Kazakhstan is in the process of rewriting its Tax Code and
overhauling its system of tax administration. Although the timeline for this large-scale
project spans all of 2000, the government made a series of initial amendments to the Tax
Code in December, 1999. The changes are extremely important as they will have a direct
impact on almost all programs in Kazakhstan sponsored or conducted by international
organizations. The changes clarify existing taxation and even add new benefits applicable
to international organizations, certain intergovernmental entities and indigenous
non-profits (NGOs). This surprising reform of NGO taxation comes as a regional first.

On December 10, the government of Kazakhstan adopted
amendments to the Tax Code that clarify the status of grants from international donors and
grants made pursuant to international agreements are non-taxable revenue. Secondly, local
NGOs that receive grant money from international organizations, and the international
organizations themselves, are not obliged to pay the so-called "social tax", a
tax of about 26% on an individual's salary. In Kazakhstan, the employer usually bears
the brunt of the tax although it is not a written law. Now regardless of who pays,
employee's who receive salaries from grant funds are exempt from this tax.

This is a very significant change. If an international
organization pays $5000 for salaries each month, it would pay an additional $1300 each
month in social tax. Now, the organization will save this $1300, and the money can be
applied to the organization's operations cost. The exemption applies to grant funds and
should apply to both the international organizations and their grantees, the local NGOs.
These exemptions will save both local NGOs and international organizations 26% on every
dollar spent for salaries.

Although the new law brings significant changes for the
funding and operation of NGOs, those NGOs that maintain limited forms of revenue
generation are still taxed as businesses. This type of taxation is out of sync with
international norms, which generally allow NGOs or non-profits to carry out some form of
economic activity in order to become self-sustaining. As of the present, virtually all
NGOs in Kazakhstan and Central Asia survive off of grant funding thus limiting their
existence to the gratuity of others. Unfortunately for these local organizations, their
existence will continue to be dependent on the gratuity of the international community
until such time when we have yet another regional first in Kazakhstan. size="3">

Richard Remias is Regional
Director of the International Center for Not-for-Profit Law in Central Asia.