According to entrepreneurs, this forces their businesses to go below the radar and paying envelope salaries.

Since January 1, 2020, every employer will have to pay to the Uniform Pension Savings Fund (ENPF) extra 5 per cent of the employee’s salary in addition to mandatory 10 per cent contribution.

This change applies to all employed citizens, including sole proprietors and persons with private practice.

It doesn’t apply to:

  • persons who perform works and services under civil contracts,
  • senior individuals,
  • military personnel and security agency officers,
  • recipients of pension for time in service,
  • retired judges receiving monthly lifelong maintenance.

The increase in contributions to the Uniform Pension Savings Fund is related to the fact that Kazakhstanis who will retire in 2040 will not be eligible for the pay-as-you-go pension scheme. This scheme applies to all who started working before 1998 and according to the ministry of labour, it averages to 59,511 tenge (154 dollars). 

Additional 5 per cent to be contributed by employers to ENPF will become an alternative option and addition in replacement of the pay-as-you-go scheme in the future.

According to the press secretary of the Ministry of Labour and Social Protection of People of the Republic of Kazakhstan, Kanat Kulshmanov, this practice conforms to international standards. For example, employer’s contributions in favour of employee amount to 22 per cent in Russia.

“Today pensions are paid by the state and employee’s contributions. However, the employer is not involved in the pension provision of their employees. Therefore, employer’s involvement in the pension provision system will complete the pension system based on the shared responsibility of the state, employer and employee,” Kulshmanov said.

According to him, 5 per cent mandatory pension contributions transferred to ENPF from employer will be seen on personal conditional pension accounts of employees. They will be opened automatically once the first contribution is received.

This novelty was discussed back in 2014, and the law was adopted in 2015, and takes effect only in 2020.

5 per cent contributions will not be inherited to the family in case of employee’s death. They will remain in the Uniform Pension Savings Fund and will be allocated.

“It makes no sense, this is my money. When my father died, his money was handed over to me and I could arrange his funeral. I think it’s unfair to leave the money to the state,” Ekaterina Evgenieva, a resident of Nur-Sultan, said.

“Force into a corner”

Many people fear that employers will try to shift their financial obligations to employees. However, Kanat Kulshmanov said that mandatory pension contributions from employers should not cause reduction of employee’s salary because the employment and remuneration terms are set forth in the labour contract.

“According to the Labour Code of the Republic of Kazakhstan, any modifications to the labour contract may be made by mutual agreement of employee and employer,” press secretary of the ministry of labour reminded.

There’s more fear that entrepreneurs would withdraw into the shadows.

According to the statistics committee, today Kazakhstan’s payroll fund amounts to nearly 18 trillion tenge (46.47 billion dollars), and ENPF – about 10 trillion tenge (25.8 billion dollars).

The number of employed Kazakhstanis is 8.73 million, but only 5.41 million make contributions to ENPF. It means that more than 3 million people receive backdoor salaries.

Sakan Tyulenova is an entrepreneur engaged in crop farming and stock raising. The farm she runs has 10 workers.

Now she is trying to work in good faith, honestly paying all taxes, but the introduction of additional contributions to ENPF throws her into a dilemma.

“We’ll have to hand out backdoor salaries so that our workers don’t feel the increase in contributions. Larger companies can afford to pay an additional 5 per cent. We will either lose money or have to shed jobs. Even now we are somehow making ends meet, trying to pay taxes in good faith not to get some kind of fine. We, employers, are forced into a corner,” Tyulenova said.

According to Alena Romanova, deputy head of Atameken National Chamber of Entrepreneurs, 5 per cent deductions are an additional burden on employers amounting to 500-900 billion tenge (1.29-2.32 billion dollars) per year.

“ENPF should be a long-term profitable deposit for voluntary contributions. The state is now open to our position, hears us, we hope that a constructive dialogue will take place. In fact, even without this 5 per cent, the burden on the salary fund is increasing. Do not forget about the stage increase in compulsory social health insurance contributions,” Romanova said.

Burden will increase

Now employers must deduct 1.5 per cent of each employee’s income to the Social Health Insurance Fund. According to Alena Romanova, the actual burden on employers and individual entrepreneurs in compulsory health insurance contributions amounted already to 186.2 billion tenge (480.7 million dollars) for two years.

From January 1, 2020, these contributions will grow to 2 per cent, and from 2022 to 3 per cent

As a result, the total amount of contributions to the salary fund will increase from 31 to 38 per cent. That is, the employer will need to pay 38 dollars more to various budget and non-budget funds in order to pay 100 dollars to the employee.

According to preliminary estimates, about 35 billion tenge (90.3 million dollars) will go to the budget every month.

According to the candidate of economic sciences Batzhan Akmoldina, it is quite natural that entrepreneurs are not satisfied with the increase in contributions and the additional financial burden. But for workers it means an increase in the size of the future pension.

“For example, if now a citizen collects a million tenge in a year, it will be 1.5 million tenge. Of course, entrepreneurs do not like these amendments because these are additional expenses for them. But for ordinary citizens this is a decent pension. From 2015 to 2020, entrepreneurs had some time to get ready,” Akmoldina said.

However, Atameken National Chamber of Entrepreneurs has no doubt that this innovation does not fit the current socio-economic policy.

According to Romanova, the additional financial burden on business will affect the investment climate of the country. Entrepreneurs are preparing a letter addressed to the president with a request to review the introduced standards.