ECONOMIC REFORMS TO ENHANCE COMPETITIVENESS

JANUARY MARCH 2009 Quarterly Report ECONOMIC REFORMS TO ENHANCE COMPETITIVENESS CONTRACT NUMBER EEM I 00 07 00005 This report was produced for the United States Agency for International Development (USAID). It was prepared by the Economic Reforms to Enhance Competitiveness project, implemented by Deloitte Consulting LLC. Views expressed in this publication do not necessarily reflect the views of USAID or the United States Government.

Table of Contents Significant issues affecting implementation:... 2 A. Public Accounting & Audit... 7 B. Revenue Analysis... 7 C. Tax Administration... 9 D. KITIS software... 10 E. Public Education & Outreach... 13

Significant issues affecting implementation: The issue payment of tax and social fund contributions by local staff employed on USAID projects was discussed with Ms. Tajikan Kalimbetova, Chairperson of the Social Fund, in the hope of reaching an agreement on this long running saga. It was made clear to the Minister that projects, unless registered entities in Kyrgyzstan should not be paying employer contributions, that retrospective payment would not happen and it was best for all sides to move forward on a more substantive solution based on payment of employee withholdings (as opposed to the employee option of a patent and percentage contribution to the social fund). Ms. Kalimbetova accepted that there was a need to move forward and she will now consider a proposal. Following meeting with USAID in Kyrgyzstan, a working group was established to draft an agreement. State Tax Inspectorate (STI) divisions have prepared new forms that not only reflect changes in the New Tax Code but fundamental changes to procedures. An impact assessment will be made but it is clear that expectations are unrealistic. The project will not be able to help with fundamental changes to procedures since such wideranging activity is more appropriate to the ADB project. EREC will continue to assist with changes directly resulting from changes to the Law, making improvements to the existing registration processes and the development of audit. Developing a single approach to risk based audit will be challenging now that USAID Business Environment Improvement Project, ADB Tax Administration Reform and Modernization Project and now IFC Business Enabling Environment Project are all part of the working group. There is likely to be some delay in getting work on audit progressed. KG President imposed a 1-year moratorium on property tax. This moratorium will give time to finalize zonal coefficients, simplify property tax calculation and carry out the public education campaign on property tax. The Project is planning with USAID/Urban Institute project a campaign of activity to promote acceptances of the property use tax. Project is experiencing delay in obtaining precise quotes to perform procurement under Phase II equipment for KITIS application. Significant meetings with counterparts & donors: Mr. John Irons, Mr. Michael Boyd and Ms. Svetlana Golovatskaya from USAID Almaty Office and EREC Country Leader met with Mr. Ernst Kaldybaev, deputy Chairman of STI and Mr. Adylbek Kasymaliev, deputy Chairman of STI to discuss current status of EREC project activities and areas of future cooperation. EREC Country Leader, Tax Lawyer and Country Coordinator discussed with Mr. Adylbek Kasymaliev, Deputy Chairman of STI the mechanism of improving property use tax administration. It was agreed that EREC project will provide its recommendations in writing to the Consultative Council under STI. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 2

EREC Country Leader and Country Coordinator had a meeting with Ms. Nursulu Ahmetova, Director of USAID Business Environment Improvement Project to discuss improvements to the business registration process. EREC Country Leader met with Mr. John Donnelly from Asian Development Bank Technical Assistance Program in Kyrgyz Republic (ADB TA 7067) "Preparing the Investment Climate Improvement Program" to discuss aspects of the business registration process in order to avoid confusion in approaches by the involved parties. EREC Country Leader and Country Coordinator met with IFC Mission for Business Enabling Environment Project headed by Mr. Richard Stern to discuss activities of EREC project in tax and to coordinate efforts in reforming tax administration. EREC Economist met with Mr. Murzakanov/Leading specialist of the MoF IGF Department/ to discuss preparation of Legislation acts collection book. EREC Economist met with the MoF staff and UNDP expert to discuss Methodological Guide on Local Budgets and Local Tax Forecast. EREC Lawyer had a meeting with Mr. Sultanov, Minister of Finance, to brief him on the EREC activities. EREC Lawyer had a meeting with Mr. Djumabayev, Deputy Chairman of the National Statistical Committee, to discuss the ways of information exchange between the NSC and the SCTC on economic codes. EREC Lawyer had a meeting with Mr. Shadiev, Chairman of the Parliamentary Budget and Finance Committee, and Mr. Abytov, Head of the Finance and Budget Department of the Parliament, to discuss the changes to the Tax Code. EREC Lawyer had a meeting with Ms. Mambetalieva J., Deputy Minister of Justice, to discuss the one-stop-shop registration. EREC Tax Lawyer/Team Leader Legislation and Procedures had a meeting with Ms. Ishalina, Head of the MoF Revenue Projection Department, and Mr. Usubaliev, Head of the MoF Tax Policy Unit, on assessment of the Tax Code impact on local budget revenue. IT team held meetings with Mr. Rajiva Ranjan Singh, IT Consultant of ADB, on hardware and software aspects of KITIS. IT team had a meeting with the ADB analyst on registration issues. EREC Education and Public Outreach Specialist met with Ms. Atykanova, Head of the Tax Policy Department, to discuss new tax publications on personal income tax and voluntary patents. EREC Education and Public Outreach Specialist met with Mr. Andakulov, Head of the Taxpayer Registration Unit, to finalize the Taxpayer Registration Leaflet. EREC Country Leader met with Mr. James McHugh, Resident Representative of IMF to discuss the issue of VAT exemptions at imports. EREC Country Leader and Country Coordinator had a meeting with Mr. Arzybek Kojoshev, Deputy Minister of Finance to discuss tax policy issues related to the VAT rate and abolishment of sales tax. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 3

EREC Country Leader, Country Coordinator and EREC Lawyer met with Ms. Tajikan Kalimbetova, Chairperson of the Social Fund, to address her request for IPSAS training for staff and to discuss areas of potential cooperation, in particular in reforming accounting systems of the Fund. EREC Country Leader explored possibilities for cooperation in taxpayer education at a meeting with Ms. Donna Stewart, Country Representative for Pact Kyrgyzstan and Ms. Dianne Cullinane, USAID Civil Society Specialist. EREC Country Leader and Country Coordinator met with Ms. Nursulu Ahmetova, Director of USAID Business Environment Improvement Project to propose possible scenarios for an increase in VAT rate and abolishing sales tax in light of amendments and changes to the new Tax Code that are being discussed by the working group chaired by Mr. Omurbek Babanov, First Vice-Prime Minister. IT Group held meetings with Mr. Rajiva Ranjan Singh, IT Consultant of ADB, and Mr. Lewis I. Baurer, Team Leader of the ADB Tax Administration Return and Modernization Project to discuss new business processes and the anticipated new structure of SCTC. EREC Lawyer held meetings with Mr. Israilov, Head of Tax Arrears Department at SCTC, Mr. Andakulov, Head of Registration Unit at SCTC, and Ms. Djoldosheva, Head of Taxpayer Registration Unit at Pervomaiski Tax Office, to discuss tax registration of individuals and legal entities. EREC Lawyer met with Mr. Burtsev, Head of IT Department at SCTC, to discuss the tax forms. EREC Lawyer participated in the work of the USAID Commission for writing the Note on Tax Registration of the USAID Projects operating in Kyrgyzstan. The Commission held 5 meetings. EREC Economist had a meeting with Mr. Usubaliev, Head of the MoF Tax Policy Unit, to discuss VAT exemptions on imports. Based on results of these meetings, an analysis was made which showed that in excess of Soms 1 Billion could be gained by removing many non-standard exemptions. EREC Economist met with the Head of Accounting Division to discuss possible solutions to automate accounting in the public sector. EREC Tax Lawyer/Team Leader Legislation and Procedures met with Ms. Ishalina, Head of the MoF Revenue Projection Department and Mr. Usubaliev, Head of the MoF Policy Unit on assessment of the Tax Code impact on local budget revenue. EREC Tax Lawyer/Team Leader Legislation and Procedures held meetings with the representatives of Parliament, MoF, STI and other stakeholders on writing Instructions to the new Tax Code. EREC Tax Lawyer/Team Leader Legislation and Procedures held meeting with the business community on simplified taxation under the New Tax Code. EREC Education and Public Outreach Specialist had a meeting with Mr. Andakulov, Head of Registration Unit at SCTC, to hand over 4,000 copies of the Taxpayer Registration Leaflet. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 4

EREC Education and Public Outreach Specialist met with Mr. Kasymaliev, Deputy Chairman of SCTC, to brief him on results of the tax survey and determine the date for the presentation on tax research findings. At Deputy Chairman s request, the presentation was moved to early March 2009. EREC Country Leader wrote to Mr. Akylbek Japarov, Minister of Economic Development and Trade, Mr. Ahmatbek Keldibekov, Chairman of State Committee on Taxes and Collections, Mr. Marat Sultanov, Minister of Finance and Mr. Orzubek Kojoshev, Deputy Minister of Finance making recommendations to remove all nonstandard VAT exemptions at import, except for socially and politically sensitive items such as agricultural commodities and pharmaceuticals. This would collect about US$1 billion in additional revenue. EREC Country Leader and Country Coordinator jointly with Mr. Sabyrbek Akimbaev, Deputy Director and Ms. Aisuluu Sydygalieva, Tax specialist of USAID Business Environment Improvement Project participated in a ceremony to transfer of 1,500 bound copies of the Tax Code to State Committee on Taxes and Collections (SCTC). Mr. Ahmatbek Keldibekov, Chairman of SCTC expressed his gratitude to USAID EREC and BEI projects for the continued support to the tax administration. EREC Country Leader and Country Coordinator met with Ms. Claire Romanik, Chief of Party of USAID Decentralization and Local Government Program and her team to discuss the status of moratorium on introduction of property tax and to discuss the development of a media strategy to build awareness of this tax. EREC Country Leader met with IMF Tax Mission to discuss EREC project recommendations to increase VAT rate to 16% and abolish the sales tax, and the allied issue of removing non-standard VAT exemptions at imports. EREC Country Leader had three meetings with Mr. Paul Goldberg, IT Expert of ADB Tax Administration Reform and Modernization Project to discuss the proposed automatic VAT refund system and provided his comments and recommendations. EREC Country Leader and Country Coordinator met with Mr. Ulan Musaev, Deputy Head of Information Communication Technologies Unit to discuss the possibility of conducting the review of activities of the IT Department of SCTC by the University IT professor and possibly develop partnership arrangements. EREC Country Leader and Country Coordinator met with Mr. Alexsi Aleksishvili, USAID BEI Project consultant to share views on the tax policy and ways to increase budget revenues. EREC Country Leader, Country Coordinator and EREC Lawyer met with Mr. Akylbek Japarov, Minister of Economic Development and Trade to discuss the status of sales tax and VAT. It was decided that EREC project will invite Mr.Yuriy Dzhygyr to update the revenue impact analysis of the New Tax Code and revenue forecasts for different VAT rates. EREC Country Leader and Country Coordinator met with Ms. Ellen Payne, Project Manager, Mr. Christopher Miller, Operations Manager and Mr. Erkin Djunushev, Tax Reform Consultant of IFC Business Enabling Environment Project (IFC BEE) to USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 5

discuss the TOR for the statistician to be provided by IFC BEE under the RBA action plan. EREC Country Leader, Country Coordinator, EREC Lawyer, EREC Education and Public Outreach Specialist and EREC Senior IT Advisor met with Paul Goldberg, IT Expert of ADB Tax Administration Reform and Modernization Project discussed new taxpayer registration forms to replace separate forms for the registration of individuals and legal entities. The new forms will be presented to Mr. Pavel Burtsev, Head of IT Department of SCTC and Mr. Adylbek Kasymaliev, Deputy Chairman of SCTС for comments and review. EREC Lawyer participated in the work of the USAID Expert Commission for writing the Diplomatic Note regarding taxation of USAID Project local staff. EREC Lawyer had a meeting with Mr. Kojoshev, Deputy Minister of Finance, to discuss the new Tax Code. Comments on the New Tax Code were prepared. EREC Lawyer coordinated the work between the Ministry of Finance and the Parliament, organized meetings with the Parliament Committees; attended weekly working meetings at the Ministry of Finance. EREC Tax Lawyer/Team Leader Legislation and Procedures met with Ms. Alia Kerimbaeva, MoF Permanent Secretary, to discuss modeling of the KR tax structure and making an assessment of the impact of the Tax Code on local budget revenue. EREC Tax Lawyer/Team Leader Legislation and Procedures had meetings with Ms. Ishalina, Head of the MoF Revenue Projection Department, and Mr. Usubaliev, Head of the MoF Tax Policy Unit, to discuss the KR tax structure and assessment of the Tax Code impact on local budget revenue. EREC Tax Lawyer/Team Leader Legislation and Procedures attended a series of meetings with the business community and IFC representatives to discuss the issues of simplified taxation under the New Tax Code. EREC Education and Public Outreach Specialist had a meeting with Mr. Kasymaliev, Deputy Chairman of SCTC, to find out about VAT exempt imports and tax collections for the January-February of 2009. SCTC has provided the data necessary for further impact analysis. EREC Education and Public Outreach Specialist had a meeting with Ms. Karagulova, Head of the SCTC Patent Unit, to discuss the ways of publicizing the rates of the voluntary and mandatory patents approved for Bishkek. The Project will provide assistance in drafting the leaflets/brochures on the subject and printing them. EREC Education and Public Outreach Specialist had a meeting with Ms. Makarenko, Tax Law Professor of the Kyrgyz-Slavic University, to discuss the level of tax awareness among students about the New Tax Code. The University is planning a conference on the new Tax Code with the participation of the tax officials and international organizations. The Project will provide assistance in conducting this conference. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 6

A. Public Accounting & Audit 1. Highlights & accomplished tasks/activities against the work plan Based on EREC project recommendations, a unit for preparing state balance sheet was established in the Financial Reporting and Internal Audit Methodology Department under the new organizational structure of the Ministry of Finance. It is headed by an expert who has extensive experience working in Central Treasury. This unit will be responsible for preparing consolidated financial statements of the Government of the Kyrgyz Republic in line with IPSAS Standards. Developed draft terms of reference for local consultants to develop guidelines for accounting fixed assets, depreciation and other items in the new Regulation on accounting in accordance with IPSAS and drafted requirements specification on automation of the budget agencies reporting to the Ministry of Finance according to IPSAS. In accordance with the agreement between IFAC and USAID Economic Reforms to Enhance Competitiveness (EREC) Project an electronic copy of the Russian translation of the 2008 IPSAS Cash Standards was submitted to IFAC. Soft and hard copies of the translation will be presented to EREC counterparts responsible for public sector accounting reform in the MoF and Accounts Chamber of the Kyrgyz Republic in April 2009. Project received the offers from three companies KATO Economics, ESMO Group and Bridge IT Solutions with regard to automation of budget agencies reporting to the Ministry of Finance in accordance with IPSAS. Analysis of those commercial proposals was made to determine the feasibility of automation process. Jointly with the MoF specialists the Project reviewed accounting standards and financial reporting provisions for further inclusion into the Legislative Acts book for local budget holders. A request was submitted to Mr. Igor Chudinov, Prime Minister, requesting that the adoption of the Government resolution on International Public Sector Accounting Standards (IPSAS) be expedited. This request was made as the President s Administration had returned a draft Presidential Decree and the action plan for further review. A revised action plan on IPSAS adoption and a draft Government resolution is currently being prepared by the Ministry of Finance with the assistance of the Accounts Chamber. 2. Future activities & events EREC Regional Public Audit Advisor and Senior Economist will discuss with the Accounts Chamber of Kyrgyz Republic work plan for EREC s assistance to the Chamber. B. Revenue Analysis 1. Highlights & accomplished tasks/activities against the work plan USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 7

Continued developing the Methodological guidance for projecting budget revenues: worked on special tax regimes (patents, tax on special means, tax on contract basis) Carried out revenue analysis: Property tax projections for 2009. Revised the Draft Manual on Mid-Term Revenue Forecast for Local Authorities and submitted it to the Minister of Finance for approval. Provided consultations to the experts of the IGF Department on legislative documents and specific articles of the law that might be included into the Legislative acts book for local budget holders. At the Prime Minister s office request, commenced analysis of the pros and cons of the sales tax in comparison to the three abolished taxes, i.e. road tax, emergency tax and retail sales tax. Continued developing the Methodological guidance for projecting local budget revenues. Commenced writing proposals on how to increase local budget revenues. In collaboration with the MoF specialists, prepared the final version of the Legislative acts book for local budget holders. The manual of installation of Value Added Tax Audit Planning and Selection System database was examined to determine the feasibility of application of this software in Kyrgyzstan. At the MoF request, comprehensive data were collected about Russian and Kazakh revenue structure, types of taxes collected in these countries. The results were submitted to the counterparts. At the Budget Policy Department request, assistance was provided to the Ministry of Finance in collecting logins and passwords for Budget Information System. Materials were developed and submitted on comparative analysis of the Tax Codes of Kyrgyzstan, Kazakhstan, Russia and Uzbekistan regulating the gold mining industry. Materials were prepared on revenue receipts for the January-February of 2009. Jointly with Mr. Rahanov, Deputy Head of the IGF Policy, held meetings with the directors of the printing companies bidding for printing of the Legislative Acts book for the MoF and prepared proposals for selecting the companies for implementation of this task and signing the contract. Commenced review of the laws and by-laws regulating VAT exempt imports for making further analysis and writing recommendations. Carried out a review of the pros and cons of the sales tax in comparison to the three abolished taxes, i.e. road tax, emergency tax and retail sales tax; results were submitted to the Prime Minister s office. 2. Future activities & events Finalize the Methodological guidance for projecting budget revenues. Continue the work on mid-term forecasting of the local budget revenue. Examine the current structure of tax receipts and write recommendations. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 8

C. Tax Administration 1. Highlights & accomplished tasks/activities against the work plan EREC Country Leader became a member of the working group that will develop proposals on risk based audit in line with the decision of the Investment Council under the President of the Kyrgyz Republic. Recommendations were provided on risk based audit that will serve as a basis for developing concept paper and matrix of activities. The EREC Project made recommendations to simplify the calculation and administration of the property use tax. These recommendations were presented by Mr. Adylbek Kasymaliev, Deputy Chairman of STI at the meeting of the Consultative Council under STI. Peter Bruges sent his vision of business registration process to be included in a joint letter of BEI project to the Investment Council under the President of the KR. Round Table Meetings on the New Tax Code were held for tax officers and taxpayers in Naryn oblast and Karakol town. EREC Tax Lawyer/Team Leader Legislation and Procedures participated in the Working Group for writing Instructions to the new Tax Code. Meetings were held with the representatives of the Parliament, MoF, STI and other stakeholders on instructions to the new Tax Code. Several meetings were held with the business community on simplified taxation under the New Tax Code. Prepared training materials on implementation of the New Tax Code for tax officers. Consultations were provided to the MoF and STI officers on the current Tax Code An action plan for risk based audit was developed with the SCTC in consultation with: o USAID Business Environment Improvement Project o ADB Tax Administration Reform and Modernization Project o IFC Business Enabling Environment Project o Mr. Rafkhat Hasanov, the Investment Council under the President of the K.R. The action plan was approved by the order of SCTC on February 27, 2009. This plan outlines key activities, implementation details and responsible parties that will introduce the concept of risk based audit in SCTC. The Chairman of SCTC will present the report on March 30 at the meeting of the Investment Council under the President of the KR. EREC IT team added a feature to the SCTC online tax calculator to calculate tax on movable property. The number of visits totaled 2624. Analyzed 425 questionnaires received from participants of roundtables and seminars conducted to explain provisions of the New Tax Code in Bishkek, Jalal-Abad, Osh, Tokmok, Naryn, Talas, Cholpon-Ata and Karakol. Participants raised a great number of questions on the New Tax Code and answers will be published in a special brochure Frequently asked questions about the Tax Code to be developed by SCTC. Pilot tax forms for registration of physical and legal persons were developed. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 9

EREC Tax Lawyer/Team Leader Legislation and Procedures participated in the Interdepartmental Committee led by O.Babanov, Vice-Premier-Minister of the GoKR for improvement of the Tax Code. Prepared training materials on implementation of the New Tax Code for tax officers. Consultations were provided to the MoF and STI officers on the current Tax Code. EREC Country Leader jointly with Mr. Paul Goldberg, IT Expert of ADB Tax Administration Reform and Modernization Project developed draft glossary to the concept paper on risk-based audit. The glossary was circulated to members of the working group for comments and additions. Initial comments from USAID Business Environment Improvement Project and IFC Business Enabling Environment Project were received will be reviewed. The current registration process was reviewed and simplified procedures proposed. The implementation of the new procedures should significantly reduce time needed for registration, reduce manual work and improve quality of the service. Commenced development of a risk-based system for Audit. The main risk data were identified and the creation of a data set started. EREC Tax Lawyer/Team Leader Legislation and Procedures participated in the Working Group for writing Instructions to the new Tax Code and held regular meetings with the representatives of the Parliament, MoF, STI and other stakeholders on writing instructions to the Tax Code. EREC Tax Lawyer/Team Leader Legislation and Procedures prepared and submitted the analytical report to the Government on composition of the KR tax system. EREC Tax Lawyer/Team Leader Legislation and Procedures participated in Osh Silk- Road Conference on Agricultural Sector Development and made the presentation on specificities of taxation of the agricultural producers under the new Tax Code. Consultations were provided to MoF and STI officers on the Tax Code provisions. 2. Future activities & events Design, implement and test the new Registration procedure. Create data set for Audit and continue discussions with IFC who have agreed to carry out the statistical analysis. Commence activities under risk based audit action plan and start gathering data for risk scoring. Continue working with the MoF on a Tax Code revenue impact analysis. Continue working in the Government Commission for making amendments and additions to the Tax Code D. KITIS software 1. Highlights & accomplished tasks/activities against the work plan EREC Country Leader expressed his concerns to Mr. Keldibekov, Chairman of SCTC that significant changes to tax forms and inclusion of supplements went well beyond what could be justified from implementing the New Tax Code. It was agreed that SCTC USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 10

will review its tax forms and supplements only to reflect changes occurred directly as a result of adoption of the New Tax Code, in order to update KITIS application. Continued Testing, Turning hardware of the first procurement and Incorporating it to the actual LAN and WAN. Continued finalization and elimination of errors when transferring data to MS SQL. Enhanced WEB page for property tax calculation, added calculation of movables. Continued developing the STI Registration subsystem- RegS. A new server with MS SQL was installed in the LTU department. Databases of 2008 and 2009 were transferred to the server. KITIS was deployed in work stations of the LTU divisions. Eliminated errors when testing KITIS on real LTU Databases. Server for Alamedin rayon was prepared and installed there. KITIS was deployed in some divisions of the tax inspectorate. Databases of 2008 and 2009 were transferred to the server. Server for Issyk-Ata rayon was prepared and installed there. KITIS was deployed in some divisions of the tax inspectorate. Database of 2009 was transferred to the server. Continued assisting the STI on establishing a Virtual Private Network (VPN) utilizing internet technology between the STI central computer environment and each pilot site to enable exchange of KITIS data. Started changing KITIS procedure for issuing the standard revenue report 1N due to the changes in the budget classification and the algorithm for generating reports. Assisted the STI IT Department with setting up increased physical security and backup procedures. Examined the ADB paper on business processes and provided comments. Databases for 2007 and 2008 of Issyk-Ata rayon tax office were transferred from Informix to MS SQL and installed on the rayon server. Upgraded KITIS on the LTU work stations and the Issyk-Ata and Alamedin rayon tax offices were given software upgrades. Continued changes to the KITIS procedure for issuing the standard revenue report 1N due to the changes in budget classifications and the algorithm for generating reports. Continued KITIS maintenance at LTU, Issyk-Ata and Alamedin rayon tax offices. Wrote memos to STI management on new output and input forms and changes to business processes under new Tax Code in order to develop the action plan and prioritized tasks for changing procedures to input forms. Assisted the IT Department with setting up increased physical security and backup procedures. Upgraded KITIS manuals and procedure for data transfer. Installed VAP-L2 lines for pilot inspectorates. Started testing and tuning the VAP line at the LTU. Continued tuning and maintaining the IT structure and servers at SCTC. Continued redesign of KITIS in compliance with new Tax Code. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 11

Continued testing and carried upgrade of KITIS work stations in the LTU divisions, Issyk-Ata and Alamedin rayon tax offices to make them consistent with changes in the systems code. The transformation of LTU databases from Informix to MS SQL was completed and all databases installed on the LTU server. The 2006 Database of Issyk-Ata rayon tax office was transferred from Informix to MS SQL and installed on the rayon server. Continued the development of new input tax forms, coding and procedures for entering and processing the new forms. Provided support for the second phase hardware procurement for KITIS. 2. Future activities & events Assist the STI in installing and upgrading KITIS in Alamedin and Issyk-Ata tax offices to MS SQL. Work with ADB on KITIS development and further computerization of STI. Accomplish changing KITIS procedure of issuing the standard report 1N, finalize the procedure for transferring data to MS SQL. Continue transferring the LTU databases for 2004 to MS SQL. Upgrade KITIS based on agreed changes. Analyze new business processes for redesigning KITIS. Assist the STI in transferring the 2007-2003 databases of Alamedin and Issyk-Ata tax offices to MS SQL. Maintain KITIS at LTU in three rayons. Start preparing and arranging data for Audit System. Assist the IT Department in conducting training on KITIS maintenance. Continue changes to KITIS to make it consistent with the new tax law. Assist the STI in transferring the 2003-2005 databases of the Alamedin and Issyk-Ata rayon tax offices to MS SQL. Continue assisting the STI in installation and upgrade of KITIS in Alamedin and Issyk- Ata rayon tax offices to MS SQL. Transfer the STI central database from Informix to MS SQL. Redeploy KITIS at the STI work stations. Continue designing the STI Registration subsystem (Registration). Update the KITIS manual to reflect the changes in the tax code. Collaborate with ADB on registration and tax administration issues. Assist ADB in the development of the concept STI IT structure, including software and hardware requirements. Assist in the design of new registration forms and the implementation of a new registration procedure. Assist with the procurement of hardware for the second stage of KITIS. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 12

E. Public Education & Outreach 1. Highlights & accomplished tasks/activities against the work plan Printed leaflets for the round tables on the new Tax Code organized jointly with USAID BEI Project in Naryn and Karakol. Finalized the Taxpayer Registration Leaflet. Printed 10,000 leaflets of Taxpayer Charter in Kyrgyz for distribution to the public and taxpayers. Published a press release about the availability of an on-line property use tax calculator on the STI s web-site. The number of visits at the time of preparation of report was around 24,000. EREC Lawyer drafted an MOU for cooperation with the IFC Business Enabling Environment Project aimed at distributing sufficient numbers of tax leaflets and brochures in Russian and Kyrgyz for STI. Printed 4,000 copies of the Taxpayer Registration Leaflet for dissemination among taxpayers through regional tax offices. Made preparations for the presentation on tax research findings for the STI management. Continued working with the STI officials on the book of the frequently asked questions on taxes. Drafted the leaflet on personal income tax for distribution among the public. EREC Country Coordinator and Education and Public Outreach Specialist organized and participated in the tax survey presentation made by M-Vector Research Company funded by grant under the EREC Project. The presentation covered major tax survey findings and recommendations and how they should be acted upon by SCTC management and heads of local tax offices in Bishkek city. Copies of the presentation and final report will be circulated to all other local offices throughout the country. (The final report will be translated into English.) A press release was circulated outlining key findings of the tax survey. SCTC is planning to shoot a series of TV spots encouraging citizens to pay taxes. The SCTC Press Service was assisted in writing the scripts for the TV spots on taxes. It was recommended that SCTC should use the messages tested in the focus groups and chosen by the focus group participants as the most convincing statements. Jointly with SCTC experts, commenced writing a leaflet on voluntary patent rates approved for Bishkek. An Income Tax Leaflet was drafted and submitted to the STI management for review and approval by the relevant SCTC departments At SCTC request, additional 6,000 copies of the Taxpayer Charter were printed in Russian and Kyrgyz languages and delivered to the counterparts for distribution in Naryn and Issuk-Kul oblasts. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 13

Made revision of the Calendar Taxpayer leaflet in accordance with the latest changes made to the New Tax Code relating to the property tax. The leaflet was submitted to the SCTC management for review. 2. Future activities & events Work with the STI officials on the book of the frequently asked questions on taxes. At the moment, 300 questions were received during the regional round tables and the answers were prepared. The book is submitted to Mr. Kasymaliev for consideration. Print Property Tax leaflets in Russian and Kyrgyz for distribution to taxpayers and the public. Develop the leaflet on voluntary patent rates for 2009 after Parliament approves the tax rates. Arrange a presentation for the STI management on the findings of the nation poll and present the final research report. Draft the leaflet on property use tax providing general information on nature of the tax, purpose of the tax, filing dates, etc. to be disseminated among citizens and businesses. Together with the STI, develop the action plan for education campaign on property tax following the KR President s instruction to carry out an explanatory work among citizens on new tax. Continue the work on writing, designing and printing tax publications. Soon to be printed: Taxpayer Calendar and Income Tax leaflets. Develop design of the new tax registration forms for businesses. Provide assistance to Kyrgyz-Slavic University in organizing the university conference on the New Tax Code scheduled for April-May 2009. Continue working with SCTC in developing the education campaign on property tax following the KR President s instruction to carry out an explanatory work among citizens on the new property tax. USAID EREC Project, implemented by Deloitte Consulting LLC Kyrgyzstan QI 2009 Report 14