Entrepreneurship is an important driver of economic growth in Kyrgyzstan. In 2015, the share of small and medium-sized enterprises (SMEs) in the country’s GDP was 40.5%.

According to official data, 10.5 thousand SMEs operated in the country last year. More than 366 thousand people were involved in individual business, 4.5% more compared to 2014.

Improving legislation

To improve conditions for business development, administrative procedures regulating business activity will be reduced by 30 percent, said Prime Minister of Kyrgyzstan Temir Sariyev at a meeting with the business community.

The Government of Kyrgyzstan with the support from the OSCE is implementing a Systematic Regulatory Review project aimed at identifying and eliminating barriers to doing business in Kyrgyzstan, simplifying procedures, and reducing the time for preparation and submission of financial statements. The reform aims to get rid of redundant, meaningless and most problematic legal acts governing business in Kyrgyzstan.

Credits

Businesses cannot now obtain long-term and low-interest loans. The first step was an agreement between Kyrgyzstan and Russia to create the Russian-Kyrgyz Development Fund. The Fund will start issuing low-interest loans under new conditions. The RKDF will loan at 5 percent per annum through commercial banks, and local businesses will be able to borrow directly from RKDF at 4 percent for a period from five to 10 years. Such loans have never been issued in Kyrgyzstan, Sariyev said.

The RKDF money is not enough for the development of entrepreneurship, and the Prime Minister suggested using money from the Social Fund as long money for business loans.

He also suggested creating an Industrial Development Fund to provide loans to existing businesses and share advanced industrial technologies.

Business opinion

"Business has always faced problems and will face them in the future. It is important how the Government responds to them. It has done much to improve the investment climate but we need more. Businesses, especially SMEs, need long cheap money but the loan interest rates now reach 30 percent in the country's commercial banks. Many banks issue loans to individuals under a large collateral in the form of property only,” Executive Director of the International Business Council Temirbek Azhykulov said.

Tax administration in Kyrgyzstan has to be reformed, Azhykulov added. According to a survey conducted by the International Finance Corporation, Kyrgyz SMEs have to spend up to 6% of their profit for reporting to the State Tax Service and Social Fund. “Business expects simplifying the administration of taxes and social contributions," he said.

Another problem hindering business in Kyrgyzstan is the unpredictability of legislation. According to the latest amendments to the law on free economic zones, legal entities only can be subjects of the Bishkek free economic zone (FEZ). The laws and normative acts on FEZ have been changed 13 times over recent time. "Legal amendments should be drafted according to ‘do no harm’ principle and should not deteriorate the business climate," Azhykulov concluded.

Business is also facing challenges with the provision of land for construction and mining. It is necessary to speed up the solution of land allocation issues, to simplify this process and make it transparent and clear.

Reporting procedures are also too complicated and are an additional burden on business, head of the Association of Suppliers Gulnara Uskenbayeva believes. After Kyrgyzstan’s entry to the Eurasian Economic Union this burden has become even harder, and there is no understanding between business and the fiscal authorities on this issue, she said.

The State Tax Service, on the contrary, says the Government makes concessions to business, reducing the tax burden. From July 1, businesses that will conduct non-cash payments will not pay the sales tax. On one hand, the state should support business, but on the other hand, the business should be socially responsible and pay taxes.