Turlov: High interest rates and taxes pressure businesses

The businessman says medium-sized businesses are struggling with high taxes and lending rates / Photo: Freedom Holding Corp.

Rising taxes, high interest rates and increased competition from gray imports put organized retail and medium-sized businesses in Kazakhstan in an extremely difficult position, according to Freedom Holding Corp. CEO and majority shareholder Timur Turlov, who met with the media today in Almaty.

The high base rate most strongly affects the corporate segment, especially companies that depend on market loans, such as retailers.

«Retailers who financed sales with market loans are facing a zugzwang. Paying market rates is objectively very expensive for them. They cannot adequately shift this burden onto their margins,» Turlov said.

He also pointed out that the situation is further complicated by growing competition between legal retailers and those importing goods tax-free.

This is significant because, starting next year, retailers will pay 16% VAT instead of 12%. They will also continue to pay income and payroll taxes. Meanwhile, some small businesses under a simplified tax regime avoid these burdens, according to the businessman.

«They find themselves competing with entrepreneurs who are also importing goods and don’t pay the 16% VAT at all,» Turlov emphasized.

He believes these factors are causing large, organized retailers to disappear. As online commerce continues to grow and prices remain low, many retail chains are unable to withstand the competition.

The businessman said that being a medium-sized business is especially difficult these days, as costs are rising faster than inflation. Moreover, large players that previously offset thinner margins with corporate loans are also facing challenges.

Citing smartphone import statistics, Turlov predicts that pressure on large retailers will intensify early next year due to tax increases and the continued dominance of gray imports.

«Small businesses import 70 to 80% of all iPhones in the country. Large retail chains together account for only 20 to 30% of imports and pay VAT on that,» he said.

The Freedom Holding CEO insists that small businesses need protection, but public incentives must not promote gray imports.

«We have strange imbalances that shouldn’t exist. We shouldn’t use small and medium-sized business incentives to support gray imports,» Turlov underscored.

Freedom Holding Corp. is a leading brokerage and investment holding company in Central Asia and Eastern Europe, led by CEO and majority shareholder Timur Turlov.

In Kazakhstan, the holding provides brokerage services under the brands Freedom Broker (Freedom Finance JSC, a KASE member) and Freedom Finance Global (an AIX member). Other Freedom Holding Corp. subsidiaries in the country include Freedom Bank, Freedom Insurance and Freedom Life.