Intergovernmental Fiscal Transfers

286 Meruert Makhmutova

According to the Budget Code,since 2005 social and personal income taxes are shared between oblast and rayon budgets in accordance with the oblast maslikhat’s decision.

Intergovernmental Fiscal Transfers

Because different regions contribute to the national budget at different levels,it is necessary to equalize their budget incomes.Oblasts with a higher level ofindustry have a higher tax potential.Where agriculture dominates the economy,oblasts have lower revenues.

Thus,the government has long had a policy ofredistributing finances through the national budget.From the early 1990s to 1998,a share percentage for tax divided between the national and local budgets was applied to determine how revenues would be allocated.Subsidies from the national budget were allocated to those oblasts whose total revenues were not sufficient to finance necessary expenditures.

Starting in 1999,the mechanism changed.Oblasts with high revenuegenerating capacity have a part oftheir income deducted and paid into the national budget;only afterward are subsidies from the national budget allocated to low-income oblasts.

Moreover,subsidies are transferred only to eliminate a gap between income and expenditures.For each oblast,a level ofexpenditures is calculated on the basis ofthe previous year’s data,with adjustments for inflation. Oblasts that generate higher amounts ofrevenue and that therefore make contributions to the national budget simply retain the amount they need to cover their anticipated expenditures.Oblasts with lower revenue-generating capacity receive whatever additional funds they require from the national budget.

In 1999,total withdrawals made by oblasts to the national budget amounted to T 37 billion,and the subsidies transferred amounted to T 24.8 billion (table 8.5).In 2001,withdrawals increased to T 84 billion and only T35.5 billion was transferred as subventions.That change marked an improvement in the general economic situation.In addition,high world prices on raw materials,Kazakhstan’s main export,led to higher incomes in the oblasts that make contributions to the national budget,and the government increased the level ofthose contributions:the difference between contributed earnings and subsidies in 2001 amounted to almost T 50 billion.

In 2002,when corporate income tax ceased to be included in local budget revenue,the number ofsubsidized oblasts increased from seven to nine.In 2005,11 oblasts received subventions from the national budget.