Manufacturing PMI slips as VAT increase fuels inflation

Photo: Shutterstock, photo editor: Serikzhan Kovlanbayev

January’s increase in value-added tax (VAT) led to a marked intensification of inflationary pressures in Kazakhstan’s manufacturing sector. Input costs rose sharply, prompting firms to raise selling prices at the fastest pace since the survey began in March 2019.

What the index shows

The Freedom Holding Corp. Kazakhstan Manufacturing PMI® (Purchasing Managers’ Index™) slipped just below the 50.0 no-change threshold in January, signaling a marginal deterioration in business conditions across the sector. The index registered 49.8, down from 51.0 in December, and indicated worsening operating conditions for the seventh time in the past eight months.

Inflationary impact

The VAT increase led to higher overall price inflation for raw materials and services. About 44% of respondents reported higher input costs, while inflation reached a new survey record, surpassing the previous peak in February 2021.

«In January, a sharp increase in the cost of purchased resources was recorded, triggering a corresponding reaction across the sector with an equally sharp rise in selling prices,» said Yerlan Abdikarimov, head of the Financial Analysis Department at Freedom Finance Global. «Monthly price growth reached a record 27%, compared with an average of 3% during expansion periods over the past seven years.»

Market paradoxes

January presented a mixed picture for manufacturers. New orders declined for the third consecutive month, with clients increasingly delaying contract signings.

Despite falling output and weaker demand, manufacturers increased staffing levels for the second month in a row. Although the pace of job creation was modest, it was the fastest recorded since April 2025.

Business sentiment remained relatively subdued, reflecting uncertainty about the long-term impact of higher VAT on operations. This was despite confidence rising to a three-month high, supported by some optimism that new orders could improve in the coming months.

What has changed in taxes?

A new Tax Code came into force in Kazakhstan on Jan. 1, 2026, raising the VAT rate from 12% to 16%. The change significantly increased the fiscal burden on businesses.

Moreover, the mandatory VAT registration threshold was lowered to 40 million tenge (approximately $79,015), bringing more small and medium-sized enterprises under the VAT regime.

In December 2025, Kazakhstan’s manufacturing sector had shown signs of recovery, with business activity entering expansion territory for the first time in seven months. The PMI rose from 49.0 in November to 51.0 in December.