Kazakhstan Offers Amnesty To Tax-Dodgers

by Tatiana Smolenska, Tax-News.com, Moscow

15 June 2001

Under heavy pressure from Kazakhstan's president, Nursultan A. Nazarbayev, the country's parliament has reluctantly passed a capital amnesty under which individuals have twenty days in which they can bring money into the country without questions and without taxation.

Although the terms of the law exclude money earned from crime, Parliamentarians think the measure will mostly benefit senior officials who have stashed millions of dollars in bribes and kick-backs in offshore bank accounts. They also thought the returning money should be subject to at least some tax.

The hope is that the amnesty will see the return of at least $500m out of the many billions of flight capital that have left Kazakhstan (or never went there). As with the Russian Federation, Kazakhstan has been highly dependent on exports of oil and gas and other minerals, and it is only too easy for traders in the complex world of international commodity dealing to cream off part of the proceeds, which end up in offshore bank accounts belonging to the corrupt officials who control export permits or pipelines.

A group of such bank accounts in Switzerland containing tens of millions of dollars have remained frozen since last July, when the Swiss authorities said the accounts had been financed by Western oil companies and might have been intended as bribes for President Nazarbayev, his family and other officials. The president and his government deny any impropriety and are sueing to regain access to the accounts.

Mr Nazarbayev said the amnesty did cover tax evasion, because the country's taxes were much higher before and the legal system unreformed.

"The government is offering entrepreneurs the chance to return their money from noncriminal sources, to let it work within the country and to now start a new, honest life," the chairman of Kazakhstan's National Bank, Grigoriy Marchenko, said. Mr. Marchenko, who expects no more than $300 million to be repatriated under the program, said the law was aimed at owners of medium-size businesses who made fortunes in the early 1990's by selling commodities like oil, zinc and copper on the international market, where prices were higher than in Kazakhstan. The dealings were legal, but the taxes on them went unpaid. Kazakhstan only began tracking its balance of payments in 1995, so no one knows how much money left the country before then.

"Some say a few hundred million dollars," Mr. Marchenko said, "some optimists say $7 billion to $10 billion."

There are questions, however, as to how the money could be usefully invested even if it is returned to Kazakhstan. Capital markets are primitive, external investment is not permitted, and few business-people trust the Government not to take bites out of their capital through feckless economic policies, rampant inflation or new taxes. If you had $1m in a bank account in the Caribbean which you could invest in rental properties in the Bahamas, would you take it back to Kazakhstan?

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