Quarterly Report ECONOMIC REFORMS TO ENHANCE COMPETITIVENESS

The project aimed to improve the business environment and enhance competitiveness in the country. Key issues affecting implementation included the payment of tax and social fund contributions by local staff employed on USAID projects. A meeting was held with Ms. Tajikan Kalimbetova, Chairperson of the Social Fund, to discuss a proposal for retrospective payment and employee withholdings. State Tax Inspectorate (STI) divisions prepared new forms reflecting changes in the New Tax Code and fundamental changes to procedures. An impact assessment will be made, but expectations are considered unrealistic. The project will not assist with fundamental changes to procedures, as this is more appropriate for the Asian Development Bank (ADB) project. EREC will continue to assist with changes directly resulting from changes to the Law, making improvements to the existing registration processes and the development of audit. Developing a single approach to risk-based audit will be challenging due to the involvement of multiple projects, including the USAID Business Environment Improvement Project, ADB Tax Administration Reform and Modernization Project, and IFC Business Enabling Environment Project. There may be a delay in progressing work on audit. The Kyrgyz President imposed a 1-year moratorium on property tax, providing time to finalize zonal coefficients, simplify property tax calculation, and carry out a public education campaign on property tax. Significant meetings were held with counterparts and donors, including Mr. Ernst Kaldybaev, deputy Chairman of STI, and Mr. Adylbek Kasymaliev, deputy Chairman of STI, to discuss current project activities and areas of future cooperation. EREC Country Leader and Country Coordinator met with Ms. Nursulu Ahmetova, Director of USAID Business Environment Improvement Project, to discuss improvements to the business registration process. The project also met with the Asian Development Bank Technical Assistance Program in Kyrgyz Republic to discuss aspects of the business registration process. EREC Country Leader met with Mr. James McHugh, Resident Representative of the International Monetary Fund (IMF), to discuss the issue of VAT exemptions at imports. The project also met with Mr. Arzybek Kojoshev, Deputy Minister of Finance, to discuss tax policy issues related to the VAT rate and abolishment of sales tax. EREC Country Leader, Country Coordinator, and EREC Lawyer met with Ms. Tajikan Kalimbetova, Chairperson of the Social Fund, to address her request for IPSAS training for staff and discuss areas of potential cooperation. The project explored possibilities for cooperation in taxpayer education with Ms. Donna Stewart, Country Representative for Pact Kyrgyzstan, and Ms. Dianne Cullinane, USAID Civil Society Specialist. EREC Country Leader and Country Coordinator met with Ms. Nursulu Ahmetova, Director of USAID Business Environment Improvement Project, to propose possible scenarios for an increase in VAT rate and abolishing sales tax in light of amendments and changes to the new Tax Code. The project also met with the ADB Tax Administration Return and Modernization Project to discuss new business processes and the anticipated new structure of the State Committee for Taxation and Customs (SCTC).