Lawyers like to collect ‘tombstones’, those little clear plastic miniatures of ads that usually proclaim that a major financing or corporate acquisition has occurred. I have some of these but the one shown here, front and back, is a bit different. It announces the adoption and effectiveness of the Tax Code of the Republic of Kazakhstan.
A lot of credit for the successful negotiation and implementation of the 1994 Tax Code goes to the International Tax and Investment Center of Washington, D.C., and, in particular, to its head Dan Witt who had a knack and the endurance to work so effectively with the government’s team.
If you scan the list of ITIC members you will see the name of Faegre & Benson, the first paid-up member of ITIC in Kazakhstan. In fact, the membership fee was paid personally by me. I assumed (rightly) that our management committee back in Minneapolis didn’t want me to spend firm money on, and to get personally involved in, a major pro bono tax project when we needed to concentrate on building up our legal practice. My view was a bit different. I had extensive tax experience in an international environment and thought I could make a positive contribution. And involvement in the tax project certainly could help in marketing our services.
The drafting of a complete tax code is very challenging. Previously, Kazakhstan had a large number of laws dealing with taxation but they had never been brought into a comprehensive code. Many of those old laws did not reflect a unifying or overriding tax policy, and some of them granted special privileges in response to pressure from industrial or commercial groups.
It was clear from the outset of the drafting project that there would be a struggle to give birth to a real tax code that was comprehensive, fair, sufficiently detailed, and based on well understood tax policies.
One early problem was that competing draft tax codes were in circulation. One was sponsored by the World Bank. It was a “one size fits all” model. All that was required was to fill in a few blanks, such as the country’s name, and then enact it into law. That approach was rejected for various reasons: it was utterly too basic and it was not adapted to the legal environment in Kazakhstan.
Another proposed tax code was put forward by the Association of Entrepreneurs. This was rejected more quickly than the World Bank’s model. My view was that the Entrepreneurs’ draft code was similar to what you would expect if you asked prisoners to write the penal code: the starting point was so favorable to business that there was little hope of negotiating it back to neutral. It was also light on detail.
My hope for the 1994 Tax Code was that it would have a long life even if it were to be very heavily amended in future years. Unfortunately, that was not the case – by 2002 there was a new Tax Code and this too gave way to yet another Tax Code in 2009. With regard to company law, I had had the same hope. Investors – local as well as foreign – were interested in legislative stability as much as political stability. Whether we are talking about taxes or company law, Kazakhstan has suffered from ‘legislationitis’. Rather than perfecting an existing law or code to which the public and the bureaucracy has become accustomed, there seems to be an overpowering attraction to starting again virtually from scratch.
Book Sales: I am still helping with the marketing of my book, West Meets East in Kazakhstan. It’s about life in and around Almaty in the 1990s from the perspective of an American expatriate. You will enjoy it! The book is available online in softcover or e-book format from AuthorHouse (the publisher), or Amazon or Barnes & Noble.
Website: My blog posts go out on Facebook and sometimes on LinkedIn. If you’d like to see them again or check for posts you might have missed, go directly to my website: viewkazakhstan.com