"Roman Sklar heralds new tax legislation as the potential solution to the demolition of construction businesses"
The First Deputy Prime Minister of Kazakhstan, Roman Sklyar, announced significant changes to the Tax Code at a press conference in the Government that are expected to affect the housing market, particularly in the economy class.
One of the key changes is the increase in the Value Added Tax (VAT) rate from 12% to 16%, and the cancellation of VAT exemption for developers. This move is likely to push up construction costs and thus housing prices for economy-class homes.
However, the Tax Code also aims to streamline taxation and digitalize administration, reduce and re-focus tax incentives, and introduce differentiated sector rates and tighter rules on special regimes and incentives. These changes are expected to positively impact the housing market in the long run by reducing opportunities for informal or tax-minimizing practices.
The regulation of housing prices for vulnerable populations remains a part of state orders. The "Baqytty Otbasy" and "Nauryz Zhumysker" programs will continue to be implemented for the regulation of housing prices. Housing prices in the economy class have remained stable over the past 10 years, and the state's role as a buyer has not led to inflated housing prices in this segment.
The regulation of housing prices is a continuous process. It is specific to vulnerable populations and has been managed by market methods in the non-elite segment. The new Tax Code is expected to end the current practices of large construction companies that have led to business fragmentation and excessive profit extraction.
The changes in the Tax Code will have an impact on the business practices of large construction companies. Developers will likely rework pricing models and sale contracts to explicitly account for VAT on construction and cash-flow timing. They may also reduce unit sizes or specifications, shift more supply toward mid/high segments, or seek cost reductions via procurement scale or vertical integration to protect margins in the economy segment.
The exact magnitude of price changes depends on implementing regulations, such as the speed of VAT refunds and exemptions for certain housing programs. Government explanatory and transitional measures may mitigate short-term shocks. In high-supply cities, competition may blunt full pass-through to buyers, while in tight markets, pass-through will be larger.
Over 19 million square meters of housing will be built this year, according to the Vice-Premier. The new Tax Code is set to positively impact the housing market in the long run by reducing opportunities for informal or tax-minimizing practices, but in the short-to-medium term, there may be upward pressure on prices for economy-class housing as developers incorporate higher VAT and reduced incentives into selling prices.
[1] Source: Government of the Republic of Kazakhstan official website [3] Source: Kazakhstan Ministry of Finance official website [4] Source: Kazakhstan National Chamber of Entrepreneurs official website [5] Source: Kazakhstan National Bank official website
- The changes in the Tax Code will influence the business industry, particularly in real-estate, as developers will have to adjust their pricing models and sale contracts due to the increase in VAT and cancellation of VAT exemption for developers.
- The Tax Code aims to digitize administration and reduce opportunities for informal or tax-minimizing practices in the finance sector, which will have long-term positive effects on the housing market.
- In the short-to-medium term, the new Tax Code may lead to upward pressure on prices for economy-class housing due to the increase in VAT and reduced incentives, but in high-supply cities, competition may mitigate the full pass-through to buyers.
