Kazakh MFIs Imposed Paid Deferrals as 'Guarantees', Evading 6.1 Billion Tenge in VAT

Kazakhstan's tax authorities have uncovered a widespread scheme where microfinance organizations (MFOs) imposed paid payment deferrals on borrowers under the guise of selling them "financial guarantees." The State Revenue Committee of the Ministry of Finance found that this practice allowed the lenders to earn additional fees while evading value-added tax.

Investigations into four specific MFOs revealed that the turnover from such contracts amounted to 55.9 billion tenge. Crucially, the scheme led to an unpaid VAT liability of 6.1 billion tenge, a finding that has already been confirmed by the courts.

The mechanism worked by offering clients an optional "guarantee" service when applying for a microloan. On paper, it was presented as financial security for the borrower's obligations. However, tax auditors determined its true nature was different: the "guarantee" was only valid under limited conditions, its duration precisely matched a payment deferral period, and it involved almost no real liability for the provider.

In essence, MFOs were selling a paid extension of the loan repayment term but documenting it as a separate financial service. This classification was key to the fraud. While loans themselves are exempt from VAT under Kazakh law, accompanying paid services are not. By mislabeling the deferral as a "guarantee," the MFOs collected extra money from clients while incorrectly treating the income as a tax-exempt operation.

The scale of such practices may be even broader. The State Revenue Committee has identified an additional 26 billion tenge in transactions related to insurance agency activities that potentially used a similar mechanism; these are currently under review. The committee emphasized that such schemes are not isolated incidents and are employed across various segments of MFO operations.

Ongoing inspections aim to ensure taxes are levied based on the actual economic substance of transactions and to prevent attempts to disguise taxable services as preferential ones.