Tax incentives can be a powerful tool for achieving sustainable development in developing countries, including Kyrgyzstan. In 2022, a new edition of the Tax Code was adopted to improve the efficiency of the use of public funds and monitor their compliance with the country’s development priorities. This approach allows the government to regularly evaluate the effectiveness of each tax benefit and make timely decisions about its relevance or abolishment. This, in turn, makes it possible to mobilize more revenue to finance the priorities of the National Development Strategy and introduce new tax incentives that can attract private investment in the country's sustainable development priorities.

How tax incentives can contribute to achieving the SDGs 

Today in Kyrgyzstan, tax benefits are provided to support certain sectors of the economy and certain categories of taxpayers. Kubanychbek Ysabekov, Head of the Tax Policy Department of the Ministry of Economy and Commerce of the Kyrgyz Republic, explains: “Incentives are provided both to support the development of a certain sector of the economy and certain categories of taxpayers. Some benefits have the same impact on all taxpayers, such as standard income tax deductions or zero VAT on exports.” 

UNDP assists the Government of the Kyrgyz Republic in carrying out reforms and achieving the SDGs through the creation of Integrated National Financing Mechanisms, which help optimize the system of tax incentives. This initiative helps mobilize new sources of financing for the country's development priorities under ONE SDG FUND and EU financial support.

Strategic use of tax incentives 

Tax incentives can stimulate sustainable economic development by supporting entrepreneurship and innovation, attracting investment in priority sectors, supporting agriculture and social initiatives. For example, tax incentives for small and medium-sized enterprises (SMEs) that develop innovative solutions to environmental or social problems can contribute to achieving SDG 8 and SDG 9.

Analysis of the effectiveness of tax incentives 

The Ministry of Economy and Commerce of the Kyrgyz Republic, with the support of UNDP, analyzed the provided tax incentives, exemptions, and preferences for 2016–2020 to assess their impact on achieving the SDGs. Kyrgyzstan was one of the first in the world to carry out such work. For example, 40% of benefits were aimed at achieving SDG 8 - decent work and economic growth, 33% - towards eliminating poverty (SDG 1), 9% - towards health (SDG 3), and 8% - towards industrial development (SDG 9). In 2020, healthcare benefits were significantly increased due to the COVID-19 outbreak.

Assessing the effectiveness of tax incentives 

In 2023, the Ministry of Economy and Commerce of the Kyrgyz Republic, together with UNDP, developed a Procedure for assessing the effectiveness of tax incentives, which was approved by a resolution of the Cabinet of Ministers of the Kyrgyz Republic. This order determines the objects of assessment, approaches, sequence of actions, and requirements for applying the assessment results. The effectiveness assessment is carried out annually according to the list of tax benefits subject to assessment and is divided into 5 stages, covering the period from 2023 to 2027.

Positive results and expectations

 According to the results of the first stage of efficiency assessment in 2023, out of 5 tax incentives, one was found to be ineffective, and four were found to be effective. The second stage of assessment is currently underway. This stage of the process will provide recommendations to either extend or terminate tax incentives. 

Tax incentives play a vital role in achieving the SDGs in Kyrgyzstan by promoting investment, innovation, corporate responsibility, and sustainable practices in various sectors. By developing and implementing targeted tax policies that are aligned with the SDGs, Kyrgyzstan can accelerate its progress toward building a more inclusive, equitable, and sustainable future for all. 

The SDGs are integrated into the National Development Strategy of the Kyrgyz Republic until 2040, aimed at developing human capital and innovation in harmony with the environment. These goals are included in the country's main strategic documents, reflecting the desire to improve the well-being of citizens and the socio-economic development of the country.

About INFF

The Integrated National Financing Framework (INFF) Facility is a joint flagship initiative of the United Nations Development Programme (UNDP), the United Nations Department of Economic and Social Affairs (UN DESA), the Organisation for Economic Co-operation and Development (OECD), the European Union (EU) and the Governments of Italy and Sweden.

20 years of EU-UNDP partnership

For more than 20 years, the EU-UNDP partnership has exemplified the power of regional collaboration and international solidarity. By combining the EU's resources with UNDP's local expertise, this partnership has driven positive change in sustainable economic development, inclusive governance, environmental sustainability, and social resilience, improving lives across Central Asia, including Kyrgyzstan.