Astana, The New City: the Future of the Capital Starts Today
Berlik Yerezhepov, Director of the General Directorate of the New City of the Astana – Special Economic Zone (SEZ), answers questions of Kazakhstan.
The state programme for the socioeconomic development of the city of Astana to 2005, which was approved by Decree # 574, of 19 March 2001, of the President of the Republic of Kazakhstan, outlines a series of measures designed to assist the harmonious development of the capital city as an administrative and business centre, and to strengthen its consolidating role in the country’s social, economic and cultural life. As a more remote prospect, administrative, business, cultural, scientific and educational centres will be built in Astana to the standards of the capital cities of developed countries.
To assist in reaching the goals set, another presidential Decree, # 645, of 29 June 2001, On Founding The New City of Astana - Special Economic Zone, was issued, which provides for the setting of such a zone for the period from 1 January 2002 to 2007.
The Regulations of The New City Astana – Special Economic Zone stipulate that an executive body be formed to govern the zone’s operation. Could you tell us about the functions and powers of this body?
The SEZ’s executive body is its General Directorate, which has the following functions:
• to design and implement the strategy and programme of the SEZ development;
• to facilitate interaction between public bodies and other organisations in the SEZ;
• to participate in the development of long-term and annual plans and development programmes for the left-bank part of the city;
• to attract domestic and foreign investments and credits;
• to maintain a listing of construction sites in the SEZ;
• to monitor investment activity in the SEZ.
Why does the special zone comprise only six land plots on the left-bank part of Astana?
The boundaries of the new SEZ have been determined in consideration of the past experience of similar zones in the country, and the practicalities of its operation, including factors and conditions which determine the efficiency of a SEZ. Indeed, the New City of Astana – zone consists of six land lots totalling 1,052.6 hectares, and has a perimeter of 36.8 km. Given the total area of the capital city of 71,000 hectares, no problem will be created for traffic outside the SEZ. On the other hand, the limited size of the land plots ensures targeted application of tax preferences. Thus, the relatively confined area will serve as a functional model of socioeconomic development in the capital city, where market mechanisms and the state’s priorities will be given due attention.
What does the status of a special economic zone imply for investors and general public?
According to Article 71 of the Act On Customs in the Republic of Kazakhstan, the status of a free customs zone allows foreign-made goods to be kept and used in the area free from customs duties, taxes and other regulatory measures. Further, in line with Article 82-1, this applies to the following items which might be moved to the SEZ:
• building machinery and equipment;
• building goods which can be totally consumed within the SEZ;
• goods and equipment necessary for construction and commissioning, as per design estimates.
To enable efficient control over the placement and use of goods within the SEZ, it will be encircled with a metal fence built along its perimeter, with checkpoints equipped with bars and gates.
What tax preferences are being granted to investors in the SEZ?
Within the SEZ, investors will enjoy tax preferences as stipulated by Article 138, Section 5, of the Tax Code of the Republic of Kazakhstan, which was adopted on 12 June 2001 and will be effective from 1 January 2002.
Tax preferences for investors include exemption from the tax on property of legal entities and individuals, levied on the depreciated cost of buildings and facilities constructed in the SEZ during its operation.
Additionally, according to Article 123, Paragraph 2, of the Act On Taxes and Other Statutory Payments (with amendments of 12 July 2001), during the exemption period, the tax will not be levied on sites within the SEZ where infrastructure facilities, administrative or residential buildings, complete or under construction, are located.
The preferences in respect of VAT apply to taxpayers registered in the city of Astana, in line with Act #223-II, of 5 July 2001, On Amendments to Certain Acts of the Republic of Kazakhstan Regarding the New City of Astana – Special Economic Zone. This category includes legal entities, individuals and non-residents operating in the Republic of Kazakhstan through their permanent representatives.
Exemption from VAT on the turnover of goods and services is expected to lead to lower building costs. In addition, goods and equipment to be sold within the SEZ will be taxed at the zero rate, which means that the manufacturer does not pay VAT and is entitled to reimbursement of VAT paid by him to suppliers.
To become eligible for the above policies, an investor has to register with the tax authorities of Astana.
Apart from tax and customs preferential policies, further stimuli are envisaged to encourage investments in building activities on the left-bank side of Astana, which include the installation of water, sewer, heating and drainage systems, and electric substations, all being financed by the city budget.
An automatic telephone exchange for 4,000 subscribers was built recently and distribution telephone networks are currently under construction.
What guarantees against changes to the legal status of the SEZ or its early closure are envisaged for investors?
In accordance with Article 6 of the Act On Special Economic Zones in the Republic of Kazakhstan, in the case the SEZ is closed before the stipulated closure date, or its legal status changes, which includes any change in its boundaries, investors will be entitled to continue their operation in the SEZ under the conditions as of the date the respective investments were made, up to the initial closure date, but not for longer than 10 years. The latter period will be counted from the date of changing the SEZ status onwards. These guarantees also apply to any changes in the customs regulations of the Republic of Kazakhstan governing the import of equipment and materials to be processed (excluding ethyl alcohol).
What public body is entitled to give the right to build in the SEZ?
The right to build in the SEZ can be granted by the Akimat (the city government) of Astana. Building will be carried out in compliance with Astana’s general development plan and the detailed plan of the left-bank part. Building projects to be financed from the local and Republic’s budgets will be put up for tenders.
For detailed information about The New City of Astana – Special Economic Zone, visit our web site at: www.astana.dan.kz/sez
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