing, transportation, and aviation fuel storage at airports will be ensured, including the digitization of access procedures. By December 31, 2025, agricultural land data will be fully digitized, and by December 31, 2026, electronic tenders will be mandatory for land provision. The implementation of electronic auctions for subsoil plots not utilized by national hydrocarbon companies within three years will be ensured by December 31, 2025. Cross-subsidization within and between economic sectors will be phased out by December 31, 2029. By December 31, 2027, the maximum number of legislative norms directly or indirectly restricting price and tariff formation will be abolished, except in monopoly markets. By December 31, 2025, the practical application of incentivizing tariff methodologies will be ensured to attract private investments and enhance the investment appeal of natural monopoly sectors, with quality control of regulated services.
In procurement and exchange trading, by December 31, 2024, the “yellow pages” principles will be introduced in state procurement, disqualifying state-owned enterprises from participating if there are at least two private sector bids. The conditions for direct procurement contracts will be revised, and non-standardized goods will be excluded from exchange trading. The efficiency of digital trading systems for commodity exchanges and clearing center software will be enhanced to prevent interference and ensure the fulfillment of exchange transactions.
By December 31, 2028, a gradual transition from commodity-specific subsidies to preferential crediting will be implemented. To ensure transparent and equal access to state support for entrepreneurship, state support measures will be standardized like public services. By December 31, 2025, a digital ecosystem facilitating state-business interactions will be created, including providing state support measures through a “one-stop-shop” principle. An effective mechanism for calculating and accounting for reciprocal business obligations when providing state support will also be developed.
By December 31, 2025, business processes for entering state procurement lists, including the registration of prices for pharmaceuticals and medical devices, will be fully digitised.
Financial Market Reforms
The Agency for Regulation and Development of the Financial Market, in collaboration with the National Bank of Kazakhstan, will take measures by December 31, 2024, to expand opportunities for opening new banks and increasing the accessibility of banking services for the public and businesses. This includes liberalizing legislative requirements for opening foreign bank subsidiaries and branches and expanding the list of permitted operations for foreign bank branches. The institutional development of the banking system will also be addressed, including considering the feasibility of introducing universal and basic banking licenses. By September 1, 2024, the government, together with the National Bank of Kazakhstan, will ensure the prohibition of state financing from the National Fund of Kazakhstan on non-market (preferential) terms for quasi-governmental sector entities, except for nationally significant projects directly approved by the President of Kazakhstan after the appropriate evaluation and in the absence of alternative funding sources.
Supporting Freedom of the Entrepreneurship
To promote the fundamental principles of entrepreneurial freedom and prevent interference by state and law enforcement agencies in legitimate business activities, the government, in collaboration with the National Chamber of Entrepreneurs of Kazakhstan “Atameken,” will ensure full automation and digitization of access to commercial services provided by state bodies and quasi-governmental organizations by December 31, 2025. This includes services such as wagon cleaning, locomotive traction, and fuel distribution. Procedures for obtaining technical conditions for connecting to engineering networks, including from private natural monopoly entities, will also be regulated, digitised, and simplified.
The new Tax Code will incorporate a differentiated approach to enforced tax debt collection based on the debt amount, minimize account freezes, and simplify procedures for tax deferral and installment plans without collateral for minor debts. Threshold values for the collection of social payment arrears will be established, and the suspension of tax audits for small and medium-sized businesses will be limited to a maximum of two times.
By December 31, 2024, in collaboration with the General Prosecutor’s Office of Kazakhstan, legislative amendments will be introduced to decriminalize economic offenses and improve administrative-penal legislation to prevent unlawful interference in business activities by quasi-governmental sector entities, natural monopolies, and other organizations, regardless of ownership forms. Administrative responsibility will be established for actions obstructing lawful business activities if they do not constitute criminal offenses. Measures to restrict decisions about suspending activities, revoking permits, or filing administrative offense cases against investors will be enforced. Furthermore, the registration of reports on economic offenses in the Unified Register of Pre-trial Investigations (ERDR) without supporting tax audit reports will be prohibited.
By July 1, 2024, the possibility of using international projects developed according to advanced global standards for construction without mandatory local project documentation will be ensured. By the end of 2025, qualification requirements for obtaining permits will be reviewed and optimised, and the potential introduction of collective lawsuits to compensate for damages caused by monopolistic or dominant groups’ actions will be explored by the end of 2024.
