The Jogorku Kenesh is actively discussing a draft law on the introduction of VAT on the sale of residential real estate, which has caused a significant debate among MPs, representatives of the construction sector and experts. Previously, construction companies were exempt from VAT for three years, but now it is proposed to tax them at 12%.

At the November 25 Budget Committee meeting, MP Aibek Altynbekov proposed limiting the introduction of VAT to construction in Bishkek and Osh, while retaining tax exemptions for the regions. He said this would help stimulate the development of smaller cities and strengthen their economic potential.

"Cities like Kant, Kara-Balta, Naryn, Talas and others require special support. Conditions for the construction of affordable housing need to be created there. To encourage construction companies to work in these regions, they should be exempt from VAT,” Altynbekov said.

Some deputies expressed concern that the introduction of VAT could significantly increase the cost of housing, which is already unaffordable for much of the population.
Apartment prices in Kyrgyzstan are sometimes comparable to those in Europe, and the introduction of the tax will inevitably increase the price per square meter, MP Sharapatkan Mazhitova said. In her opinion, this will worsen the housing affordability issue, especially for young people.

Her point of view was supported by Eldar Abakirov, who provided specific calculations: if the current price of a square meter of housing is $1,000, the price will increase to $1,120 with VAT. If the price is $500 per square meter, it will increase to $560.

“Young people already now cannot afford to buy housing, and with this increase it will become even more unrealistic,” Abakirov emphasized.

Ilya Nirenberg, the owner and head of the company “Business-Expert” in conversation with "Akchabar” also predicted the increase of prices for primary housing. However, he believes that the increase will start from $50 per square meter, which, according to him, will inevitably affect the secondary real estate market as well.

"The introduction of VAT will certainly increase the final cost of housing from developers. However, I do not expect construction volumes to drop significantly, as demand in the market remains stable. Instead, there will be a natural cleansing: less efficient construction companies and those unable to meet the new accounting requirements will leave the market. After all, in addition to the tax burden, VAT implies significant administrative costs for its competent administration,” Nirenberg noted.

The Ministry of Economy, commenting to Akchabar on the draft law on introducing VAT on residential sales, stated that the measure is part of a broad tax reform to ensure stable budget revenues. The exemption of construction companies from VAT over the past three years was seen as a temporary measure to support the industry, which is now showing strong growth. The ministry stressed that a balanced tax environment is crucial to address the imbalance between the primary and secondary real estate markets.

"Companies operating under the general tax regime purchase goods, construction materials and contractor services, which already include VAT. This VAT then goes to offset. This will be the case with the introduction of VAT on the sale of finished apartments for construction companies. This means that instead of paying 12% VAT on the entire sale amount, they will actually pay only the difference between the accrued and paid VAT, “explained” the Ministry of Economy to “Akchabar”.

Thus, according to representatives of the Ministry, the statement that the cost of housing will increase by exactly 12% (according to the deputies' calculations - Author's note) is incorrect.
"The level of price increase depends on a specific company and the structure of its costs. On average, the difference between the paid and accrued VAT is 1.5-2%. In the case of construction companies, it may be a slightly higher, but far from 12%. As a result, if there will be an increase in the price of apartments, it will be only by a few percent,” the ministry said. 
In addition, the Ministry of Economy notes that price growth is restrained by high competition in the construction market. It encourages developers to find ways to optimize costs instead of increasing the price per square meter.

"The State Mortgage Company continues the active construction of social housing intended for citizens in need of improved living conditions. According to the State Mortgage Company, today about 38 thousand citizens have applied, while apartments for 32 thousand of them are under construction. In the coming years, it is planned to increase the volume of construction of social housing, which will allow vulnerable segments of the population to receive apartments on the most favorable terms,” the Ministry added.