Investment Environment of the Agro-Industry Sector in Kazakhstan

In 2003, Kazakhstan newly enacted the Act for New Foreign Investment after abolition of the Act for Foreign Investment and the Law on State Support for Direct Investment. Under the new law, there is no discrimination between domestic and foreign investors. Investment favors are provided in priority sectors, which include following sectors: industrial infrastructure, processing industry, agriculture, agro-industry, housing, the social sector and tourism infrastructure. The incentives for direct investments in the priority sectors are: property tax and income tax exemptions for up to five years respectively, and exemptions or reductions in customs duty on materials necessary for completion of the investment project.

In 2002, the new law on taxation was enacted. Taxation system of Kazakhstan generally seems to be coincident with international standards. However, there are so many taxes imposed on enterprises, which may distort profit structure of enterprises. The maximum tax rates are different across according to sources of taxes: 30 percent for corporate tax, 15 percent for value added tax, 21 percent for social security tax. It is estimated that 32-35 percent of total revenue accounts for taxes paid by enterprises, implying that the tax burden is high.

Table 1. Selected Tax Rates in Kazakhstan

Types	Tax Rate
Corporate Tax Value Added Tax Land Tax Property Tax Social Security Tax Commodity Tax Transportation Tax Auction Tax	Up to 30% Up to 15% varies by use 1% Up to 21% varies by commodities varies by transportation types 3%

Source: Korea EXIM Bank, 2005

Kazakhstan has tried to improve the investment climate to attract FDI to more sectors including oil industry since its independence from the Soviet Union in 1991. For this purpose, Kazakhstan enacted four major legislations relating to foreign investment, such as the Act for Foreign Investment in 1999, the Act for State Support for Direct Investment in 1997, the Act for Government Procurement in 1997 and the Tax Code in 2001.

As a result, Kazakhstan has been fairly successful in attracting FDI, which supported economic recovery. During the period from 1993 to 2003, gross FDI inflows to Kazakhstan totaled USD 23.4billion. As of 2003, crude oil and natural gas extraction accounted for 51.8 percent of gross FDI, while agriculture, forestry and fishery accounted for 0.04 percent. Food industry, which is based on agriculture, is predominantly domestic market oriented and not lucrative due to low market demand for the local food products, implying that it is less attractive to foreign investors.

Table 2. Foreign Direct Investment (FDI) in Kazakhstan by Sector
Unit: million USD, ( %)

	1993-2000	2001	2002	Jan.–Jun.2003
Agriculture etc. Mining Manufacturing Transport, etc Finance Real estate Electric power Others	7.4(0.1) 7,841.2(62.4) 1,766.4(14.1) 160.0(1.3) 206.4(1.6) 1,432.8(11.4) 433.0(3.4) 715.0(5.7)	5.0(0.1) 3078.1(67.7) 641.4(0.7) 161.1(161.1) 44.4(1.0) 456.5(10.0) 33.8(0.7) 124.3(2.7)	2.5(0.1) 2107.7(51.7) 829.5(20.4) 95.2(2.3.) 11.8(0.3) 841.4(20.7) 17.5(0.4) 167.9(4.1)	1.1(0.04) 1148.4(51.8) 433.3(19.5) 45.0(2.0) 7.8(0.4) 433.6(19.6) 58.4(2.6) 91.2(4.1)
Total	12,562.2(100.0)	4,544.6(100.0)	4073.5(100.0)	2218.8(100.0)

Source: National Bank of the Republic of Kazakhstan