General course of fi nance: еducational manual 9786010402690

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KAZAKH NATIONAL UNIVERSITY AFTER AL-FARABI

V.D. Ly A.V. Hamzaeva

GENERAL COURSE OF FINANCE Educational manual

Almaty «Kazakh University» 2014

UDK 336 BBK 65. 26 L 66 Recommended for publishing by the Academic Council of the Higher school of economic and business and RISO KazNU after al-Farabi Reviewers: Doctor of Economics, professor A. Arupov Doctor of Economics, professor V.D. Melnikov PhD Zh.B. Kazbekovа

L 66

V.D. Ly, A.V. Hamzaeva General course of finance: еducational manual / translation in English: A.V. Hamzaeva. ‒ Almaty: Kazakh University, 2014. – 314 p. ISBN 978-601-04-0269-0 This book is the basic textbook at the rate «Finance», in which current trends found reflection in a financial system: roles of financial policy and financial mechanism finance of the state entities, modern taxation system, budget system, etc. In the book important provisions of the financial theory, value of anti-recessionary financial policy and the financial mechanism of its implementation are opened, value and a role of finance of the state entities reveal. It is intended for students, undergraduates, doctoral candidates and teachers of higher education institutions, listeners of system of advanced training and retraining of personnel, financial officers and government employees.

UDK 336 BBK 65. 26 ISBN 978-601-04-0269-0

© V.D. Ly, A.V. Hamzaeva, 2014 ©KazNU after al-Farabi, 2014

Contents

CONTENTS Introduction ......................................................................................................... 6 CHAPTER I. Finance as cost category ........................................................... 8 1.1 Historical preconditions of emergence of finance................................... 8 1.2 Economic essence and need of finance ................................................. 12 1.3 Functions of finance and debatable questions essence and functions of finance .............................................................................. 15 1.4 Interrelation of finance with other economic categories ....................... 19 1.5. Use of finance in market conditions..................................................... 21 CHAPTER II. Financial system .................................................................... 24 2.1 Structure of a financial system .............................................................. 24 2.2. Public finance ....................................................................................... 25 2.3. Finance of accounting entities (entities) (FAE) ................................... 27 CHAPTER III. Bases of use of finance in public reproduction .................. 32 3.1. Financial resources............................................................................... 32 3.2. Financial market................................................................................... 36 CHAPTER IV. The financial policy. The financial mechanism .................. 46 4.1. The financial policy.............................................................................. 46 4.2. Development of financial policy .......................................................... 49 4.3. Financial mechanism ........................................................................... 50 CHAPTER V. Management of the finance ................................................... 58 5.1. The content of the financial management ............................................ 58 5.2. Management of public finances ........................................................... 60 5.3 Financial management of business entities ........................................... 63 5.4. The automated control system of finance ............................................ 65 CHAPTER VI. Financial plan ....................................................................... 68 6.1. Content, principles and methods of the financial planning .................. 68 6.2. Financial plans ..................................................................................... 71 6.3. Financial performance ......................................................................... 77 6.4. Financial regulations and standard rates .............................................. 79 CHAPTER VII. Financial control ................................................................. 82 7.1. Financial control .................................................................................. 82 7.2. Forms and methods of financial control............................................... 86 7.3. Organization of financial control. Audit control .................................. 87

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V.D. Li, A.V. Hamzaeva General course of finance

CHAPTER VIII. Finance of accounting entities .......................................... 92 8.1. Bases of functioning of finance of accounting entities ........................ 92 8.2 Classification of accounting entities. Features of the organization of finance of main types and managing forms ........................................... 96 8.3. Finance of the accounting entities operating on the commercial beginnings ................................................................................................. 104 8.4. Finance of non-profit organizations and organizations ...................... 110 8.5 Finance of the state entities ................................................................. 116 CHAPTER IX. General characteristics of the public finance .................. 120 9.1. Economic activities of the state ......................................................... 120 9.2. The concept and the composition of public Finance.......................... 125 CHAPTER X. State revenues ...................................................................... 128 10.1. Essence of state revenues ................................................................. 128 10.2. Classification of state revenues ........................................................ 131 CHAPTER XI. Taxes and the tax system ................................................... 134 11.1 The concept of taxes and social-economic nature............................. 134 11.2 The tax system................................................................................... 136 11.3 Organization of collection of taxes ................................................... 141 11.4 Tax policy and tax mechanism .......................................................... 144 11.5 Indirect taxes ..................................................................................... 148 11.6 Corporate Income Tax ....................................................................... 153 11.7 Individual Income Tax ...................................................................... 157 11. 8 Special charges and taxes subsoil user ............................................. 159 11.9 Social tax ........................................................................................... 160 11.10 Property Taxes ................................................................................. 161 11.10. 1. Land tax...................................................................................... 161 11.10. 2. Property tax ................................................................................ 163 11.10.3. Tax on vehicles ............................................................................ 164 11.11 The special tax regime..................................................................... 164 11.12 Charges, duties and payments ........................................................ 167 11.13 Tax management ............................................................................. 169 11.14 State tax management ..................................................................... 171 11.15 Corporate tax management ............................................................. 174 11.16 Setting to and tax evasion .............................................................. 177 CHAPTER XII. Government expenditures................................................ 184 12.1. The nature of government expenditures........................................... 184 12.2. Classification of government expenditures ...................................... 187 12.3. Financing of the economy ................................................................ 190

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Contents

12.4. Charges on social and cultural measures ......................................... 192 12.5. Charges on social defense of population.......................................... 195 12.6. Defense expenditure......................................................................... 204 12.7 Expenses on management ................................................................. 205 CHAPTER XIII. State budget ..................................................................... 208 13.1 Concept of the state budget and budgetary systems ........................ 208 13.2 Structure of the income and expenses of the state budget ................ 219 13.3 Budgetary deficiency ........................................................................ 222 13.4 Budgetary process ............................................................................. 226 13.5 The main directions of the state and republican budgets, National fund of the Republic of Kazakhstan, the consolidated budget of the Republic of Kazakhstan ...................................................... 231 CHAPTER XIV. Off-budget funds (special funds) .................................... 240 14.1 General characteristic of off-budget funds........................................ 240 14.2 Pension funds – off-budget funds of the Republic of Kazakhstan .... 242 14.3 National fund of the Republic of Kazakhstan ................................... 247 CHAPTER XV. State credit ......................................................................... 254 15.1 Essence of the state credit ................................................................. 254 15.2 International state credit .................................................................... 258 15.3 Government debt ............................................................................... 264 15.4 Management of a public debt ............................................................ 265 CHAPTER XVI. The state financial regulation ......................................... 268 16.1 General characteristic of the state financial regulation of economy................................................................................................ 268 16.2 Macroeconomic balance and finance ................................................ 271 16.3. Options of fiscal policy .................................................................... 275 16.4. Influence of taxes on market balance ............................................... 278 CHAPTER XVII. Finance in system foreign economic relations ............. 282 17.1. Characteristic of foreign economic activity and direction of its development ..................................................................................... 282 17.2. Forms and methods of regulation of foreign economic activity ...... 287 17.3. Formation and use of currency resources ........................................ 293 17.4. Country balance of payments........................................................... 298 CHAPTER XVIII. Finance and inflation ................................................... 302 18.1. Nature of inflation and its interrelation with finance ....................... 302 18.2. Actions of an anti-inflationary policy .............................................. 308

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V.D. Li, A.V. Hamzaeva General course of finance

INTRODUCTION Studying of the theory and practice of finance now is actual owing to those cardinal reforms, which happening around the world in a management system of the public, corporate finances. This book is the basic textbook at the rate «Finance», in which current trends found reflection in a financial system: roles of financial policy and financial mechanism finance of the state entities, modern taxation system, budget system, etc. In the book important provisions of the financial theory, value of anti-recessionary financial policy and the financial mechanism of its implementation are opened, value and a role of finance of the state entities reveal. The special attention is paid to taxes and the organization of the taxation system, a modern tax policy of Kazakhstan and the tax mechanism of its implementation. The great interest causes consideration of tax management, as new direction of science in system of the public and corporate management by finance. Actual aspects of functioning of budget system of RK, including the carried-out budget reform, which essence consists of transition from ideology of control over costs to ideology of management of results by optimum decentralization of management by public finances are considered. «Public expenditures» found reflection in head current trends of development of scientific and technical process of Kazakhstan, as creation of National Innovative Fund. 6

Introduction

The importance is given to off-budget funds of Kazakhstan – accumulation pension funds and the RK National Fund. This textbook contains a large number of tables, drawings, schemes, and the statistical material, which reflect all modern aspects of a financial system of the Republic of Kazakhstan. It is intended for students, undergraduates, doctoral candidates and teachers of higher education institutions, listeners of system of advanced training and retraining of personnel, financial officers and government employees.

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V.D. Li, A.V. Hamzaeva General course of finance

CHAPTER I FINANCE AS COST CATEGORY 1.1. Historical preconditions of emergence of finance

F

inance arises with the advent of money. Money, carrying out the currency function, becomes the equity, i.e. the selfincreasing cost, or the cost, which is making profit or the income. Thus, money creates conditions for emergence of finance as independent sphere of the cash relations, as parts of relations of production. The term «finance» occurs from the Latin word finis meaning the end, the termination, the finish. In the ancient world and in the middle Ages the term finis was applied in the cash relations arising between the state (on behalf of the king, judges, etc.) and the population. It expressed final settlement, i.e. meant completion of a money payment. The persons who have paid fees for benefit of the judge, the king or various state bodies, received the document called by fine on hands. Subsequently from the name of this document there was a term financia which in Latin meant a money payment. In the XVI century in France the Latin term financia turns into the French term finance meaning cash, the income. This term is used that is as set public (i.e. state) the income and expenses and gradually transformed to modern concept of finance. As historical category finance is a civilization product. They arise with the advent of trade and as derivative of trade. Job specialization and partition of primitive society on separate 8

Chapter I. Finance as cost category

classes led to decomposition of a patrimonial system and replacement with its state. House utensils and herds of animals from patrimonial (family) property pass to private property and become an exchange subject, i.e. turn into goods. Money was an exchange sign. In the society of at whom there are a lot of money began to play a big role that promoted appearance of merchants and the equity. Development of process of purchase and sale of goods for money caused emergence of cash loans and exchange points (a bench moneychanger), and together with them there is a percent, usury and banks. To the state for accomplishment of the functions money resources which are created in voluntary are required, and it is even more in a forced form by means of charges and taxes. All this promoted creation of finance and a financial system of the state and at first there is finance of citizens and on their basis there is state finance as public institute. In pre-capitalistic formations the most part of needs of the state was satisfied by different establishment of natural duties and charges. The cash economy was developed during this period only in army. Costs for conducting wars, content of a yard of the monarch, the state apparatus were the main expenses of the slaveholding and feudal states; construction of public constructions (temples, channels for irrigating systems, ports, roads, water supply systems). The main income were: receipts from state-owned property (domains) and regalia (the sole right of the monarch to separate crafts and trade in certain goods); spoils of war, tribute from the subdued people; natural and money dues and duties, duties, loans. With decomposition of feudalism and gradual development in its subsoil of a capitalist method of production cash incomes and state expenses began to purchase the increasing value; the share of natural charges and duties was sharply reduced. At early stages of development of the state there was no differentiation between resources of the state and resources of his head: monarchs disposed of means of the country as the property. With allocation of the state treasury and its complete department from property of the monarch (16-17 centuries) 9

V.D. Li, A.V. Hamzaeva General course of finance

there are concepts of public finances, the government budget, a public credit. Public finances served as the powerful lever of the initial capital accumulation happening in 16-18 centuries. From the colonial countries to the metro pole in flowed huge riches which could be at any time used as the equity. State loans and taxes were widely used in the productive purposes for creation of the first capitalist entities. The important role in creation of the original capitals belonged to protectionism system which allowed the first capitalists to establish high prices on made industrial products, to get high profits which in large part went on production expansion. In the conditions of capitalism when the commodity-money relations purchase comprehensive nature, finance expresses the economic relations in connection with education, distribution and use of funds of money in the course of distribution and redistribution of a national income. Property, plant and equipment of the capitalist states began to concentrate in the government budget. For public finances of the capitalist countries rapid growth of expenses that is caused first of all by strengthening of militarization of economy is characteristic. At the end of 19 century almost in all capitalist countries of costs of the state on the military purposes, settlement of a public debt and percent on it over 2/3 all constituted the public expenditures. Large funds were allocated also for state machinery content – parliament, the ministries, departments, police, prisons, etc. Costs for education, health care were extremely insignificant. Taxes, mainly indirect were the main source of the income of the state. The twentieth century is characterized by powerful development of productive forces, formation of monopolistic associations; merge of the state to monopolies, expansion of functions of the capitalist states. The state not only provided defense capability of the country, protection of private property on means of production, a freedom of enterprise and a law and order, 10

Chapter I. Finance as cost category

but also began to participate in a production process, distributions and uses of a public product. In the middle Ages there were this phenomenon and the term reflecting it. After all the mankind long before it had money, the commodity-money relations, and a state system. First precondition. In the Central Europe as a result of the first bourgeois revolutions though monarchic modes remained, but the power of monarchs was, is considerably cut off and the most important occurred rejection of the head of state (monarch) from treasury. There was a nation-wide fund of money – the budget which the head of state couldn’t use solely. Second precondition. Forming and use of the budget began to have system nature, i.e. there were systems; the state. The income and expenses, with, a certain structure, structure and legislative fixing. It is remarkable that primary groups – account part of the budget practically didn’t change, within many centuries. Already then four directions of expenses were designated: on the military purposes, management, economy, social needs. That fact is interesting also that practically still invariable (11 – 13%) remain a share of expenses on management in budgets of the different countries during the various periods. Third precondition. Taxes in cash, a form purchased preferential nature whereas earlier the income of the state was created mainly at the expense of natural taxes and labor services. Thus, only at this stage of development of statehood and the cash relations there was possible a distribution of the created product in value term. The distribution relations – part of the economic relations in society, and finance, being expression of this objectively existing sphere of the economic relations, are economic category. They have pronounced specific public appointment – forming and use of cash funds of the state by means of special forms of movement of cost. Finance at the same time and historical category as they have stages of origin, developments, i.e. changes in time. It is possible to allocate two main stages of development 11

V.D. Li, A.V. Hamzaeva General course of finance

of finance. The first stage – an undeveloped form of finance. It is characterized by unproductive nature of finance; i.e. the bulk of money (2/3 budgets) was spent for the military purposes and practically didn’t make impact on economy. The narrowness of a financial system as it consisted of one link – budget was the second characteristic feature of this period, and the quantity of the financial relations was limited. All of them were connected by an organization and budget use. In process of development of the commodity-money relations, statehood there was a need for new nation-wide funds of money and respectively new groups of the cash relations concerning their forming and use. Now everywhere, irrespective of the political and economic system of this or that state, finance entered a new stage of the development. It is caused by multi-tier of financial systems, high extent of impact on economy a big variety of the financial relations. At this stage finance becomes one, from the most important tools of indirect impact on the relations of public reproduction: reproduction of material benefits, labor power and relations of production. 1.2. Economic essence and need of finance Finance is one of the major economic categories, reflecting the economic relations in the course of creation and use of money financial resources and funds. Emergence of finance happened in the conditions of transition from a subsistence economy to a regular, commodity-money exchange and was closely connected with development of the state and its resource requirements. One of the main signs of finance is their cash form of expression and reflection of the financial relations by real cash flow. One of theories in which it is proved gained distribution in 12

Chapter I. Finance as cost category

financial science that area of origin and functioning of finance is the second stage of reproduction process at which there is a distribution of cost of a public product on purpose and subjects of managing, each of which shall receive the share in the made product. Therefore, an important sign of finance as economic category is distribution nature of the financial relations. Real cash flow happens at the second and third stages of reproduction process – in distribution and an exchange. At the second stage cost movement in a cash form happens separately from movement of goods and is characterized by its alienation (transition from one owner to another) or target isolation (within one owner) each part of cost. At the third stage the distributed cost (in a cash form) exchanges on a commodity form. Alienation of the cost here doesn’t happen. Thus, at the second stage of reproduction one-way traffic of a cash form of cost, and on the third – two-way traffic of the costs one of which is in a cash form, and another – in commodity takes place. As at the third stage of reproduction process there are constantly made exchange transactions requiring only price instrument, finance here doesn’t have a place. Finance significantly differs from other economic categories functioning at a stage of cost distribution: credit, salary and price. Initial coverage of the financial relations is processes of initial distribution of cost of a gross public product when this cost breaks up to elements constituting it: c – the cost of the spent means of production; v – Compensation; m – Additional product. Thus there is a formation of various forms of cash incomes and accumulating. Further redistribution of cost between subjects of managing and a specification of its target use too is performed on the basis of finance. Distribution and cost redistribution by means of finance 13

V.D. Li, A.V. Hamzaeva General course of finance

is surely accompanied by the cash flow, financial resources accepting a specific form. They are created at subjects of managing and the state at the expense of different types of cash incomes, assignments and receipts, used on expanded reproduction, material stimulation working, and satisfaction of social and other requirements of society. Financial resources act as material carriers of the financial relations that allow allocating finance from general set of the categories participating in cost distribution. It occurs regardless of a socioeconomic structure though forms and methods, by means of which financial resources are formed and used, changed depending on change of the social nature of society. Use of financial resources is performed generally through cash funds of special purpose though not share form of their use is possible also. Benefits of a share form treat: opportunity more closely to coordinate satisfaction of any requirement to economic opportunities, ensuring concentration of resources on the main directions of development of a social production, opportunity more full to coordinate public, collective and private interests. Based on all above it is possible to give the following determination: finance is the cash relations arising in the course of distribution and redistribution of cost of a gross public product and part of national wealth in connection with forming of cash incomes and accumulating at subjects of managing and the state, and also their use on expanded reproduction, material stimulation working, satisfaction of social and other requirements of society. Condition of functioning of finance is availability of money, and as the reason of emergence of finance the need of subjects of managing and the state serves in the resources providing their activities. Finance is necessary because allows to adapt production proportions for needs of consumption, providing in the managing sphere satisfaction of constantly changing reproduction requirements. It happens to the help of forming of cash funds 14

Chapter I. Finance as cost category

of purpose. Development of public requirements leads to change of structure and structure of the cash (financial) funds created at the disposal of subjects of managing. By means of public finances there is a regulation of scales of a social production in industry and territorial aspects, satisfaction of other public requirements. Finance is objectively necessary as are caused by requirements of social development. The state can, considering objective need of the financial relations, to develop various forms of their use: to enter or cancel different types of payments, to change forms of use of financial resources, etc. Without finance it is impossible to provide an individual and public circulation of business assets on an expanded basis, to regulate industry and territorial economy structures, to stimulate the fastest implementation of scientific and technical achievements, to meet the need other public requirements. 1.3. Functions of finance and debatable questions essence and functions of finance The essence of finance as special sphere of the distribution relations is shown first of all by means of distribution function. Through this function public purpose of finance – providing each subject of managing necessary for it is implemented by the financial resources used in the form of cash funds of a special designated purpose. As objects of action of distribution function of finance act cost of a gross public product (in its cash form), and also a part of national wealth (accepted a cash form). As subjects in case of a financial method of distribution legal entities and individuals (the state, the entities, associations, the organizations, organizations, citizens), being participants of reproduction process at the disposal of whom funds of a designated purpose are created act. 15

V.D. Li, A.V. Hamzaeva General course of finance

By means of finance distribution process proceeds in all spheres of public life – in production of goods, in address and consumption spheres. Financial methods of distribution cover different levels of management of economy: national, territorial, local. The multigradualness generating different types of distribution – intraeconomic, intra-branch, cross-industry, interterritorial is inherent in financial distribution. The finance connected with movement of cost of a public product, expressed in a cash form, possesses property quantitatively (through financial resources and funds) to display reproduction process as a whole and its various phases. Movement of financial resources, the events both in share, and in not share forms, can be quanti-tatively displayed that constitutes a basis of control function of finance. As finance «penetrates» all social production, all its spheres and the divisions, all levels of managing, they act as a dual-purpose gun of control from society behind production, distribution and the address of a total public product. Thanks to control function of finance, society receives information on how there are proportions in distribution of money, how timely financial resources arrive in the order of different subjects of managing, whether is economical and effective they them are used etc. Distribution and control functions are the two parties of the same economic process. Only in their unity and close interaction finance can prove as category of cost distribution. As the instrument of implementation of control function of finance financial information acts. It is concluded in the financial performance which is available in accounting, statistical and operational records. Financial performance allows to see the various parties of work of accounting entities and to estimate results of business activities. On their basis the measures directed on elimination of the revealed negative moments are taken. The control function which is objectively inherent in finance can be implemented with bigger or smaller completeness which is in many respects determined by a condition of financial 16

Chapter I. Finance as cost category

discipline in a national economy. The financial discipline is obligatory for all entities, the organizations, organizations and officials an order of maintaining a financial economy, observance of the established regulations and rules, accomplishment of financial liabilities. In a financial science there is a number of debatable questions and, first of all a question of the economic nature and borders of the financial relations. Before it was already stated that finance arises at the second stage of reproduction process – in case of distribution and redistribution of cost of a public product; other theoretical concept considers finance as category of reproduction as a whole, including in structure of finance also cash relations at an exchange stage. However distribution and an exchange is the different stages of reproduction having the, special economic forms of expression. Therefore it is more lawful to consider that different types of the cash relations are expressed in various economic forms: the relations connected with distribution of a cash form of cost of a public product, constitute content of category of finance, and the relations arising in the course of the goods circulation on the basis of systematically made acts of purchase and sale, take the form of the calculations performed by means of money as a universal equivalent and the price as terms of money of cost. Nevertheless, the financial relations, being distribution on nature, at the same time are the integral component of all system of relations of production, are integrally interconnected with all stages of reproduction process and can affect them. The majority of the economists sharing distribution treatment of essence of finance, restriction of finance by only the redistribution relations as exactly thanks to finance process of initial distribution of cost on separate components are performed object, each of which is given a certain designated assignment. The question of the high-quality signs determining specifics of finance as economic category belongs to number of the 17

V.D. Li, A.V. Hamzaeva General course of finance

debatable. Disputes go generally about that, to include or not to include in determination of finance their sign as imperativeness. And the term «imperativeness» is treated by scientists differently: one sees in it an active role of the state on the organization of the financial relations, others the reason generating functioning of finance. If imperativeness is understood as the practical activities of the state directed on the organization of the financial relations, development of forms of their manifestation and use, such use of the term doesn’t cause objections, but adds nothing to the characteristic of essence of finance. However in some publications imperativeness is treated as intrinsic line of the financial relations. It is emphasized that in case of the characteristic of category of finance without this line not to manage, as the state creates the new distribution financial relations that an immediate cause of origin and development of finance are activities of the state and its bodies. Similar statements are wrongful, for not activities of the state, and objective requirements of social development cause existence of finance. The question of functions of finance belongs to number of the debatable also. Many economists consider that finance carries out two functions – distribution and control. Though it is possible to find statements in literature that to finance, in addition to these two functions, others are inherent also: production (different authors call it differently), stimulating, regulating etc. But thus there is a substitution of a question of functions of finance by a question of their role in public reproduction as it is different, though the interconnected questions. Certainly, finance plays important role in public reproduction, with their help effective use of production factors can be stimulated, be regulated cost proportions, be provided conditions for carrying out saving mode etc. However to identify these results reached thanks to functioning of finance, with their functions wrongfully. Some authors don’t recognize distribution function of finance, 18

Chapter I. Finance as cost category

considering that it doesn’t express their specifics as processes of cost distribution are served by different economic categories. But supporters of distribution function at all don’t consider that it is generated by the fact of functioning of finance at the second stage of reproduction process, and on the contrary, they connect it with specific public purpose of finance, emphasizing that any other category operating at a stage of cost distribution, isn’t so «distribution» as finance. Certain economists consider that three functions are inherent in finance: forming of cash funds (income), use of cash funds (income) and control. However the first two though really exist, but they remind the mechanism of implementation of distribution function, than an independent method of action of category of finance more. Availability of debatable questions causes need of further development of theoretical problems of essence and functions of finance. More profound knowledge of the economic nature of finance and properties inherent in them will allow developing more actively than a way of the best use of this category in practice of managing, scientifically to prove the measures directed on financial improvement of economy and enhancement of system of financial interrelations. 1.4. Interrelation of finance with other economic categories Important issue of the theory of finance is their interrelation with such economic categories as the price, a salary, the credit, and also – in what sequence these categories enter distribution process. 1. The price of the first enters distribution process and determines primary proportions in it. Price fluctuations round cost create field of activity for finance. In the price all structural parts of cost which are distributed further are concluded and receive the economic forms in the form of financial resources and funds. In the conditions of tough 19

V.D. Li, A.V. Hamzaeva General course of finance

centralization of economic processes these cost portions – the depreciation charges, a salary, material and other costs, profit (income) – were regulated, and in market conditions – are determined by demand and supply factors. The price prepares conditions for functioning of finance. Or means accumulate at an accounting entity, but then the amounts of taxes increase, or the public product increases that leads to release of resources which move to industries with the highest profit margin (income). Finance concretizes those proportions which are pledged by the price. Financial distribution differs from price that as object of price distribution the part of cost of a gross public product (that where the price deviates cost) acts only. Finance distributes all cost of a gross public product. In relation to price distribution, financial distribution is secondary. Price distribution to surfaces is imperceptible, it is hidden in revenue lump, and financial distribution is accurately looked through. Price distribution is characterized only by distribution, and financial – distribution and redistribution. 2. Salary. After the price, in financial distribution, the salary starts functioning. Finance creates conditions for isolation of a salary fund and other funds of compensation. These categories create preconditions for reproduction of labor power, in interaction stimulate reproduction process. Distinctions of action of a salary and finance: 1) Borders of financial distribution are much wider; the salary concerns only compensation of costs of work; 2) Finance participates in one-way traffic of cost, and a salary in its approaching traffic. By means of a salary v and partially m is completely distributed. By means of finance the set of funds, and by means of a salary – a salary fund and bonus fund is created. They constitute compensation fund. Salary – a basis for tax payment. Source of a salary are financial resources, and the salary fund in case of its economy itself becomes a source of financial resources. 3. Credit. Resources of banks are created at a redistribution stage 20

Chapter I. Finance as cost category

that is the credit finishes distribution process. Credit resources are created as a result there is a discrepancy available own means and their requirements. The credit supplements financial resources and promotes process of expanded reproduction. Feature of the credit that credit resources are issued for a certain term, under certain conditions and on condition of recoverability, and financial – are issued on particular purposes and it is, as a rule, free, irretrievable. By means of the credit there is a redistribution of financial resources between accounting entities and the population (house farms). There is a fixed transfusion of credit resources in financial resources and vice versa. All funds of accounting entities concentrate on accounts in banks and are sources of loan funds of banks for issue of the credits. Between the credit and finance there are a lot of common features, but the main is wide use of both categories in a circulation of business assets (equity) in reproduction process. 1.5. Use of finance in market conditions Finance, being the tool of the second stage of public reproduction, can influence all stages of reproduction and process as a whole. Objective preconditions of influence are connected with two circumstances: 1. Finance functions in all spheres of a social production (production, distribution, the address, consumption). 2. Finance possesses potential property to be the catalyst of economic processes (that follows from distribution function). Distribution begins in the sphere of production of goods. This sphere includes stages where the production stage is determining: a) The sphere of production of goods has impact on nature and production scales. b) The sphere of the address is provided by trade. In it purchase and sale processes are characteristic. Consumer properties of 21

V.D. Li, A.V. Hamzaeva General course of finance

goods don’t change and its cost changes. The goods are on sale and the producer receives revenue (D’). Then there is a distribution of this revenue to funds of compensation, accumulating, consumption. The financial relations precede and finish sale and purchase process. c) The consumption sphere where allocate: commercial organizations; state-financed organizations. Now the organizations of the mixed type work also. Along with preconditions there are possibilities of use of finance. They follow from the economic nature of finance. As it is distribution category, society uses it for the purposes. Conscious use of finance and its separate elements in interests of society turns finance from objective economic category in economic the instrument of managing. The economic tool is a specific form of manifestation of economic category (subcategory) and consciously used by society for achievement of specific purposes. The economic tool including finance, bears two beginnings: the first – objective (following from economic category), the second – subjective (the tool of implementation of economic policy of the state). Finance influences doubly reproduction process: a) Quantitatively that is characterized by proportions of distribution process; b) It is high-quality that is characterized by impact of finance on material interests of subjects of managing. It is reached through various forms of the organization of the financial relations. The high-quality party influences a public product and is connected with transformation of finance into incentive of development of economy. Such transformation is possible when an order of forming of the income, conditions and the principles of forming of funds, the directions of their use, it is possible to coordinate to economic interests of subjects of managing closely. Economic incentive – the tool which is coordinated to material 22

Chapter I. Finance as cost category

interests of subjects of managing. Conscious use of finance in a social production leads to results in which the active role of finance in a social production in market conditions is shown. General approach to an assessment of the results reached by means of finance, allows considering a role of finance in 3 directions: 1) From a line item of ensuring requirements of expanded reproduction by necessary financial sources; 2) From the point of view of use of finance for regulation of cost structure; 3) With a line item of use of finance, as economic incentive. Questions: 1. What are the preconditions of emergence of finance as monetary category? 2. What is the essence of finance as historical category? 3. Call the historical preconditions of emergence of the term «finance». 4. What is the finance? 5. Call the signs of finance. 6. What is the economic essence of emergence of finance? 7. At what stage of reproduction process does the finance appear? Prove. 8. What is the economic essence of finance? 9. What is the necessity of finance? 10. Characterize the public purpose of finance through its functions. 11. What is the essence of distribution function of finance? 12. What is the role of control function of finance? 13. What is the instrument of implementation of control function of finance? 14. What is the reproduction concept of function of finance? 15. What is the financial discipline? 16. How is the interrelation of finance and the price shown? 17. How is the interrelation of finance and a salary shown? 18. How is the interrelation of finance and other economic categories shown? 19. Expand the value of finance as catalyst of economic processes. 20. How does the finance influence on the reproduction process?

23

V.D. Li, A.V. Hamzaeva General course of finance

CHAPTER II FINANCIAL SYSTEM 2.1. Structure of a financial system

T

he financial system in a broad sense is a system of forms and methods of education, distribution and usage of funds of the state, the enterprises and house farms; in narrow sense – set of establishments of a financial system which exists at the state, economic levels, etc. The first sphere where finance are necessary-state. The system, by means of which the state raises and spends funds, is called public finance (Public Finance), etc. Except the state there are different managing subjects, therefore, the second sphere is called finance of managing subjects. It is the tool by means of which the enterprises raises and distributes funds (Corporate Finance). The third sphere – finance of house farms (the country population). Links of the first sphere: 1. State budget. 2. Off-budget funds – funds which are concentrated at the nongovernmental and state organizations. There are some funds in Kazakhstan: – Non-state Pension Funds (NSPF); – State social insurance fund; – RK national fund. 3. The state credit is a part of financial system because as 24

Chapter II. Financial system

it has the similar attributes as finance and the credit have, also the indispensable participant of the relations is the state represented by its authorized bodies acts. 4. Finance of the state enterprises represents set of all money being at the disposal of the enterprise, system of their education, distribution and use. As imparted, these are strategically important objects, the military enterprises and the branches defining scientific and technical progress. In all countries there are mail, telegraph, phone, considerable part of the railroads are all under state`s control. Links of the second sphere (finance of managing subjects): 1. Finance of the businesses, functioning on the commercial beginnings; 2. Finance of establishments and the organizations which carry out noncommercial activity; 3. Finance of public associations (labor unions, political parties, public funds). Often, insurance is considered as a part of financial system, though many scientists consider it as independent category, but closely connected with finance. Insurance – set of the special closed redistributive relations between its participants concerning formation at the expense of monetary contributions of the trust insurance fund intended for compensation of possible damage, caused to subjects of managing, or losses in the family`s income in connection with consequences of the occurred insured events. Insurance – the specific sphere which has the links: social insurance (all methods), personal insurance, property insurance, responsibility insurance, insurance of enterprise risks, etc. 2.2. Public finance Public finance – the monetary relations concerning distribution and redistribution of cost of a public product and the 25

V.D. Li, A.V. Hamzaeva General course of finance

part of national wealth, connected with formation of financial resources in the order of the state, its managing subjects and use of public funds for expenses on expansion of production, satisfaction of welfare requirements of society, needs of defense and management. Public finance consists of: 1. State budget – the economic category presented by the monetary relations, arising between the state and legal entities and individuals concerning redistribution of the national income in connection with education and use of the budgetary fund that is intended on financing of economy, welfare needs, needs of defense and public administration. 2. State off-budget funds – a specific form of redistribution and use of the financial resources which are attracted for financing of some public requirements and systematically used on the basis of organizational independence of funds. Formation sources: a) Special target taxes, loans; b) Subsidies from the budget; c) Additional income and the saved financial resources; d) Voluntary contributions and donations. Off-budget funds guarantee target use of resources in full their receipts and timely financing of the major social actions; they carry out a role of a financial reserve to which the government resorts in case of financial difficulties. 3. State credit – the monetary relations, arising between the state and legal entities, individuals, including foreign, in connection with mobilization of temporarily free money, in order of public authorities, and their use on financing of the public expenditures. 4. Finance of state enterprises is a link of a financial system, by means of which the state participates in initial distribution of the national income, accumulating part of the income, created at these enterprises. The main feature of state enterprises is their usual low profitability, though production efficiency in particular companies don’t concede to the private companies. 26

Chapter II. Financial system

State enterprises, which are able to work profitably, not only to compensate the costs of production, but also to get profit, have the independent, autonomous budget; in the central state or local budgets only financial results of their activity are fixed. Those enterprises, activity of which can’t be defined from the point of view of efficiency (as they make socially significant production), are financed from the state budget, i.e. are on the budgetary financing. State budget joins their income and expenses. As a rule, the state railroads, mail, telegraph, phone belong to the first group of companies. The second group is consists of the state publishing houses, the enterprises of the nuclear industry, oil, and the military enterprises. 2.3. Finance of accounting entities (FAE) Finance of businesses express the monetary relations of creation, distribution and use of money at primary links of economy, their higher managing directors of bodies. These sources are intended for: – Accomplishment of liabilities to the financial and bank sphere; – Financings of costs on expanded reproduction; – To social servicing, material stimulation of the working. The cash relations constituting a basis of FAE can be classified on the following types: 1. in industries of production of goods: A) Connected with forming of the primary income, education and use in economic divisions of production of goods of trust funds of intraeconomic appointment – an authorized fund, fund of development of production, incentive funds and so forth. Some of them are used to satisfy production`s requirements, and others – consumers`; B) Arising between accounting entities if they have distribution nature, instead of serving an exchange; movement of financial resources here is performed in not share form (payment and receipt 27

V.D. Li, A.V. Hamzaeva General course of finance

of penalties, introduction of shares, investment of means in the share and the bond of other entities, etc.); C) stacking up between businesses and insurance companies in connection with forming and using of various insurance funds; D) being formed between an accounting entity and bank in connection with receipt of loans, their settlement, interest payment on them, provision to banks of temporarily free money for a certain payment; E) At businesses with the state concerning education and use of centralized funds (payments in the budget, budget financing, payments in off-budget funds, etc.); F) Between an accounting entity and higher management structures («vertical» interrelation in borders of intra-branch redistribution of financial resources. 2. in industries of non-material production: A) relations between industry or the organization (organization) and the budget. On their basis, at the expense of budgetary funds industry cash funds of health care, culture, education are being formed; B) Between the industry organizations of the management, the subordinated organizations and in the organization. They are accompanied by use of industry cash funds of purpose (a salary, overhaul, etc.) at the disposal of subjects of managing. In organizations and the organizations the financial relations arise concerning forming and use of salary funds and economic stimulation; in connection with purpose funds redistribution; C) between subjects of managing of different industries, including the cash relations connected with forming and use of off-budget funds of social insurance, pension and others; D) Cash relations of subjects of managing with consumers of services and sponsors. On their basis financial sources of organizations and the organizations of the non-productive sphere are created. FAE, as the sphere of a financial system, forms the base of 28

Chapter II. Financial system

economy of society, as here are created the material and non-material benefits. Within the sphere of FAE, here are concentrated prevailing part of material, labor and financial resources, while providing the process of expanded reproduction in society. The structure of FAE includes: I. All entities of production of goods and part of the non-productive sphere, performing the activities on the basis of commercial calculation in the conditions of market economy. Commercial calculation – the housekeeping method, aim of which is receipt of the maximum profit in case of the minimum costs. It assumes obligatory income acquisition (profits) and sufficient for continuation of managing level of profitability. Specifics of commercial calculation: – Subjects of managing possess financial independence; – The financial relations are free from a petty regulation from the state; – Subjects of the financial relations bear the real economic responsibility for the actual results of work and timely accomplishment of liabilities; – In the conditions of commercial calculation, the accounting entity has different relations with banks, insurance companies and the state. II. Finance of non-commercial organizations. Non-commercial activities don’t pursue the aim of receipt of a certain income. But part of the income is used on development of the organization. – Budgetary funds; – State off-budget funds; – Resources of the population; – Monetary assignments of various commercial structures, receipt of funds for works and the services executed according to agreements; – Proceeds from sales of products, including means from sale of tickets for mass actions; – Revenue from property clearance in lease; 29

V.D. Li, A.V. Hamzaeva General course of finance

– Income from training (retraining, advanced training, etc.). III. Finance of public organizations includes: a) Finance public, including trade-union organizations; b) Finance of political and social movements; c) Finance of special trust funds; d) Finance of charity foundations. IV. Finance of public organizations includes: a) Finance public, including trade-union organizations; b) Finance of political and social movements; c) Finance of special trust funds; d) Finance of charity foundations. Public consolidation – the voluntary formation which has settled as a result of free declaration of will of citizens, their interests united on the basis of a community. Economic content of finance of public organizations includes the following types and groups of the monetary relations: – The monetary relations between public organizations and their members, connected with different payment of fees, rendering financial support and Body; – The monetary relations of public organizations with the entities and the organizations, connected with donations which can be listed in funds of public organizations; – The monetary relations of public organizations on forming and use of trust cash funds; – The monetary relations between higher about subordinate structures of public organizations; – The monetary relations between public organizations and production and economic structures subordinated to them. Financial and economic activities of public organizations combine two methods of use of financial resources: – Self-sufficiency; – estimate financing.

30

Chapter II. Financial system Questions: 1. What is the financial system in broad and narrow sense? 2. List spheres and links of a financial system? 3. What is the public finance? 4. What is the government budget? 5. What is the role of off-budget funds in system of public finance? 6. What are the sources of forming of off-budget funds? 7. Which of the financial categories include «Public finances»? 8. What is role of insurance in a financial system? 9. What is finance of the state entities? 10. What is role of finance of the state entities in a financial system? 11. Why finance of businesses is a basis of the whole financial system of the country? 12. What are the features of the monetary relations which are a basis of FAE in industries of material production? 13. What are the bases of the monetary relations for FAE in industries of nonmaterial production? 14. What is commercial calculation as a method of housekeeping of FAE? 15. What are finance of non-business enterprises and finance of organizations? 16. What is a source of resources of FAE functioning on the non-commercial beginnings? 17. List sources of finance of public organizations. 18. List methods of managing of financial and economic activities of public organizations.

31

V.D. Li, A.V. Hamzaeva General course of finance

CHAPTER III BASES OF USE OF FINANCE IN PUBLIC REPRODUCTION 3.1. Financial resources

F

inance influence public reproduction in the following directions: – Financial provision of reproduction process; – Financial regulation of economic and social processes; – Financial stimulation of economy. Costs of reproduction are an authorized capital in which the main and current funds are allocated. For a covering of costs such money resources as financial resources are needed. Financial resources – the income and arrival of subjects of managing and the state on behalf of its organs which are used on the purpose of expanded reproduction and satisfaction of other requirements. Financial resources help to separate category of finance, category of the price and other cost categories. Financial resources are material embodiment of the financial relations. Financial resources in a monetary form are different from other resources. They are rather isolated in the functions; therefore there is a need for ensuring coordination of financial resources with other resources. All three elements of cost of a public product are Sources of financial resources, but rate of participation of each of them is various. 32

Chapter III. Bases of use of finance in public reproduction

Sources of financial resources divide on: 1) Operating at macro level (state level); 2) Operating at micro level (level of the subject of managing). The most important source of financial resources – cost of a gross public product of the country which consists of with c+ v + m (the equity + a salary + an additional product). For production expansion – for increasing of an element c it is important to involve additional resources. Element v, being a form of personal incomes of workers, as a rule, a salary, represents itself as a source of financial resources in 3 directions: – Taxes (paid from compensation); – Insurance payments; – Other payments (as voluntary contributions, fees in special funds etc.) The element m – a surplus value, profit (income) is the main source of financial resources. Sources of financial resources at macro level: 1. Gross domestic product (the first group of financial sources). 2. Income of foreign economic activity 3. National wealth. 4. The involved (extra) resources. Sources of financial resources at micro level: 1. Sources of own financial resources: the income of sales of products gives the chance to create entity resources: – Foreign economic activity of the subject; – Entity property (buildings, the equipment and other assets which it is possible to sell). 2. Means of the economic subject which are equated to own (means are at its disposal): – Salary in the form of steady liabilities; – Additional salary – money for payment of issues to workers (are charged, but are at the disposal of the economic subject). 3. The obtained funds (it means which will be mobilized by 33

V.D. Li, A.V. Hamzaeva General course of finance

the entity in the financial market – the security market, lending capitals, etc.): – Sale of shares and bonds; – Borrowed funds. 4. Sources which receive the entities as funds redistribution: – From higher instances (the ministries, from the budget); – Insurance indemnities (insurance – a funds redistribution method). Main types of financial resources at macro level: I. Credits of IMF and other international organizations, domestic credits of National bank. 2. Taxes. 3. Other payments in the budget. 4. Contributions to off-budget funds. 5. Other. Main types of financial resources at micro level: I. Profit (a net income of an accounting entity). 2. Depreciation charges. 3. Credit investments. 4. Insurance indemnities. 5. Proceeds from sales of the disposed property. 6. Steady liabilities. 7. Mobilization of internal resources in construction. 8. Share and other fees of members of partnerships and cooperatives. 9. Income of sale of own securities. 10. Financial resources on transfer from higher structures. 12. Budget subsidies. 13. Other. Financial resources are: I. Centralized (act in the form of budget and off-budget funds and provide requirements of reproduction at macro level). There are following budget methods of financing of a national economy: 1. State capital investments (this method is used for revival of economy, creation of new industries of productions). 34

Chapter III. Bases of use of finance in public reproduction

2. Public procurements (with their help the aggregate demand is established, the state promotes timely sales of goods). 3. Subsidies (resources which are given gratuitously). They are: – Grants (a type of the subsidies used on a covering of losses, debts, for example, on a salary); – Subventions (a type of the subsidies used on target expenses); – Export bounty (the type of subsidies used for reduction of price of the exported goods). 4. Investments into joint businesses. 5. Preferential crediting from the state. II. Decentralized (are created at subjects of managing and used on expansion of production and satisfaction of welfare needs of employees of the entity). Following purposes: a) Capital investments; b) Increase in current assets; c) Financing of scientific and technical progress; d) Carrying out nature protection actions; e) Ensuring requirements of social nature (housing stock, sphere of preschool institutions, improving camp, recreation center); f) Other similar purposes. There are five cases of release of financial resources: 1) Acceleration of turnover of current assets; 2) Production reduction; 3) Reducing inventories of commodity-material values; 4) Reducing materials consumption; 5) Replacement of own means with the extra. The profit (net income of an accounting entity) is considered as a source of financial resources in full. Here are following directions of expenses of financial resources: 1) Capital investments; 2) Surplus of current assets; 3) Other material costs; 4) Allowances; 5) Welfare requirements; 35

V.D. Li, A.V. Hamzaeva General course of finance

6) Money payments to the population; 7) Help to other countries. Allowances – part of financial resources which are intended for financing of requirements arising suddenly, directed both on idle time, and on expanded reproduction and consumption. Insurance reserves – part of financial resources directed on compensation of damage on insured events. Insurance financial provisions – financial provisions of insurance companies. These allowances are necessary, when there is the deficit of continuous resources on payments of insurance indemnities to clients. 3.2. Financial market The financial market is a mechanism of redistribution of the capital between his participants by means of various tools on the basis of the demand and supply on the capital. In practice, the financial market represents set of the credit and financial institutes that are directing a cash flow from one participant to another. The main task of the financial market is transformation of staying idle money in the equity. The financial market consists of the money market and the market of the capital. It is caused by different nature of the financial resources, serving the fixed and working capital. In the money market the resources that provide movement of short-term accumulating address. In the market of the capital there is a movement of long-term investments. The money market is considered as the market of short-term credit operations (till one year). In turn, the money market is subdivided usually into the accounting, interbank and currency markets. The accounting market is the market in which the main tools are state and commercial bills of exchange, other types of short-term obligations (securities). Thus, in the accounting market there is the huge mass of the short-term securities, 36

Chapter III. Bases of use of finance in public reproduction

the main characteristic of which – high liquidity and mobility addresses. The interbank market – a part of the market of lending capitals, where temporarily free money resources of credit institutes are involved and allocated by banks among themselves, mainly in the form of interbank deposits for short terms. The most common deposit terms – one, three and six months, and deadlines – from one to two years (sometimes till five years). Resources of the interbank market are used by banks not only for short-term, but also for average and long-term active transactions, regulation of balances, and fulfillment of requirements of the state regulating boards. The exchange markets serve the international payment turnover connected with payment of monetary commitments of legal entities and individuals of the different countries. Specifics of international settlements consist in lack of the commonly accepted means of payment for all countries. Therefore, necessary condition of calculations on foreign trade, services, investments, interstate payments is the exchange of one currency for another in the form of purchase or sale of foreign currency by the payer or the receiver. The exchange markets - the official centers of purchase and sale of currencies based on demand and supply. The market of the capital – a part of the financial market with circulation of “long” money, that is money with term of circulation over a year. In the market of the capital, there is a redistribution of the disposable capitals and its investment in various earning financial assets. Forms of the circulation of money in the market of the capitals can be various: – Bank loans (loans); – Shares; – Bonds; – Financial derivatives; – Notes and commercial papers. The market of the capitals is the most important source of 37

V.D. Li, A.V. Hamzaeva General course of finance

long-term investment resources for the governments, corporations and banks. If the money market provides highly liquid resources generally for satisfaction of short-term requirements, the market of the equities provides long-term needs for financial resources. The market of the equities is subdivided into the security market and the market average and long-term bank loans. The market of the equities is the most important source of longterm investment resources for the governments, corporations and banks. If the money market provides highly liquid means generally for satisfaction of short-term requirements, the market of the equities provides long-term needs of financial resources. The infrastructure of the financial market is a set of the forms of business mediating movement of objects of the financial market, set of institutes, systems, and services, the entities serving the financial market and providing its normal functioning. During the consideration of infrastructure there is an interaction of elements dominates, and also its role in accomplishment of a certain function. Basic elements of infrastructure of the financial market: – Exchanges: share, currency, – Auctions, as form of an organizational not exchange, – Credit system and commercial banks, – Emission system and issuing banks, – System of business risk insurance and insurance companies, – Advertising agencies and mass media, – Customs system, – System of the higher and secondary education, – Advisory (consulting) companies, – auditing firms, – The labor unions working on hiring, – Information technologies, – Regulatory framework. The environment of the financial market is a set developing in the market during each this moment of time of economic 38

Chapter III. Bases of use of finance in public reproduction

conditions in case of which implementation process of the goods and services is performed. The environment of the financial market is determined by a demand and supply ratio, percent level, market capacity, solvency of consumers, availability of savings etc. The market situation develops within the competition – rivalries between participants for advantageous conditions of receipt of the credit, monopolization of a segment of the market. Basic purpose of the financial market – attraction of savings for economy investment. In case of steadily working economy the identity is carried out: savings are equal to investments. The financial market expands an individual choice of each subject. Participants of the financial market: Savers – the legal entities and physical persons accumulating money because expenses of less accumulated funds, concentrated in the form of cash or on accounts in banks (the population, economic organizations and the state). Investors – subjects of managing, the state bodies directing money on a covering of urgent and long requirements. Issuers – legal entities who issue securities. By means of the financial market money savings of savers are involved for investment of costs for production development, implementation of the state and regional target programs and other needs. The objective precondition of functioning of the financial market is discrepancy of requirements for financial resources at subjects of managing with availability of sources of financial resources. Functional purpose of the financial market – accumulation and funds redistribution implementation for the purpose of providing with necessary financial resources of subjects of managing and state bodies. Forming and functioning of the financial market is caused by the following economic, legal and organizational factors. Economic factors – availability in economy of the real owners possessing real independence which are capable to conclude 39

V.D. Li, A.V. Hamzaeva General course of finance

transactions, creating demand for money, and also to invest them (it is real demand for money). Legal factors – the relevant legal documents regulating activities of market structures. Organizational bases – are realized through forms of the organization of market transactions (stock exchanges and interbank associations). At stock exchanges and interbank associations along with savers, issuers and investors intermediaries function: brokers and dealers. Brokers perform net intermediary transactions. Dealers carry out intermediary transactions and independently take part in purchase and sale of securities. Functions of the financial market: – Mobilization of temporarily free money; – Financing of reproduction process; – Distribution function – promotes an equity modulation between industries, the companies; – Increase of efficiency of economy as a whole. The financial market promotes economy development, implementation of material and financial equation on total amount and on structure of a social production. With its help accounting entities and industries which provide to investors the maximum profit on the invested capital develop. It promotes real implementation of scientific and technical progress. The financial market allows covering the deficit in a civilized way of the government budget for what the state issues securities and sells them. Thus, the main instrument of attraction and investment of money in the financial market are securities. Securities – the certificate that the buyer (investor) participates in creation of the equity of the subject who has issued securities (issuer). From the economic point of view they can be characterized doubly: – Security – the certificate of participation of legal entity and physical person or in the equity of joint-stock company, or in loan provision in the form of a loan; 40

Chapter III. Bases of use of finance in public reproduction

– Security – long-term obligation of issuers to pay to investors of securities dividends from the income. From the legal point of view securities are the cash documents shown by investors for implementation of property rights, expressed in these securities. Requirements to securities: a) Shall have nominal price; b) term of its address (except for shares) shall be established; с) the fiscal mode of a condition of costs shall be established. These provisions are specified in the securities act where supervision of issue of securities is also stipulated from the state. The market rate of securities depends on the demand and supply on these papers, also regulations of a loan interest, the amount of payments, address term etc. Types of securities: a) Debt, for example, bonds; b) equity, shares с) derivatives. The bond – the emission security fixing the right of her holder on obtaining from bond issuing institution in term provided by it of her nominal value and percent fixed in it from this cost or other property equivalent. Unlike common shareholders bondholders have no property rights or an equity interest of firm or the institute which has issued the bond. It is caused by that bonds are credit liabilities, bondholdersonly lend the money to the issuer; in case of such nature of the relationsthey don’t receive a share in a property or any other rights and privileges which can accompany participation in a property. The share – the emission security fixing the rights of her owner (shareholder) on receipt of a part of profit of joint stock Company in the form of dividends, on participation in management of Joint Stock Company and on a part of the property remaining after its liquidation. The share grants to the owner the following rights: – Right to manage society; – Right of acceptance of management decision; 41

V.D. Li, A.V. Hamzaeva General course of finance

The right of participation in profit distribution (the share yield depends on profit (total absence of the income) isn’t excluded). Shares happen: – Simple (yield revenue which depends on success of activities of the entity); – Exclusive (give, as well as the bond, the fixed income. The amount of issues of preferred shares, according to the Kazakhstan legislation shan’t exceed 25 % from the size of equity of Joint Stock Company). However in case of bankruptcy of the organization the rights of creditors the organizations (bondholders), workers, etc., and then shareholders first of all are satisfied. Derivative securities are provided by terminal contracts. The terminal contract – the agreement on a future delivery of the subject of the contract. At the heart of the contract various assets can lie: securities, stock indexes, bank deposits, currency, actually goods. The asset underlying the terminal contract calls a basic or underlying asset. The forward market carries out 2 main functions: 1. Allows approving plans of entrepreneurs for the future 2. To insure price risks in the conditions of economic uncertainty. The financial market may join not only the entities, but also the state. The state has the right to issue only debt securities. The securities issued by the state: – Treasurer bills of exchange; – Bonds; – Notes. Government securities (GS) – the debt securities issued by the state. Government securities are one of the most attractive sectors of the financial market as investments of means in them have high level of reliability and they possess high liquidity. The income on government securities is guaranteed by the state and isn’t taxed. 42

Chapter III. Bases of use of finance in public reproduction

Release purposes to government securities: 1. Financing of deficit of the republican budget 2. Financing of target state programs 3. Support of a bank system 4. Regulation of economic activity 5. Ensuring cash performance of the republican budget 6. Provision for participants of the financial market of a reference rate of percent on the security market 7. Work experience accumulating with securities, market development of securities. Classification of government securities by the issuer: – Government RK (Ministry of Finance); – RK national Bank; – Local executive body. On address terms – Short-term - till 1 year; – Medium-term - from 1 year to 10 years; – Long-term - over 10 years. Government securities can be purchased in primary or secondary markets. – The primary security market – the market where perform primary placement of securities; – The secondary security markets – the address before issued securities. As financial intermediaries in the primary security markets banks and Investment Company’s act. The secondary market arises, when the primary owner resells bonds and shares at stock exchanges. Stock exchange – a place where there is a sale and purchase of securities though it can be performed and initial distribution. Functions of stock exchange are: a) Implementation of transactions with securities; b) Provision to issuers of securities of additional financial resources; c) Possibility provision to savers to use cumulative money with the maximum effect; 43

V.D. Li, A.V. Hamzaeva General course of finance

d) Implementation of redistribution of financial resources allowing changing structure and proportions of a social production. In the secondary market securities are on sale at course cost. Nominal value – the cost specified on a security. The entity also can have temporarily available funds which can be placed in the financial market. This free money can be used as follows: 1) Are placed on deposits in banks; 2) Are invested in shares of other entity; 3) It is possible to purchase government securities; 4) It is possible to purchase currency and to play on the currency rates. Institutes of the financial market: – Stock exchange; – Currency exchange; – Bank system; – Commodity exchanges. The place and value of the financial market in economy is expressed in accumulation of money and transmission and usage with the greatest benefit. The financial market provides participation of savers in profits, creating conditions of a material interest of investors in effective work. Questions: 1. What are the financial resources? 2. What are sources of financial resources? 3. What levels of sources of financial resources exist? List its sources. 4. What is the most important source of financial resources? 5. What does element C mean? 6. What are the s resources of an element v? 7. List sources of element m. 8. List main types of financial resources at macro level. 9. List main types of financial resources at micro level. 10. What do the centralized financial resources include? 11. What do the decentralized financial resources include? 12. What do financial provisions mean? 13. Give an explanation of “financial market”.

44

Chapter III. Bases of use of finance in public reproduction 14. What are the money market and the capital market? 15. What types of the markets the money market is subdivided? 16. What is the market of the capitals? 17. List forms of the circulation of money in the market of the equities. 18. List main elements of infrastructure of the financial market. 19. List participants of the financial market? 20. What functions are inherent in the financial market? 21. What is the security? 22. List types of securities and characterize them. 23. What are the purposes of the state in issuing government securities? 24. What is the stock exchange? 25. What is the Functional allocation of stock exchange?

45

V.D. Li, A.V. Hamzaeva General course of finance

CHAPTER IV THE FINANCIAL POLICY THE FINANCIAL MECHANISM 4.1. The financial policy Financial policy – oriented activities of the state on the use of finances for the decision of problems of socio-economic development of the company. This is a superliner concept. In the process of preparation of the financial policy are provided with the material conditions for the implementation of set tasks before the country. That is why financial policy is an active instrument of influence on the economy and the social sphere. Therefore, financial policy, as an integral part of economic policy, solves the tasks of the survey, the concentration and accumulation of financial resources and their distribution by areas of development that are produced by the economic policy. Financial policy includes financial strategy and financial tactics. Financial strategy, long-term financial policy, designed for the long term, and assumes the solution of large-scale tasks, which are determined by the economic and social strategy. In the process of development of the financial strategy are forecasted to be the main directions of development Finance, outlining principles for the use and organization of Finance, the question on necessity of concentration of financial resources on the areas of economic development, which has been developed and adopted economic policy. Financial tactics – the solution of the tasks at a certain stage 46

Chapter IV. The financial policy. The financial mechanism

of development of the country and security of this development by making timely changes to the way the organization of financial relations, aimed at solving problems of financial policy. Financial tactic is more flexible, as it is determined by the mobility of the economic conditions and social factors. Financial strategy and financial tactics are interrelated. The strategy creates the conditions for the solution of tactical tasks, and also identifies critical areas of development, and results in line with the methods and forms of organization of financial relations and relationships. Financial tactic allows in the shortest possible time and with minimal costs to solve the tasks of financial strategy. Financial policy is generated by the economic relations, as the company is not freely in the formulation of financial policies; it comes out of their capacities, the conditions of objective reality. The financial relations have its own specific laws of development. The logic of Finance may provide взаимообратное impact on development; speeds up or slows down the economy. Financial policy is aimed at the concentration of financial resources and the solution of these tasks it is this that allows the state to actively influence the social production. Impact of financial policies on the economy and the social development of society require that the financial policy was implemented on the basis of scientifically grounded theory. The experience of economic development has shown that the separation of the financial policy of the economy hinders the implementation of the tasks which need to be addressed for the development of society. Principles of financial policy: 1. Scientific approach 2. Calculation and planning 3. Efficiency. 1. The scientific approach. Financial policy can be progressive when it is based on the scientific developments and the scientific approach is the fact that the financial policy is inseparable from the actual financial relations. The scientific approach assumes compliance with the financial 47

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policy objective the logical development of production, therefore, of great importance is the availability of reliable information. Such information should carry the information about the processes occurring in the economy, in the social sphere and reflect the results of the conducted activities. Information is the basis for the development of effective financial policy. The need for compliance with the principles of feedback – the basis of the accuracy of financial policy. The General direction of the financial policy should focus on improving economic efficiency and aim to increase the volume and efficiency of use of financial resources. The growth rate of financial return testifies to the effectiveness of finance policy. In the formulation of financial policies take into account the conditions and activities, which were carried out taking into account the specifics of each particular stage of development of the economy of the country. If not to take into account all the financial resources, it will lead to budget deficits. The development of the financial policy it is necessary to take into account the experience and use conditions, specific for this situation, because the copying of someone else’s experience does not give effective results in each specific situation. 1. Calculation and planning. Decisions should be made on the basis of the calculation and clear foresight of the consequences of the events. 2. Efficiency. The principle of effectiveness implies that the direction of financial policy should be focused on the growth of economic efficiency. The important requirement is compliance with a comprehensive approach to implementation and development of financial policy. Coordination should be directed to the solution of the major tasks. It is important to consider the price, credit policy and the policy in the field of wages. If there is no consistency, it is impossible and to achieve positive results. Financial policy, as an integral part of the economic policy, has specific to her ways and methods of solving tasks. May be different ways of achieving results: forecasting and the study of the results of activities. 48

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From positions of realization of financial policy is a synergistic effect of its constituent elements: – fiscal policy; – the tax policy; – credit and monetary policy; – the customs policy; – the policy of external and internal borrowing; – the policy in the field of international Finance. 4.2. Development of financial policy Directions of the financial policy are: fiscal and economic. Fiscal connected with the content of the centralized public funds, the most important of which is the state budget, the economic – with the regulation of economic processes. From the point of view of the internal content of the financial policy, there are three separate components: 1) development of a scientifically sound concept Finance on a long-term and near-term Outlook. 2) determination of the main directions of use of Finance in the current year and in the future. 3) the implementation of practical actions to achieve the goals. If there is no at least one of the parts, financial policy does not meet modern requirements. In the development of financial policy, is prepared a number of its options. They are all subjected to expert evaluation and the most optimal variant is sent to the government. A multi-project requires the use of mathematical modeling and forecasting. Thus it is necessary to create a reserve of financial resources with their constant increase, as well as to determine the most rational share of seizure of the proceeds from the economic entities of the state. When elaborating the financial policy of the great value is given to the distribution of financial resources and their concentration on core areas. 49

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The financial position of the country is characterized by a number of indicators: 1) of the gross social product and national income; 2) the amount of the investments; 3) the rate of renewal of fixed assets; 4) growth of labor productivity; 5) the standard of living of the population; 6) the deficit of the state budget The financial policy of stabilization includes tasks: 1) stable prices (inflation near zero). However, inflation is present in developed countries, where it is equal to about 1.8% per year; 2) budget deficit of no more than 2 - 3% of the GDP; 3) state debt should be ½ GDP and only grow with the growth of GNP. Financial policy is adjoined by a monetary policy. One of achievements of financial policy – refusal in a legislative order from a covering of a public debt by issue by National bank of the credits. Financial policy is subjective, superliner category. But at the same time it has objective nature since it is determined by objective economic laws of development of society. Though financial policy both is generated by the economic relations and develops on the basis of nature and extent of use of production factors, inherently it is subjective as usefulness, efficiency and its productivity is estimated by people. The line item of many western economists is that consider financial policy in the specific plane as system of management decisions, a management system finance. Really, financial policy can’t be bad or good: it can be effective or not; to correspond to interests of certain groups of people or interests of all society; to promote achievement of effective objectives and specific objectives. 4.3. Financial mechanism Practical implementation of financial policy is performed by means of the financial mechanism. The financial mechanism – 50

Chapter IV. The financial policy. The financial mechanism

the component of an economic mechanism provided by set of types and forms of the organization of the financial relations, conditions and the methods of calculation applied in case of forming of financial resources, education and use of cash funds of a designated purpose. The financial mechanism is used for impact on economy and the social sphere, carrying out single financial policy of the state, regions, municipalities, accounting entities. Influence of the financial mechanism on economy and the social sphere is performed, on the one hand, through structure of the financial mechanism and aiming of its various parts at the solution of specific objectives and achievement of real effect, with another – through size of the financial resources created at the disposal of accounting entities and the state and directed (invested) on requirements satisfaction of society (the state, its territorial structures, accounting entities, citizens). The financial mechanism includes types, forms and methods of the organization of the financial relations and methods of their quantitative determination. The set of financial interrelations predetermines various forms and methods of the organization of finance. Development of the financial mechanism for accomplishment of financial policy has great value. Accounting of conditions in the course of carrying out financial policy requires identification of the corresponding acceptances and the methods necessary for implementation of objectives, connected with a social assistance, regulation of taxes, development of scientific and technical process, the problem resolution of production process, providing with financial resources of target programs, development of an economy of all regions. The financial mechanism is used for impact on economy and the social sphere, carrying out single financial policy of the state, regions, municipalities, accounting entities. Influence of the financial mechanism on economy and the social sphere is performed, on the one hand, through structure of the financial mechanism and aiming of its various parts at the solution of specific objectives and achievement of real effect, with another – through size of the financial resources created at the disposal of accounting entities and the state and directed 51

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(invested) on requirements satisfaction of society (the state, its territorial structures, accounting entities, citizens). The state on the basis of objective laws determines forms and methods of distribution of cost of a gross national product and a national income. The state determines taxes, principles and the directions of use of financial resources, depreciation policy. The state performs planning and forecasting, standardly arranging methods of the organization of the financial relations. Thus the importance has control. Besides, in structure of the financial mechanism allocate functional links: mobilization of financial resources; financing; stimulation, etc. Division of the financial mechanism into organizational and managerial blocks is applied also: financial planning and forecasting; operational management; financial control. Functioning of the financial mechanism is caused by the amount of the financial resources allocated for specific purposes, methods of forming of financial resources, and also in what forms and on what channels money moves, on what conditions they are allocated and used. The financial mechanism actuating financial resources influences a social production through financial provision and financial regulation. Thus, than the level of development of society and its economy is higher, the role of financial regulation is more considerable than subjects. Financial provision is implemented by means of self-financing, crediting and irretrievable financing. The problem of practical use of these forms consists in establishment optimum for this stage of development of society of a ratio between them. Creation of the financial mechanism is performed according to financial policy and the regulations of the financial law reflected in the financial legislation. Use of legal regulations in a financial field of activity gives the chance to establish single rules of the organization of financial communications, to protect economic interests of citizens, accounting entities, the states. Observance of precepts of law provides strict financial discipline. The structure of the financial mechanism is very difficult 52

Chapter IV. The financial policy. The financial mechanism

in connection with a huge variety of types and forms of the organization of the financial relations. The combination of elements of the financial mechanism – forms, types, methods of the organization of the financial relations forms «a design of the financial mechanism» which is actuated by establishment of quantitative parameters of each its element, i.e. determinations of rates and regulations of withdrawal, amount of funds, the expense level and so forth. Quantitative parameters and various methods of their determination are the most mobile part of the financial mechanism. They are exposed to adjustment more often, sensitively react to changes of conditions of production and the tasks facing society. For example, rates of taxes were repeatedly adjusted, methods of profit distribution and a proportion of its division between the entity and the state changed, etc. The financial mechanism shares on: – Financial mechanism of accounting entities; – Mechanism of functioning of public finances; In each of sections allocate structural types on links of a financial system. Territorial division: а) Financial mechanism of the republic; b) Financial mechanism of local authorities. On impact on a social production: а) Mechanism of mobilization of financial resources; b) Mechanism of provision of financial resources; c) Mechanism of stimulation of a social production; Proceeding from content of public finances, it is subdivided into the following groups: – Budgetary mechanism; – Mechanism of off-budget funds; – Mechanism of the state crediting. Important component of the financial mechanism are financial incentives – the economic levers which action is connected with material interests of subjects of managing. In case of stimulation of the high-quality party of reproduction finance uses in the direction of 53

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ensuring economic interests, incentives. High-quality stimulation of economy thus prevails. It is possible to allocate the following groups of financial incentives: 1. Financial incentives which allow providing a choice of the most effective directions of investment of resources in a social production. In this regard it is important to develop correctly target programs and to provide them with sufficient resources (by means of the budget). In case of a choice of the main directions of investment of means the great attention is given to indicators of a financial reservoir and financial return. They are criteria for development of target programs. The financial reservoir – what quantity of financial resources is required on accomplishment of this or that program. Financial return – quantity of the financial resources received on enclosed resources. The main objective is decrease in a financial reservoir and increase financial return in a social production. Thus it is necessary to remember that as an important allowance of growth of financial resources the improved reproduction structure of financial resources of cost of a public product acts. As the main source of financial resources is the additional product, the profit share (income) in cost of a public product is higher; the allowances of growth of financial resources are higher. 2. Use of special incentive funds. 3. The financial incentives connected with budget methods of an intensification of production. Pursuing active financial policy, the state can use budget incomes and expenses for production incentive. That budget incomes turned into budget incentives, it is necessary, that each payment type carried out not only fiscal, but also stimulating function. 4. Special financial privileges and sanctions. The state establishes methods of the organization of the financial 54

Chapter IV. The financial policy. The financial mechanism

relations and fixes these methods in regulations and the financial law. The financial mechanism and financial policy are closely connected with the financial law. Availability of legal regulations allows establishing single requirements in all financial system. The financial law is the instrument of forming and carrying out financial policy and influences economic policy. Consistently it is possible to provide these communications so: 1. Use of finance through knowledge of possibilities of this category. 2. Legal registration of financial policy. 3. Development and implementation of acceptances and methods of the solution of tasks. 4. The financial law performs a regulation of the financial relations. The structure of the financial mechanism reflects a financial system from a line item of group of the financial relations and consists of five interconnected blocks. Block 1. Financial methods – methods of impact of the financial relations on economic process. Includes: Planning; lease; Forecasting; insurance; Self-financing; mortgage transactions; Investing programs; trust; Crediting; factoring; issue of securities; leasing; taxation settlement system; Transfers. Block 2. – Legal support: Legal acts; Laws; Decrees; Orders of the Government; Orders, orders, letters of the Ministry of Finance of RK. 55

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Block 3. – Financial leverages: profit; income; depreciation charges; financial sanctions;

price; rent; dividends; interest rate; Discount.

Block 4. Standard providing: Instructions; Methodical instructions. Block 5. – Information support: Computer programs; Accounting records; Statistical reporting; Operational reporting. Characteristic of the financial mechanism of the state is its dynamism, permanent enhancement, close interaction with other components of the economic mechanism. The difficult system of the economic mechanism, its links, levers, elements are in permanent interaction with pushed and solved tasks of various stages of development of society, its relations of production, or parts of these relations connected with development of this or that sphere, an economy industry. The financial policy developed on the basis of objective regularities of various stages of social development, provides means for its implementation that is creation, enhancement or cancellation of components of the financial mechanism, including levers. Society, revealing real contradictions of economy, economic interests, creates the specific financial forms used in management as levers for overcoming of arising negative processes and assistance to social and economic development. So, in the conditions of a world economic crisis the importance in financial policy of the state has creation of the effective financial mechanism, use of efficient levers and incentives for achievement 56

Chapter IV. The financial policy. The financial mechanism

of stable economic development of the country. Thus it is necessary to implement such elements of the financial mechanism which will actively influence production, to increase its efficiency and to provide economy with financial resources for its growth. Thus new elements of the financial mechanism shall make active, first, creative potential of subjects of managing on acceleration of scientific and technical progress; secondly, to increase efficiency of reached results. The efficiency evaluation of reached results shall be commensurable and be expressed through system of financial performance and coefficients. Thus, creating the financial mechanism, the state to aim to provide its most full compliance to requirements of financial policy of this or that period that is guarantee of completeness of implementation of its purposes and tasks. The aspiration to the most complete coordination of the financial mechanism and its separate elements with interests of society that is guarantee of efficiency of the financial mechanism thus remains. Questions: 1. What is the fiscal policy? 2. What is the role of financial strategy? 3. Define financial tactics. 4. Name and describe the principles of financial policy. 5. What are the elements of fiscal policy? 6. What are the areas of financial policy and name the target 7. What are the three components of fiscal policy in terms of its internal contents? 8. Name the task of fiscal policy. 9. How do you understand the position of Western economists in considering the essence of fiscal policy? 10. What is the financial mechanism? 11. What is the internal structure of the financial mechanism? 12. What are the features of the construction of the financial mechanism of economic entities? 13. What is the essence of the mechanism of the public finances? 14. Give and describe the financial mechanism for the section of the financial system. 15. What are the financial incentives as an integral part of the financial mechanism? 16. Name the group of financial incentives. 17. Name and give the definition of the five blocks of the financial mechanism.

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CHAPTER V MANAGEMENT OF THE FINANCE 5.1. The content of the financial management

A

ccording to the definition, control – a set of procedures and methods of purposeful influence on the object to achieve a certain result. Financial management is performed by a special device with the help of special techniques and methods, including using a variety of incentives and sanctions. As objects of management are various forms of financial relations and subjects of management are the organizational structures which are carrying out management. In accordance with the classification of financial relations in their areas there are two groups of objects: Finance and economic subjects, public Finance. They correspond to the following subjects of management: financial services (divisions of business entities), the financial and tax authorities. The sum of all organizational structures, engaged in the management of finances, called the financial apparatus. In the basis of financial management is based on the following principles: – democracy in management; – political approach to financial issues; – an optimal combination of economic and administrative methods in management; – scientific nature management; 58

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– consistency of the Central, sectorial and territorial management; – responsibility in management; – the continuity of economic decisions. We should distinguish between two aspects of financial management: first, the state uses Finance as the instruments of the levers of management of the economy and social-cultural development of and contributes thereby to the whole process of social production; secondly, the very finances are the object of the control: controlled forms of financial relations, funds of funds, financial unit, there is a system of financial institutions. A scientific approach to the management of the Finance determines the cross-cutting nature and system approach to the management of them in every sphere of financial relations, in each of their care. When making managerial decisions of a financial nature, arranged in legal laws, financial forecasts and plans, resolutions etc. should be taken into account: – the requirements of economic and legal laws; – the results of the economic analysis of not only the results of the last economic period, but also prospects; – economic-mathematical methods and automated Finance management system; – the rational combination of economic and administrative methods of management. In financial management distinguish the following inter-related elements: information, planning, organization, control, control. Financial information is of great importance for decisionmaking with the aim of as a science-based planning and operational management of all financial processes. The accuracy and timeliness of the information allows us to analyze the course of events, see their tendencies, to define the final result. Financial information is in the form of an accounting, statistical and operational reporting on the links in the financial system. Planning is Central to the management of the finances. It should ensure the balance of material, labor and financial resources, the relationship of production and financial performance, 59

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a reconciliation of income and expenditure, financial plans of all levels of the national economy. Organization – means the coherence, clarity of all links of management, high efficiency of financial apparatus, responsibility and discipline of employees of the administration. Financial regulation is maneuvering financial resources for implementation of planned tasks. It is aimed at the prevention and elimination of all kinds of negative deviations from the intended result. It is to ensure proportions and synchronicity in all types of activities from the reserve funds, the above financial resources, unused appropriations. Control of the implementation of the financial plans is made at the planning stage and at the stage of operational management at all levels of management in the process of formation and use of monetary funds. 5.2. Management of public finances The management of the public finances is played by the state and government agencies of different levels: – The Parliament of the Republic Of Kazakhstan; – The Office of the President of the Republic Of Kazakhstan; – The Government of the Republic Of Kazakhstan. These bodies manage the finances along with performing other functions, because the decisions on financial issues are closely intertwined with other economic and political challenges associated with the development and implementation of programs of development of the company. The implementation of the longterm, medium-term and short-term programs and plans (forecasts) requires the compulsory financial security, that is, the surveys of specific financial resources. Therefore, in the process of decision making on socio-economic issues is determined by the financial base in the form of tax, non-tax revenues, transfers, loan funds, other sources of cash. In the process of development and approval of the state budget of the Government, the Parliament, 60

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the President’s office monitors the appropriateness and effectiveness of financing of According to management theory – the smaller span of control, the greater the effect. Separate directions, facilities, programs of development. The priorities are set on one of the directions and programs, while others have to find their own reserves the respective systems. The Parliament in the legislative process sets the long-term and stable distribution of proportion by the introduction or abolition of taxes, payments, deductions, changes in the rates, ratios and indicators. Similar consequences of management decisions of the Government, which, in addition, promptly regulates economic and social processes, actively re-financial resources to ensure uninterrupted and sustained progress reproduction. The direct management of the financial system regulated by the Ministry of Finance of the Republic of Kazakhstan, performing a wide range of tasks and functions on the use of the tax and budgetary mechanisms for the mobilization of financial resources in the budget of the state and their direction to the financing of social needs. The structure of these ministries include separate subdivision (committees, departments, departments, divisions, sectors), performing specific functions to the extent of detail. An important place in the Central office of the Ministry of Finance are: the Treasury Committee, customs control Committee, Tax Committee, the Committee of financial control, the Committee on work with insolvent debtors, the Committee of state property and privatization Committee on financial monitoring. The main tasks of the Ministry are: – execution of budgets, – budgetary accounting and reporting on budget execution, – accounting and reporting to the National Fund of the Republic of Kazakhstan, – provision of receipts of taxes and other obligatory payments to the budget, 61

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– completeness and timeliness of transfer of obligatory pension contributions and social contributions to the State social insurance Fund, – state regulation in the sphere of customs Affairs – government and government guaranteed borrowing, budget crediting, – the implementation of the internal financial control, – control over carrying out of procedures of bankruptcy (except for banks, insurance (reinsurance) organizations and savings pension funds, regulation of activity in the sphere of accounting and financial reporting, – regulation in the field of auditing and supervision of audit and professional organizations, conducting the state monitoring of property, – the implementation of the financial monitoring in order to combat the financing of terrorism. The Treasury system has territorial units, legal persons, in the form of state institutions, established and abolished by the Government of the Republic of Kazakhstan, among which are: the Departments of the Treasury by oblasts and cities of Astana and Almaty, district, city, district in the cities of the Treasury Department, under the control of and accountable to the Committee. For the purpose of effective organization of work, the Treasury Department coordinates the activity of the territorial subdivisions of the Treasury in the sphere of execution of the Republican budget and maintenance of execution of local budgets, the National Fund of the Republic of Kazakhstan, will check territorial divisions on the issues of observance of norms of the budget legislation, as well as carries out the control for the proper performance of the territorial units of the assigned in accordance with established procedure to their functions. Local financial bodies of the presented financial departments of the oblasts, major cities, the financial departments in towns of oblast subordination and areas. In its structure they have departments (sections, inspections): – budget financing according to the directions of use of the funds (education, health, social protection, etc.) 62

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They carry out operational management of budgetary resources, their planning (forecasting, are local budgets, finding the reserves of the funds on subordinated akimats of the administrative-territorial units, financed by the budget institutions and control over target and effective use of funds. In addition to the Central apparatus of the tax service includes tax committees of oblasts, towns, districts, which control the timely collection of taxes and other obligatory payments to the budgets. 5.3 Financial management of business entities Management of the finance of this link is financial departments (bureaus) and departments of the ministries, departments, concerns, associations, societies, associations, financial departments and the financial services businesses. The finances of the public organizations manage financial departments or groups of these organizations. The machine financial departments of the ministries and of other higher bodies carries out work on the consolidated financial forecasting (planning), supervision of the execution of the consolidated balance of incomes and expenses, coordinates the work of the financial departments of enterprises within their jurisdiction. In this link financial management system in market conditions is called financial management, which is regarded as a form of management of socio-economic processes through and within the entrepreneurial activity of enterprises and organizations. Entrepreneurial activity is a risk and is aimed at gaining profit (income) from the production and sale of goods, execution of work, rendering of services, from the use of the property. Objects of financial management at the enterprises are: movable and immovable property, rights of property, works and services, information, results of intellectual activity, intangible benefits. Financial management is based on the motivation of the activities on realization of the objectives, defining needs and the behavior of 63

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individuals or groups. Motivation is manifested in the processes to stimulate business activity, productivity and quality of work. Financial departments (services) of economic entities implement operational financial planning, maneuvering the financial resources, using new forms of credit and settlement operations (shares, bills of exchange, factoring, etc.). In the economic partnerships financial management coordination, along with other functions, the higher bodies – General meeting (meeting of representatives) of their participants, in joint-stock companies «General meeting of shareholders. Executive body - the management Board, included in its composition officials, including financial management: the Vice-President (Deputy General Manager) of Finance, which is supervised by the corresponding subdivisions of the company (the company) – a financial Department, a group of sector, or in his subordination to the work of individual employees – financial managers in areas of financial activity of the economic subject. Structure of the financial Department is usually based on the following directions of work: a forecast-analytical, settlement, claims, operational and financial. Financial and marketing departments are divided into groups: according to the calculations with the budget, banks and parent organizations, cash. The important tasks of the financial services business subjects are: – finding ways to increase profits or income and increase of profitability; – provision of financial resources and tasks of production, capital investments, implementation of new equipment and other standard costs; – execution of financial obligations to the state budget, banks, suppliers, parent organizations; – organization of settlements; – promotion of the efficient use of production facilities and capital investments; – control over proper use of financial resources, preservation and accelerated turnover of working capital. 64

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In the operational management of the finances involved the establishment of banks. Second-tier banks shall carry out settlement and cash services of enterprises and organizations, credit and temporary needs in funds. 5.4. The automated control system of finance In administering of finances applied automated system of financial settlements – AENOC Association. It consists of interconnected, interrelated subsystems: functional, providing, and technological. Organizational AENOC Association is a set of interconnected subsystems: 1) the organizational-economic security; 2) information security; 3) software; 4) technical support; 5) the organizational-legal support; 6) technological support; 7) staffing. Subsystem of the organizational-economic security is the parent in the system of AENOC Association, creates methodological and organizational preconditions for automation of the process of budget preparation and execution, includes functional subsystems, coordinates and interconnects other providing subsystems, defines the methodological unity of the works at all levels ASFA. Four functional subsystems In ASFA Association: 1) summary calculations of the budget; 2) state profit; 3) expenditures of budgetary institutions and the activities undertaken at the expense of the budget; 4) the finances of the economic entities. In the subsystem «Summary calculations of the budget» complexes tasks are formed by groups of similar calculations. Complexes of tasks in the blocks of the other three subsystems are allocated by the types 65

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of income or expenses related to the financing of a particular industry or group of establishments and events. In addition to the centralized systems of automated control, use local options through the organization of automated working places (AWP). Arm is a professionally oriented small computer system or complex of peripheral technical means, intended for automation of work of specialists of certain professions. Typical structure of the equipment of arm: 1) control device; 2) visual equipment (display); 3) drive on the floppy magnetic disk; 4) keyboard for a set of data; 5) the small-sized print device. Such a composition of the technical equipment of the arm with the relevant software enables along with the decision of economic tasks to perform operational work in the dialog mode with the graphics, table, and text documents, conduct various files. Arm allows you to correct and edit the information, to form conclusions and findings register texts that analyze the intermediate and final results, communicate remotely with other workers, and have the arm. In the automated systems of enterprise management (Cam) is an independent functional subsystem of management of the Finance, in which solved the problem of the financial and credit management. It is a combination of procedures, methods and means used to achieve maximum profitability under certain conditions of production and realization of products. Features of the management system in the connected with the circulation of cash, mediating circuit of production assets and funds of the treatment and determine the multi-purpose nature of the control functions. The subsystem includes the control units, characterize the state of the resources and processes of their movement. Since the financial targets in enterprise management systems are solved with the use of intermediate arrays of information (production, material resources, labor, etc.), that is for other objects of control, 66

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you should create a network of automated workplaces, including arm various structural units of the company and connected to the PC computing center. Thus, there are two levels: the upper, where tasks can be resolved, requiring resources and lower, representing an automated workplace equipped with a PC and the United into a local network. Complex of technical means of the lower levels of the financial system, where are numerous flows of information, requires the use of various means of drafting, reproduction, copying, processing, transportation and storage of documents, cash management communication, means of signaling information. In connection with the advent of the PC, e-mail, data banks, means of processing of the text and graphic information, other modern information technology were created the conditions for a radical transformation of the organization of management activities. Technical means are used increasingly in direct process management solutions. Questions: 1. Specify the definition of «financial management». 2. List the main principles of financial management. 3. In which reveals is the difference between the two aspects of management? 4. What is the scientific approach to financial management? 5. Describe the characteristics of the elements of financial management 6. Name the bodies on the strategic management of public finances. 7. The role and functions of the Ministry of Finance of the RK. 8. The role of the Treasury in the financial management system. 9. What are the peculiarities of financial management of business entities? 10. What is financial management? 11. What are the objects of financial management at the enterprises? 12. Explain the definition of «financial management is based on the motivation». 13. In what areas are the activities of structure of the financial Department based? 14. Name the important tasks of financial services of managing subjects. 15. Describe the characteristics of the necessity of automated financial management systems. 16. What do the functional subsystems of the AENOC Association consist of? 17. What is an automated workplace?

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CHAPTER VI FINANCIAL PLAN 6.1. Content, principles and methods of the financial planning

F

inancial planning is a process of development of financial plans (tasks), the organization of their accomplishment in the provided terms, directed on achievement of the planned purposes. Planning as an element of management is one of means of financial policy. It allows making large economic changes smoothly and imperceptibly. Object of financial planning are financial activities of subjects of managing and the state, and aggregate result – creation of financial plans, beginning from financial plans and estimates of separate organization to the composite financial balance of the state. In each plan the income and expenses on a certain period, communications with links of financial and credit systems (payments in the budget, a payment for a bank loan fees of assignments on social insurance or the corresponding taxes, etc.) are determined. Specific objectives of financial planning are determined by financial policy. This scoping of money and their sources necessary for accomplishment of plan targets; identification of allowances of growth of the income, economy in expenses; establishment of optimum proportions in distribution of means between the centralized and decentralized funds, etc. Planning is characterized by: 1) Extensiveness (covers a wide range of socio-political and economic events); 68

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2) Intensity (implies use of perfect equipment and methods); 3) Efficiency (means that as a result it is necessary to reach those purposes which are put by financial management). The following approaches in financial planning are used: a) Automatic (data of previous year are postponed to the next year. In case of inflation data are multiplied by inflation coefficient). This method is the simplest method and is, as a rule, used in case of a lack of time; b) Statistical (there are expenses for previous years and shares on number of previous years); c) Zero bases (all line items shall be calculated again. This method considers real requirements and lashes them to opportunities). In the conditions of market economy planning as management function, shall take the form of a general scope of all parties of economic and social activity. If in state planned economy in planning of finance emphasis was placed on distribution processes, the market economy relies on the exchange sphere through which sales of goods and services and recognition of socially necessary costs in case of their production and implementation is performed. Therefore, in market economy the market acts as dominating and determining method of communication in a production process and sales of goods and services with the mechanism which is switching on money, the price, the Law of Value, the demand and supply law. Such nature of a market mechanism determines need of forecasting as method of determination of results of production and exchange, but with planning elements. The most important principle of planning is the principle of a continuity which is applied in the sense that the scheduler introduces amendments in the plan annually, flexibility of plans shall provide their vitality, and the financial equipment is under construction on the principle «the sliding budget»; this principle is applied to the majority of expenses, especially in case of calculation of the state assignments. It is a system and variation method of planning – planning, programming and budgeting (PPB): 69

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1) Planning – includes forming and a statement of the purposes and tasks in the direction of which the organizations shall work in case of the functioning; 2) Programming – implies matching available and finding of new means which are used for goal achievement. Programming means process stretching in the far and near future; 3) Budgeting – transfer process of general long-term programs on language of annual budget figures on financial years. It is process of distribution of all set of quantitatively expressed transactions on traditional budget group. In practice the following planning methods are applied: 1) Extrapolation: consists in determination of financial performance on the basis of identification of their dynamics; in calculations proceed from indicators of the accounting period, adjusting them on rather steady rate of changes; dynamics of indicators is extrapolated on the future; 2) Standard (on certain regulations); 3) Mathematical modeling: creation of model of process and its transfer in financial area; 4) the balance sheet: it is applied for review the directions of use of financial resources with sources of their forming, coordination of all sections of financial plans among themselves; its violation leads to that communications are broken, coordination and arises discrepancy between sections of financial plans. 5) On the basis of expert evaluations. In market system of managing referral planning is used also indicative one; it carries out information coordinating role and makes indirect impact on subjects of financial activities via economic regulators. Main goal of indicative financial planning – determination of expected amount and the direction of financial resources for ensuring forecast development. Indicative financial plans have a binding character only to a public sector, and for sectors with other patterns of ownership – recommended nature. The last is reached by use of economic 70

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tools – regulated prices, subsidies, the credits, the tax rates and privileges, accelerated depreciation and others. As the major indicators act: the currency rate, predicted rate of inflation, refunding rate of National bank, depreciation charge rate. The indicative plan shall reflect reasonably scientifically economic processes and adequately approve separate parameters of development of economy and finance, to send them to the necessary course according to long-term trends of development. It concerns, first, need of observance of economic equilibrium on different systems, indicators (natural and material and cost balance, price stabilization, compliance of the income and expenses, balance of the paying balance, etc.). Secondly, the indicative plan shall provide necessary structural changes in national economy, including by investments. The list of priorities in case of indicative planning depends on the directions of economic and social politics; it can be liquidation of disproportions of development, investing activities, production upgrade, ensuring product competitiveness, development of science, education, housing construction, social transformation and another. Indicative planning is performed also at local level. The principle of coordination state interests, the territory, accounting entities` (entrepreneurs) interests is here too obligatory. 6.2. Financial plans The financial plan – system set of actions of a financial mediation of functioning of the subject. It is constituted for a period of 1 till 5 years. In a form the financial plan represents statements of the purposes, figures and organizational offers for the planned period. At the entity planning is based on accounting of the Law of Value and thus planning acts as economic category. As a rule, plans differ from the result of execution, but this difference shan’t make considerable sizes. 71

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Financial plans are available for all links of a financial system: – The accounting entities functioning on the commercial beginnings constitute «balance of the income and expenses» or «business plan»; – Organizations and the organizations functioning on the noncommercial beginnings constitute «estimate»; – The plan of public associations - «financial plan»; – Public authorities constitute «budget» (different levels: republican, local). The system of financial plans (balances) includes different types of plans which differ the width of the covered relations, and, therefore, in amount planned to receipt and use of resources. On this sign differentiate primary and consolidating financial plans. Financial plans of accounting entities of the sphere of production of goods belong to the primary; plans of commercial and non-profit organizations of the non-productive sphere; estimates of public institutions and the organizations which expenses completely or in the main part are financed at the expense of budgetary funds. Consolidating financial plans include nation-wide, industry, and territorial. Nation-wide are: composite balance financial balance of the state, government budget, off-budget funds. The system industry (departmental) financial plans includes: balances of the income and expenses of the ministries (departments) of industries of production of goods, summary expense budgets of the ministries (departments) of non-productive industries, financial plans of public organizations. Territorial financial plans treat: composite financial balances of regions, local budgets, plans of public organizations in the corresponding territory, etc. Different types of financial plans are connected among themselves: so, industry unites plans of subordinated accounting entities; territorial, as a rule, are part nation-wide or industry. Depending on the period financial planning is subdivided on annual, five-year-old and perspective. Due to the instability of economic communications, unbalance 72

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of economy, uncertainty of factors of functioning managing organs, caused by crisis, five years’ and advance planning during the transitional period to the market is sharply limited. Preceding from appointment, for three years the composite financial balance, some other consolidating financial plans have to be developed, shall be made calculations for the main indicators of the income and expenses of the government budget. The composite financial balance represents the financial program of the nation-wide forecast of development for the mediumterm period. The Department of Economic Affairs is engaged in its creation with active participation of the Ministry of Finance, the Ministry of the state income, National bank. In regions calculations of the composite financial balance have to be made by appropriate regional organs. In the composite financial balance the structure and sources of forming of money of the state, the state entities and the organizations, the entities and the organizations of other patterns of ownership and their use on expanded reproduction and social needs (welfare actions, defense, management) is reflected. The main indicators of revenues of balance include: net income, taxes, the depreciation charges, receipts from the foreign trade transactions, resources of short-term lending, sources for long-term lending. The most important indicators of account part: expenses on economy development (financing of capital investments, costs for a surplus of own current assets, the state subventions), expenses on the external economic transactions; contributions to consumption funds; expenses on welfare actions; expenses on management and defense; surplus of short-term credit investments and means for provision of long-term loans. The composite financial balance, thus, represents system of the financial performance characterizing financial resources of national economy. The structure of the indicators included in the composite financial balance shows that it is the instrument of ensuring balance of material and financial proportions 73

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of the indicative plan of social and economic development of the country. The major operating financial plan is the government budget. It has a number of essential differences from the composite financial balance. Not all income of the state is reflected here, but only their centralized part. In the composite financial balance data on the income and expenses of the state is brought in the integrated type, as a whole on national economy, and the government budget has high degree of specification. In the budget specific names of payments in the budget and their payers, appointment and their receivers (see head «Government budget») are specified. In the sphere of production of goods financial plans are called as balances of the income and expenses. The structure of these plans is generally identical both to accounting entities and to their associations and other higher bodies. The classical form of balance of the income and expenses includes four sections: 1. Income and receipt of funds, 2. Expenses and assignments of means, 3. Payments in the budget, 4. Assignment from the budget. The first two sections can be balanced by sections determining final result (balance) of relations economic elements with the budget, that is the third and fourth sections. Excess of expenses and assignments of means over the income and receipt of funds are financed by attraction of means at the expense of issue of securities at the expense of the obtained credits or loans, or target assignments from the budget – the state subvention for the state entities. Each section of balance includes the corresponding indicators. In the first section of balance join: net income; depreciation charges, contributions to repair fund, to a financial provision; long-term loans of banks; the fund of accumulating directed on financing of capital investments and other planned costs; 74

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economy from decrease in cost value on installation and construction works; mobilization of internal resources in construction; proceeds from sales of the disposed property; receipts of the value added tax and excises; the means arriving as equity in construction; means from security sale; surplus of short-term credit investments of banks; other raised funds. The section «Expenses and Assignments of Means» reflects: capital investments; losses on the core business; expenses on payment of remuneration (interest) for overdue and delayed shortterm loans and loans for completion of a lack of own current assets; assignment financial an allowance and in self-supporting funds; repair expenses of fixed assets at the expense of means of repair fund; operating expenses; surplus of own current assets at the expense of a surplus of steady liabilities and the attracted credits; settlement of long-term loans; change of credited inventories. The section «Payments in the Budget» includes: payments of all types of tax, including value added tax and excises. In the section «Assignments from the Budget» it is provided on the following actions: state centralized capital investments; the operational governments financed on decisions and regional authorities; expense recovery on a difference of cost value and the prices; other expenses of purpose. Accounting entities with small turnovers of means constitute the financial plans consisting of two sections: the income and expenses where possible assignments from the budget join in structure of the income, and payments in the budget – in structure of expenses. Characteristic of balance of the income and expenses of the entity is that in it resulting effects of economic financial activities are reflected, and intermediate – turnovers of money – no. Calculations and fixing of turnovers of money it is performed in the special financial plan – the payment calendar. In the section «Receipts» receipts of short-term loans of banks, overdue 75

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receivables, other cash receipts, a balance in cash desk and are reflected in the settlement account the income from sales of products of works and services. In the section «Expenses» costs for acquisitions of commodity-material values, compensation, tax payment, settlement of loans of banks, interest payment for the credit, other expenses are reflected. Thus, by means of the payment calendar operational financial planning at accounting entities during short periods (from a month to five days depending on amounts of turnovers) is performed. The payment calendar supplements balance of the income and expenses regarding a specification and sequence of terms of calculations that provides their timeliness. Entrepreneurial links of the business activity are guided by so-called business plans. The business plan is the document corresponding to the feasibility statement on business activity. It covers all parties of the relations of private enterprise, than plans of economic and social development of the state entities more fully. The business plan includes the sections characterizing features of products or services, their competitiveness, a market assessment (the market forecast) a marketing strategy, production, organizational and legal plans, a risk assessment and insurance. The financial plan as the major component generalizes materials and indicators of other parts of the business plan and represents them in value term. Here some documents are prepared: – Sales forecast; – Balance of cash incomes and receipts; – Table of the income and costs; – Composite balance sheet of assets and liabilities of the entity; – Schedule of achievement of profitability. The independent section represents strategy of financing and return of means to investors in the caused amounts and terms. Thus, in the market environment financial planning is performed at higher high-quality level and enriched with new 76

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forms and the methods, allowing carrying out this process using scientific methods, modern technical means and reliable information base. 6.3. Financial performance Financial performance it is the planned, reporting or settlement data characterizing various aspects of activity of connected with education and use of cash incomes and accumulating of accounting entities and national economy as a whole. They are widely used in financial and economic activities of the called subjects. Financial performance is expressed in absolute and relative values. They quantitatively and qualitatively reflect a certain financial category, a subcategory, an element of the financial relations. In local links of managing such absolute financial performance is applied, for example: – Proceeds from sales of products (works, services); – Cost of sales (works, services); – Gross income; – Period expenses; – Income (loss) from the core business; – Income (loss) from no basic activities; – The amount of the corporate income tax (paid); – Net profit (or loss). These are synthetic (generalizing) indicators of activities; some of them can be considered on separate constituent elements: for example, proceeds from sales of products, product cost, period expenses; in the analysis and planning components can be brought in a share to a result of a generalizing indicator that will characterize its structure. Volume indicators of accounting entities are: – Volumes of investment; – Size of an authorized fund (equity); 77

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– Sizes of funds of production and social development (funds of accumulating, consumption or similar to them reserve, currency, repair); – Indicators of calculations with suppliers, consumers, the budget, bank (creditor and receivables); – The size of the paid dividends, shares; – Amount of a source of current assets (equity and other absolute measures). Relative indicators are: – Level of profitability (profitability); – Stock returns; – Performance indicators of use of working and fixed capital (fixed assets turnover ratios, turnover duration, capital productivity on fixed assets, and capital-output ratio of products); – Liquidity indicators. Specific indicators are used in banking, insurance activity, pension and other funds. In case of the taxation such indicators, as a gross annual income, deductions from a gross annual income, the taxable income, and import and others are applied. The majority of financial and economic indicators are used at the level of superior organizations, the ministries, departments for the characteristic of results of work as a whole on group of companies, industries. Along with them in these organizations can be used other specific indicators characterizing only this industry. In state-financed organizations and organizations indicators of expenses as a whole and on separate elements (to categories, classes, subclasses, and specifics) are applied. Indicators of the income and expenses of budgets, and also their separate components belong to summary financial performance and their specific weight; amounts of deficits of budgets; the relation (as a percentage) the income, expenses, central government budget deficit to a national income, a gross internal (national) product. 78

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At the level of national economy financial performance characterizes amount and structure of financial resources of the state, their distribution through the government budget and other financial plans, profitability of various industries of national economy and a profit share mobilized in the budget. For receipt of a generalizing efficiency evaluation of forming of financial resources of the states, the indicators characterizing the relation of amount of financial resources to a gross national product and a national income serve. 6.4. Financial regulations and standard rates In case of calculation of financial performance it is used regulations and standard rates. Regulation (from Latin – order, the rule, the sample, the leading beginning) – a criterion, the established measure, quantity or the size of resources. The standard rate (from armor. – ordering) – quantity of resources in the limits, the established regulations, settlement and reasonable sizes of costs or resource allocation. The regulation, as a rule, characterizes initial, single measurement, and the standard rate is an indicator of regulations, in compliance with which work is performed. For example, the regulation of current assets and the standard rate of current assets differ. Regulations and standard rates are expressed in relative or absolute values (percent, coefficients, physical units of measurement of products, time, and cash measurement). In financial planning the minimum, average and most limit rates and standard rates of education, distribution and use of financial resources are applied. Regulations and standard rates are intended for scientific reasons for financial plans, forecasts, programs as are estimated by researches and experimental studies of economic processes, the progressive directions of technical development, production organization and work; analytical, statistical and mathematical 79

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methods of calculations of regulations and standard rates are thus applied. In summary financial planning average regulations and standard rates, in planning of financial results specific economic organizations – individual are used mainly. Financial regulations and standard rates are subdivided also on approved and settlement. Approved are established by the current legislation, settlement are used in case of internal planning. Rates of taxes, regulations of assignments on social needs in off-budget funds belong to the approved; to the settlement – regulations of assignments and standard rates of formation of funds of accumulating and consumption of the entities and the organizations, fund of repair of fixed assets and others, regulating financial activities of the entities, organizations. Also single regulations and standard rates, for example, depreciation charge rates for different economic objects and industries, both differentiated – regulations and standard rates of current assets which aren’t identical at different accounting entities differ. Much financial performance at the same time is regulations, standard rates or limits: for example, profitability level, the name of different financial funds is both an indicator, and the standard rate or a limit. Thus, the close interlacing, interrelation and interaction of these mobile elements of the financial mechanism in planning processes and forecasting of financial results of economic activities is observed. Questions: 1. What does the concept of financial planning contain? 2. What is the object of financial planning? 3. Prove determination that specific objectives of financial planning are determined by financial policy. 4. What is planning, as management function characterized by? 5. What approaches are used in financial planning? 6. Name the principles of planning. 7. Name planning methods. 8. What does the extrapolation method mean? 9. Give practical examples of implementation of a regulatory method of planning. 10. Where is the method of mathematical modeling applied?

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Chapter VI. Financial plan 11. Characterize a balance sheet method. 12. Open an essence of method of expert evaluations. 13. Is indicative planning applied in RK? 14. What are the financial plans? 15. Call types of financial plans of all links of a financial system. 16. What types of balances are included by system of financial plans? 17. What do primary financial plans consist of? 18. What do consolidating financial plans include? 19. By what financial plans is the system of industry (departmental) financial plans characterized? 20. What do the territorial financial plans treat? 21. What is the composite balance financial balance? 22. Open value of the government budget as most important operating financial plan of the state. 23. How are financial plans in the sphere of production of goods called? 24. What is the payment calendar? 25. Give determination to concept financial performance. 26. What types of absolute financial performance are applied at micro level? 27. List types of relative indicators 28. What are the financial regulations and standard rates?

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CHAPTER VII FINANCIAL CONTROL 7.1. Financial control

F

inancial control – the specific activities directed on check of justification of education, distribution and use of resources of all links of a financial system. Purpose of financial control consists in assistance of successful implementation of financial policy of the state, ensuring process of forming and effective use of financial resources. Financial control as the special area of control connected with use of cost categories has a certain scope of application and the corresponding target orientation. Object of financial control are cash, distribution processes when forming and using financial resources, including in the form of funds of money at all levels and links of a national economy. Financial control includes check: observance of requirements of economic laws; optimality of proportions of distribution and redistribution of cost of a gross public product and national income; creation and budget performances (budget control); financial condition and effective use of labor, material and financial resources of accounting entities, budget organizations, public organizations and funds, other legal entities, and also tax control. Before financial control there are following tasks: – Equation assistance between need for financial resources and the sizes of cash incomes and funds of a national economy; 82

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– Ensuring timeliness and completeness of accomplishment of financial liabilities before the government budget; – Identification of intra production reserves of growth of financial resources, including on decrease in cost value and increase of profitability of products, services; – Assistance to a rational expenditure of material values and money resources at the entities, in the organizations and budget organizations, and also to the correct conducting financial accounting and the reporting; – Ensuring observance of the current legislation and regulations, including in the field of the taxation, the entities relating to various forms of business; – Assistance to high return of foreign economic activity of the entities, including on currency transactions, etc. Functions of financial control: 1) Check of an expenditure of means (compliance of expenses to the required amounts and efficiency of use of public funds); 2) check of timeliness and completeness of mobilization of means in the state resources on all links of a financial system; 3) Check of observance of rules of accounting and reporting. In financial control the importance has budget control which covers, first of all the government budget and off-budget funds. Local finance and finance of the accounting entities belonging to the state are subject to budget control. Bodies of financial control: For implementation of financial control the special regulatory authorities completed with highly skilled experts are created. Legislature of the country exercises control by consideration and approval of the state forecast of economic and social development of a national economy, the government budget on links of budget system, reports on its execution. Legality and efficiency of use of public funds, feasibility of performed expenses is supervised. Financial control by legislature through committees and the commissions, in particular, through the planning and budget and financial commissions is made. 83

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1. The parliament of the Republic of Kazakhstan exercises control for: 1) Sources of receipt of budget resources, their economical use as government, and legislature; suppression of squandering of money; 2) Efficiency of use of state-owned property, work of the state entities, privatization and privatization of state-owned property; 3) Use of means of special funds; 4) Sources of cash incomes of public organizations, including various batches, behind use of these means according to the authorized purposes. 2. Special departments of the state financial control. The committee of financial control subordinated directly to the Ministry of Finance. Bodies of CFC are in all subjects of the Republic of Kazakhstan. This entire device contains at the expense of means of the republican budget. CFC is the unique system of the state financial control. It performs the following types of activity: Audit documentation at the state entities, the organizations and organizations; Performs on tasks of the Ministry of Internal Affairs within fight against organized crime. The main problem in work of this structure – the legislation for financial control. 3. Bodies of financial control in the industry ministries (interdepartmental control is, as a rule, less effective). State commissions, the State Committees, the ministries and departments carry out financial control by the special audit device 4. The financial bodies headed by the Ministries of Finance, supervise processes of mobilization and use of means of budget funds. Therefore this type of financial control is called as budget. Budget control promotes development of the optimum financial policy providing the maximum growth of receipts in the government budget and development of economy. Regulatory authorities carry out all types of audits of production financial activities of the state accounting entities. 84

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5. Tax services are bodies of operational financial control. Heads system of tax authorities the Ministry of the state income. Tax committees on places submit to only the higher body. Tasks of tax services are: а) Control of a compliance with law about taxes, ensuring completeness and timeliness of introduction into the budget of tax payments. b) Check of a financial condition of accounting entities irrespective of departmental subordination and their organizational legal form; c) Control of correctness of determination of the taxable income for the purpose of non-admission of its understating; d) Registration of all subjects and also real and potential taxation objects; e) Accounting, an assessment and implementation confiscated property in abeyance, the property, passed to the state. Tax committees have the right: to receive in the organizations of various patterns of ownership necessary documents and data, except for what constitute the trade secret determined by the legislation; to supervise a compliance with law about entrepreneurship of citizens; to survey all rooms used for extraction of the income; to stop all transactions of the entities and citizens in case of non-presentation of documents; to withdraw the documents testimonial of concealment of the income; to apply sanctions and penalties; to make in court and arbitration claims about liquidation of the entities, recognition of transactions by the void. At the same time tax committees are obliged not to disclose data on the size of deposits of the entities and citizens. Citizens and the entities can make in court of the claim to actions of the state tax committees. Development of the commodity-money relations generates a variety of patterns of ownership, promotes emergence of the financial market that determines the directions of further development and emergence of new forms and means of financial control. 85

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7.2. Forms and methods of financial control Financial control is classified in forms depending on carrying out terms: On terms financial control is subdivided on: – Preliminary (it is performed to an expenditure and is applied as a preventive measure); – Flowing (it is performed during an expenditure and is verified with the plan or the estimate); – Subsequent (after carrying out expenses on the basis of reporting materials. Certain conclusions for preliminary and current control) become. Methods of financial control (carrying out methods): a) Audit (check of activities of all divisions according to all documents); b) Inspection (recurring inspection of a financial condition of the entity on a place); c) Inspection (studying of shortcomings); d) Supervision (general acquaintance with a condition of finance at the entity). As direct subject of checks such financial (cost) performance, as the income, the value added tax, profitability, cost value, distribution costs, assignments on the various purposes and in funds acts. These indicators have synthetic nature therefore control of their accomplishment, dynamics, tendencies covers all parties of a production, business and business activity of associations, the entities, organizations, and also the mechanism of financial and credit interrelations. The sphere of financial control is practically all transactions made with use of money, and in certain cases and without them (barter trades, etc.). The situation on impossibility of inclusion of a straight line or the mediated interrelation of forming and use of financial resources, funds of money with any kinds of activities or failure to act thus start with. Therefore, the same objects can be exposed not only to financial 86

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control, but also other types of control (during the crediting, calculations, pricing etc.). But even in case of coincidence of a specific subject of check and the analysis the special orientation in an assessment of a condition of these objects, corresponding to its appointment is inherent in financial control. To control are subject not only badly working accounting entities and the organizations, but also having normal results of activities. 7.3. Organization of financial control. Audit control Financial control solves complex and diverse challenges in various spheres of economic life of society and at different levels of an economic board that makes certain demands to its organization. Depending on subjects, financial control happens: 1. State financial control: a) nation-wide financial control (performs state governing bodies; it is directed on the objects which are subject to control irrespective of their departmental subordination). b) Departmental financial control (make control and auditing departments of the ministries, departments, managements of regional authorities, etc. Its object is production and financial activities of jurisdictional enterprises, organizations). Intraeconomic financial control is performed by economic services of economic organizations and organizations (accounts departments, Treasury Divisions etc. As object production and financial activities of the most economic organization, and also its structural divisions) here act. 2. Public financial control (carry out the groups, separate physical persons (specialists) on the basis of voluntariness and gratuitousness. The object of control depends on the specific objective delivered before the checking. Independent financial control is performed by specialized auditing firms and services). 3. Independent (auditor) control. 87

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Audition – a new organizational form of financial control of a financial and economic and business activity of the entities and the organizations. Control and consulting services render auditing firms to all economic organizations and the organizations on a paid basis. Auditing firms are the independent organizations, urged to promote improvement of quality of control, its objectivity. The auditor – the independent accountant – the auditor, the highly skilled expert in the field of finance, accounting and control. They are incorporated in Association of auditors which is urged to promote preparation and retraining of personnel, and also to supervise high quality of knowledge and professional skills of auditors. Two types of audit – external and intra corporate are allocated. External audit is carried out by special, auditing firms under the agreement with the state tax and other bodies, the entities, other users – banks, foreign partners, shareholders, the insurance companies etc. Their main objective is establishment of reliability of the financial reporting of checked objects, and also development of recommendations about elimination of available shortcomings of activities of economic organizations, to improvement of their financial and economic activities and commercial results. Intra corporate audit is performed by the intra corporate auditing service functioning both at level of the central firm management, and at level of branches, subsidiary companies, etc. It is directed on increase of efficiency of management decisions on enhancement of financial and business activities of the entity for the purpose of profitability and income maximization. Into its tasks enters: check of observance of principles and accounting rules by preparation of the annual reporting; study of recommendations of external auditors; firm management consultation on all questions of financial strategy of the entity; check of timeliness, reliability and accuracy of the financial information prepared for a management of branches of the central bodies; 88

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analysis of adequacy and efficiency of actions for ensuring safety of assets; identification of allowances of economy of liquid means; determination of efficiency of financial and economic activities of firm and branch, etc. For achievement of objectives and the purposes auditing firms perform: – Financial examinations; – Checks and audits of a financial and economic and business activity of the entities and organizations; – Control of correctness of determination of the income, taxable; – Prevention of their understating and possibility of avoidance of collection of penalties; – Consultation concerning the organization of accounting and management, reporting creation; – Check of correctness and efficiency of intra corporate financial control and audit. As a whole the area of auditor services is very considerable. It is possible to carry to it also: – Statement and organization of financial accounting; preparation of the documents necessary in case of creation of joint businesses or joint-stock companies; – Explanation of questions financial and bank, tax, insurance and others legislation types etc. – From the list of services preventive nature of control activities of the auditing firms, consisting in prevention of any financial and economic violations and failures is accurately traced. Stages of audit inspection: – Initial or a preparatory stage (includes the actions of the auditor providing reliability and efficiency of the analysis: matching and ordering of materials, check of a comparability and interconnection of various indicators of the reporting); – At the second stage a large number of various analytical calculations is carried out; – The third stage is reduced to generalization of results and a formulation of an expert and auditor assessment. 89

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Carrying out audit procedures, auditors check completeness of reflection of the major economic transactions in financial accounting and the reporting; timeliness and correctness of fixation of results of inventory count of a property, plant and equipment (funds), material values, money and calculations; safety during a fixed term primary accounting and other sort of the substantiating vouchers confirming making of economic transactions and their reflection in accounting entries. On the basis of check and financial analysis auditors shall certify in the official form reasonable opinion on resulting effects of activities of controlled economic units for a certain period. Thus they, as a rule, undertake the obligation performed to arrange audit opinion to which documentary results of the carried-out researches are applied, analyses, examinations, in aggregate, giving a fair idea of based on what data the opinion of auditors is formulated. Professional services of auditing firms are paid, and firms function as the self-supporting organizations with the status of the legal entity. It provides implementation of the main difference of institute of an audition from other forms of the organization of financial control – it’s complete, including economic, independence of the state and departmental managerial structures. The competition between auditing firms forces them to fight very actively for quality of the services, scrupulously to treat image of firm. Assigned legal responsibility for results of checks doesn’t allow auditors to issue biased information, predetermines need of insurance of auditors and auditor activities. Auditing firms work at a basis of the charters developed and accepted by them. At the same time their activities, as a rule, are coordinated and goes centralized auditor administration. Its activities are directed on more active, ordered formation and further development of institute of auditors, improvement of quality of their work, including by means of adaptation to the international rules and requirements.

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Chapter VII. Financial control Questions: 1. Define the concept of «financial control». 2. What types of checks does financial control include? 3. Name tasks of financial control. 4. Characterize functions of financial control. 5. What is the value of budget control? 6. Call control area of Parliament of the Republic of Kazakhstan. 7. Characterize tasks and functions of the financial control Committee of the Ministry of Finance of RK. 8. Call tasks and functions of tax services. 9. Give classification of financial control according to forms of its carrying out. 10. What are the methods of financial control? 11. What is the difference between audit and inspection? 12. What is the inspection and supervision, as methods of carrying out financial control? 13. What is the sphere of financial control? 14. Give classification of financial control according to subjects. 15. What types of financial control does contain the State financial control? 16. What is the difference between nation-wide financial control and departmental financial control? 17. What is the intraeconomic financial control? 18. What are the features of public financial control? 19. Give the definition of independent (auditor) control. 20. What is the practical significance of the audit? 21. What is the role of intra corporate audit? 22. What is the external audit? 23. Call tasks of audit. 24. What stages does audit consist of? 25. What is the market of audit services presented by in RK?

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CHAPTER VIII FINANCE OF ACCOUNTING ENTITIES 8.1. Bases of functioning of finance of accounting entities

F

inance of accounting entities is a component of common system of finance. They represent the main, initial part of finance, because it covers the most important sphere of the monetary relations in the country-initial distribution of a created public product, a national income and national wealth – sources of ensuring requirements of the society, material costs of the non-productive sphere. «Accounting entities» is a common notion, because includes activities of different and numerous economic agents of different levels from local economic units to their higher systems of managing directors, which can own assets, accept liabilities, perform economic activity and transactions with other units. Availability of finance of accounting entities, as well as a whole state finance, is caused by existence of the commoditymoney relations and action of economic laws. The commoditymoney relations are predetermined by the public job specialization, different patterns of ownership. Extent of job specialization between separate producers determines availability of the independent entities of different types, their structural divisions up to separate workplaces. Separate producers make and exchange results of the work, products, and services by purchasing and selling for money at the prices reflecting cost of the goods. In aggregate these relations are commodity-money. 92

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Finance of accounting entities expresses the main parties of process of expanded reproduction in a monetary form and promotes its realization according to requirements of economic laws. They are applied to distribution and use incomes and the accumulating, which are necessary for further development of a national economy. Development of economy is impossible without the strong and well-adjusted finance of accounting entities which are the important economic tool of a management system of national economy and a powerful tool of transformation of economy. Representing a part of relations of production, they in aggregate with other relations of production directly influence efficiency of business activities of local control links. Finance of accounting entities includes finances of entities, firms, societies, concerns, associations; the industry ministries and other economic organizations, intereconomic, cross-industry, cooperative organizations, the organizations performing industrial, agricultural, construction, transport, supplying and sales (intermediary), trading, procurement, prospecting, project activity, consumer services of the population, communication, housing-and-municipal services, provision of various financial, credit, insurance, scientific, educational, medical, information, marketing and other services in diverse spheres public useful activities. Finance of each industry of a national economy has the essential differences following from technical and economic features of this industry. But at the same time the essence and the basic principles of the organization of finance of the entities of all industries are identical that is caused by general principles of managing and uniform economic laws. All this also predetermines possibility and need of consolidation all of them in an initial link – finance of accounting entities. Finance of accounting entities represents the economic relations arising in the course of forming, structuration, and use of their cash funds; being a leading link of all financial system of society, it creates the main source of financial resources. Finance of the entities is closely interconnected with a financial position of the state and a condition of cash incomes of the public. 93

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As a part of finance it is also possible to allocate forming and movement of business assets of money; the address of a cash part of funds and the funds, formed during income distribution between the entity, authorities and workers. The main functions of finance of an accounting entity are: – Accumulating (mobilization of the income, financial resources, equity forming); – Distribution (optimization of the financial proportions, proper implementation of expenses, transformation of financial resources into trust funds of money); – The control; – Communication (the financial relations with partners, the state and so forth). Accumulating function of finance of accounting entities includes the relations connected with forming and movement: а) Funds of own mean (authorized, reserve, added capital, retained earnings and so forth); b) Funds of borrowed means (bank loans, loans, budget credits, bonded loans, etc.); c) Funds of the involved means (funds of consumption, calculations for dividends). Feature of distribution function of finance of accounting entities consists that in the course of an individual circulation of means cost of a made product is distributed on the basis of the established economic standard rates (rates of taxes, depreciation charge rates, percent for the credit), as determines participation of finance in distribution and cost redistribution in reproduction process. Economically reasonable distribution of money funds and accumulating is the main sales term and the reproduction concept of finance. Control function of finance of accounting entities plays important role in entity economy: it is impossible to manage without accounting and control. Finance of the entities along with other economic levers plays important role in management of economy, stimulations of increase in production and ensuring 94

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necessary control of rational use of labor, material, natural and money resources. Monetary control is performed not only in the entity, but also in case of its relations with other entities, superior organizations and financial credit institutes. In the entity the quantity and quality of work, education and use of the fixed, revolving and incentive assets is supervised. In relations between the entities control occurs in case of payment of the delivered goods, the rendered services and the executed works, observance of contractual conditions. In case of interaction with financial and credit bodies control is performed in case of accomplishment of liabilities to the budget, during the obtaining and return of bank loans. Communication function is expressed through the diverse relations in the sphere of finance of accounting entities are reduced in the integrated groups; these relations arise in the course of expanded reproduction between: 1) The state and its production enterprises when financing from the government budget, and also in case of a fee of payments in the government budget, off-budget funds, forming of currency funds and resources; 2) Accounting entities and a credit system on crediting and interest payment for provision of long-term and short-term loans; 3) Production enterprises and their superior organizations in case of income redistribution, funds, on lease payments; 4) different accounting entities entering among themselves in the relations on payment of raw materials, materials, the fuel, finished goods, works and services, including in intermediary transactions (with the exchanges, broker offices and etc.); 5) Accounting entities and insurance bodies on proprietary insurance, the personnel; 6) between accounting entities in case of release and implementation of shares and other securities, in case of mutual lending and equity in case of creation of joint businesses; 7) Between owners and hired employees (workers and employees) – on compensation, a financial incentive, sanctions, in case of a share issue and dividend payout on them; 95

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8) in accounting entities in connection with forming and use of trust funds of intraeconomic appointment – authorized, consumption, accumulating, reserve, currency, repair or their possible modifications; 9) The core business of accounting entities and own capital construction in the course of providing with financial resources of costs for capital investments, and also payments of works and the services executed for own capital construction. The main features of finance of accounting entities are: 1) Many-sided nature of the financial relations, variety of their forms and designated purpose; 2) Obligatory availability of business assets and origin with respect thereto the relations connected with their forming, permanent replenishment, increase and redistribution. Business assets are a dynamic element of production, their movement is continuous as production; thus there is a permanent change of forms of cost. For any moment of activities of the entity business assets can be in material and material and cash forms; 3) High activity, impact possibility on all parts of business activities of the entity; 4) They represent an initial basis of all financial system. Thus, finance of accounting entities represents the economic relations connected with creation, distribution and using of monetary incomes, accumulating and funds in case of production and sales of products, works and rendering of services. 8.2. Classification of accounting entities. Features of the organization of finance of main types and managing forms Numerous accounting entities are classified by different signs and the bases of their differentiation by this or that type can have essential impact on nature of the organization of finance. The most general sign of differentiation is reference of 96

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the entities and the organizations to one of fields of activity – material or non-material (non-productive). Other sign of classification of accounting entities is nature of their financial activities – commercial or non-commercial. Important sign of classification of the entities, the organizations, is belonging to a certain pattern of ownership. According to the legislation in the Republic of Kazakhstan there are two patterns of ownership: private and state. The private property acts as property of citizens and (or) non-state legal entities and their associations; the property of public organizations acts as a special type of private property. The state-owned property is provided by republican and municipal property. In the called patterns of ownership can be created different economic structures that generate bigger quantity of forms of business of managing: 1. The state entities founded on state-owned property, including: The republican – for the solution of nation-wide tasks of economic and social development of Kazakhstan; The entities of municipal property – for the solution of tasks on satisfaction of socially economic requirements of the society of the corresponding territory, are in local subordination. 2. The entities founded on private property of legal entities: economic partnerships of different type, including joint-stock companies, cooperative entities and organizations. 3. The entities founded on property of public associations. 4. Joint businesses on the basis of consolidation of property of founders, including foreign legal entities and citizens. 5. The private enterprises founded on property of citizens. 6. The mixed entities with participation of different abovementioned patterns of ownership. The legislation of the Republic of Kazakhstan guarantees equality of all patterns of ownership and equal protection of the rights of property subjects. 97

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It is necessary to differentiate forms of business of the entities and their sizes. Forms of business of the entities are determined by pattern of ownership – state, private (with versions). By the size, entities can be small, average and big. Any form can be small, average and big. In legislative order parameters of small enterprises of different fields of activity for the purpose of stimulation of their development as the effective structures allowing quickly solving production and organizational problems can be determined. There are features of forming of funds of subjects of managing depending on patterns of ownership. For example, financial funds of production enterprises are formed at the expense of own sources (the depreciation charges, the income (profit), some other; creditsof banks; means from issue of securities; at the state entities these sources of means are supplemented in necessary cases with assignments from the budget and offbudget funds; cooperatives have means of shares of boats of cooperatives. In practice the mixed forms of formation of funds on their sources, caused by the mixed patterns of ownership most often meet. According to forming of initial funds of production financial results of economic activities are distributed and are used: 1) Gross income; 2) Net profit; 3) Dividends; 4) Share income; 5) Expense recovery of the budget (budget credits) and off-budget funds. The variety of different classification characteristics of the entities, the organizations, their possible combinations at part managing bodies complicate the financial mechanism of this link of a financial system, require constantly its enhancement, an accurate legislative regulation of the activities, well-adjusted management and control of financial processes. The entity as the main link of economic system functions 98

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in case of variety of patterns of ownership and managing, development of the commodity-money relations and the market. The organization of finance of the entities and the organizations functioning on a share basis – economic partnerships, cooperatives, and joint businesses – are determined by features of forming of means of such entities and subsequent distribution of gained income according to a share in property of each participant. Founders and participants of such entities and the organizations perform the deposits in the form of money, different types of property (buildings, constructions, the equipment, etc.); property rights (rights to use the earth, natural resources, property, intellectual property). In relation to joint-stock companies certain features of the financial relations are shown in application of shares as means of financing of production and commercial requirements. It is promoted by a variety of organizational forms of activities of joint-stock companies: they can be the opened or closed type (that is with distribution of shares among a limited circle of holders), society with the complete or limited liability. A variety of categories of shares (the share of the entities, the share of labor collective, the share of joint-stock companies), their types (exclusive, nominal, to bearer) has impact on the organization of finance. The balance sheet net income of joint-stock company is determined as it should be, stipulated by the legislation. The net income (after tax payment) remains at the disposal of society and is distributed between shareholders in the form of dividends, listed in allowances, on development of production or other purposes provided by the decision of general meeting. Joint-stock pattern of ownership effectively works in economically developed countries and is conventional in world practice. It attaches the mass of small owners – shareholders to participation in forming of means of those entities or industries which are most effective during this period, creates possibility of a modulation 99

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of financial resources in the most priority fields of activity. Possibility of creation belongs to advantages of a joint-stock form enough large enterprises unavailable to individual owners of means and even for separate financial institutions. The size of joint-stock enterprise will be conformed only to scales of a market demand for its products, controllability, market development prospects. The important place in economy is taken by a public sector. In this sector the following types of the entities function: 1) based on the right of economic maintaining which is the corporeal right of the entity received property from the state as property and performing within the legislation of a right of possession, using and orders this property; 2) based on the right of operational management (the state entities) which is the corporeal right of the entity received property from the owner and performing it in limits, legislations according to the purposes of the activities, tasks of the owner and purpose of property of a right of possession, using and the order this property. The state entity surely executes the state order. Appointment of the state entities: the solution of the social and economic tasks determined by requirements of society and the state: 1) Material security of defense capability of the state and protection of interests of society; 2) Production of goods (works, services) prime necessity in those spheres which aren’t covered, or are insufficiently meant by a private sector; 3) Activities implementation in the spheres carried to the state monopoly or being function of the state; The authorized body in relation to the entity carries out functions of the owner and state body. The owner resolves issues of creation of the entity, determination of a subject and control of safety of property is more whole than its activities, its reorganization and liquidation. The owner has the right to receipt of a part of profit from use of property of the entity. The share 100

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of a net income which is subject to assignment to the owner is fixed in annually established by authorized body in coordination with the Ministry of Finance the net income allocation standard rate. The size of an authorized fund is determined by the founder, but can’t exceed a total cost of property given to the entity. The state entities are created for accomplishment of mine-rescue and other special works in case of extraordinary and emergencies, natural disasters; content and development of a network of objects of infrastructure; activities in the sphere of communication and telecommunications; production business activities implementation in the field of health care, conservation, education, social protection, science and culture and in some other special types of activity. Goods prices (works, services) made and implemented by the state entities are established by authorized body. Activities of the state entities are financed at the expense of own income according to the estimate approved by authorized body. In case of insufficiency at the entity of own means for a covering of its expenses missing means are allocated from the relevant budget. Income gained by the state entity over the estimate, is subject to transfer in the relevant budget. Affiliated enterprise – the legal entity created by other state entity at the expense of the property. Only the entity on the right of economic maintaining has the right of creation of affiliated enterprise. Affiliated enterprises are created for the purpose of disaggregation of the main entity, transformation of branches of the main entity in independent legal entities, creations of additional and specialized productions for increase of efficiency of the main production, release from types of activity unusual for it and functions. One of effective forms of business of conducting business activity is joint businesses with participation of foreign firms. The property of joint business is formed by the expense of deposits (fees) of participants, determined by the agreement. Payment of a profit share due to it, and in case of liquidation of joint business or an exit from it – other assets is guaranteed to the foreign participant. 101

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Joint businesses pay the taxes established by the legislation, in case of liquidation of joint business the unused amount of its reserve fund is subject to the taxation on effective rates. The income, less the amounts on relations with the budget and the amounts directed on creation and replenishment of funds, is distributed between participants in proportion to equity in an authorized fund if other isn’t provided by the agreement on entity creation. The legislation established an education and functioning order in the republic of joint businesses with participation of foreign firms. The equity interest of the entity is determined by the arrangement. The partner represents necessary guarantees, including transfer abroad in currency of the part of profit which is due to them after tax payment, possibility of an investment arrived to production expansion, participation in management, legal protection of their property in the republic territory. The cooperative sector of economy is one of links of a single economic complex. Development of patterns of ownership during formation of the market relations opens broad lands for revival of this democratic form of managing in new fields of activity and expansions in the traditional. In system of cooperation cooperatives of two main types function: production and consumer. Production cooperatives perform production of goods, products, and works, paid services to the entities, the organizations, organizations and citizens. The sphere of their activities is very diverse: production, procurement, conversion and sale of agricultural products, products of technological appointment, production of consumer goods, rendering various material services. Consumer cooperation meets the need requirements of the members and other citizens for trade and consumer services. Consumer cooperatives can develop also various productive activities that are to be cooperatives of the mixed type. By local links in consumer cooperation are united in the unions - district, regional, republican. Feature of activities of consumer cooperation is that the fixed and revolving funds are the cooperative (joint) property formed at the expense of introductory and shares of member unit holders and the income from economic activities. 102

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While forming of market system of managing, an important problem is overcoming of monopolism in spheres of production, distribution and the goods circulation, in adoption of economic decisions, nonadmission of naturalization of economy, isolation and self-isolation of regions of the republic is. The solution of this problem is passed in the direction of transformation of the relations of property, development of free entrepreneurship and the competition, carrying out an antimonopoly policy, forming in national economy of parallel production structures at the expense of disaggregation and production diversification. Transformation of state-owned property by privatization and privatization in other forms provide variety of these forms on the basis of which objective preconditions for forming of real owners in spheres of production of goods and services are created, stimulates entrepreneurship and the competition, creates at workers motivation to high resulting effects of work. Privatization is transfer of function of an economic board and appropriate authority from the state on level of the entities, replacement of vertical economic communications on horizontal; privatization can occurs and without change of the owner. Privatization – acquisition at the state legal entities and citizens of objects of state-owned property, and also shares of the joint-stock companies created by transformation of the state entities and the organizations. Restructuring covers measures of technologically reasonable segmentation of production on the separate is perspective competitive managing objects with plan development of possible sanitation (financial improvement), privatizations or liquidations of the insolvent entities. Restructuring precedes monitoring (studying) of a financial position of object, including accounts payable level to banks, the budget, suppliers. Concerning the objects having strategic value, executing the state order, bearing important social functions actions of financial and economic improvement (sanitation) are applied. Actions provide system of measures for reorganization and entity upgrade, adjustment 103

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of modern management, to a possible reshaping of production, recovery or search of the new markets, streamlining of assets and liabilities of balance, ensuring profitable work, solvency recovery. The financial support of the signified entities is performed on a returnable basis. Sanitation is applied also as reorganization extrajudicial procedure to the entities – poor debtors in cases of achievement of the arrangement by them with creditors (the second procedure according to the legislation – establishment of an external property management of the debtor). The means received from privatization and privatization of the state entities, are state-owned property. Proceeds go first of all on a covering of debts of the privatized entity if in case of an assessment its cost isn’t reduced by debt size. The order and the direction of use of means from privatization are determined by Parliament of the Republic of Kazakhstan. Thus the expenditure of means is lashed to need of settlement of a public debt, stabilization of economy, implementation of social policy, creation of the parallel production structures, new market structures. 8.3. Finance of the accounting entities operating on the commercial beginnings The purpose of a business activity is income acquisition. On the commercial beginnings the overwhelming part of the entities of the sphere of production of goods and considerable part of the organizations and organizations of the non-material sphere function: commercial banks, insurance companies, other organizations of financial sector (savings and deposit, investment funds, the stock exchanges, the different organizations serving the security market and the monetary markets), the trade and intermediary entities, trust companies and other. The identical principles are put in a basis of the organization of finance of commercial enterprises. This unity is caused by solidarity of purpose and tasks of production and general economic laws of its development. 104

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The basic principles of the organization of finance of it like the entities and the organizations are: commercial calculation, planned character, equality of all patterns of ownership, availability of financial provisions. 1. Commercial calculation – the fundamental principle and the main method of maintaining economic financial activities of the entities and the organizations. In relation to the entities and the organizations of state-owned property is acceptable to use the traditional term «cost accounting», to private, mixed – «commercial calculation» though these concepts from the economic point of view are equivalent. The principle of commercial calculation means that to the entity is allocated in fixed using the necessary for its activities main and current assets (equity) constituting its authorized fund. As the housekeeping method, commercial calculation assumes the commensurate of costs with the income from economic activities and profitable work. 2. The principle of planned character means that the financial activities of the entity are provided in advance by calculations of its parameters proceeding from the purposes, tasks of the production, the planned methods of their achievement, sequence and achievement terms. On the basis of calculations and with use of the established financial standard rates financial performance which are reflected in the special document – the financial plan are determined. 3. The principle of equality of all patterns of ownership of the entities and the organizations is implemented in a guarantee of the state of stability of the relations and development of different patterns of ownership: state, private, foreign states and their legal entities and citizens, international organizations. The owner at discretion owns, uses and disposes of the property, makes concerning its any actions which aren’t contradicting the law; use property for any business or other activities which haven’t been prohibited by the law. 4. The necessary principle of the organization of finance of the entities is availability of financial provisions (a reserve fund, risk fund) at all levels of management – both in primary production link, and in a higher link – consolidation, combine, association, concern, the 105

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ministry. Financial provisions can be formed by different methods – as a percentage to the size of funds of production and social development, according to stable standard rates from profit or the income by assignments from the last. The financial provision is intended for elimination of temporary financial straits and providing normal conditions of activities of farms, and also for financing of the costs connected with production and social development (contingencies), as a rule, not provided by the financial plan. In the course of economic financial activities of the entity and the organization are created and financial funds – the money intended for particular purposes are used. In funds money is in fixed movement – arrives, accumulates, spent. And important for functioning economic elements the following funds are the most considerable: authorized, reserve, accumulating fund, consumption fund, compensation fund, currency, and repair. Forming and other funds at the discretion of founders or staff of the entities, for example, fund of medical insurance, equity funds with others economic elements is possible. The authorized capital (equity) reflects in terms of money the size of property (equity) of the entity provided to it by the owner or the founder. The size of an authorized fund changes in the course of economic activities: increases as a result of investments (capital investments) into fixed assets, a surplus of current assets at the expense of a net income, revaluation of commodity -material values and other replenishments of the equity; decreases at the expense of write-off or transfer of a property, plant and equipment, charge of their depreciation, write-off of losses, a price reduction of commodity -material values. On the basis of the means left at the disposal of the entities that is after tax payment and other obligatory payments the entities and the organizations create complex funds – fund of consumption and accumulating fund. The fund of consumption includes: – Expenses on compensation of all personnel (production and nonproductive); 106

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– Money payments, including remunerations following the results of work in a year; – The funds allocated for other types of encouragement for work in cash and natural forms; – Financial support; – Funds for establishment of labor and social privileges; – Income (dividends, interests), paid according to shares and deposits to entity property; – Other payments having individual nature, except remunerations for improvement suggestions, inventions and opening. The fund of accumulating is created for the account: – The income (profit), left at the disposal of the entity; – The depreciation charges on recovery of fixed assets; – Proceeds from sales of the disposed property; – Credits of banks; – Other sources. The accumulating fund on financing of costs on ensuring expanded reproduction is used: – On replenishment of the fixed and revolving funds; – On scientific and technical development, development of new products; – Implementation of no consumptive actions; – On equity in construction of objects of a production and social infrastructure. Large enterprises and the organizations can create and use the separate funds similar on content of sources and expenses instead of complex funds of consumption and accumulating: salary, compensations, production development, and social development. At the discretion of labor staff of the entity can form a financial provision (a reserve fund, risk fund, insurance fund). Its appointment – to provide financial stability of the entities during temporary deterioration of an economic financial position and to compensate the additional (unforeseen) costs arising in a production process and sales of products. The fund is formed at the expense of profit or the income left at the disposal of the entity to their direction in 107

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funds of consumption, accumulating and other funds – in case of their sufficiency for these purposes. Currency funds of the entities and the organizations are formed at the expense of currency means of the following sources: 1) Export currency earnings; 2) Fees in an authorized capital (equity) in currency; 3) Currency loans of banks, including foreign, other financial institutions and foreign legal entities; 4) Currency purchase in the domestic exchange market through authorized banks and exchange points; 5) The financial help (grants) from nonresidents. The repair fund is created at the entities for carrying out all types of repair of fixed assets: capital, average, current which are financed due to product cost, works and services. The entities can independently establish standard rates of contributions to repair fund depending on the forthcoming costs for the repair work, which amount is determined by a condition and degree of wear of fixed assets. Partially repair costs can become covered for the expenditure account of future periods. Thanks to finance the fixed circulation of business assets (the production equity) entities – the main and turnover is performed. It is reached by advancing of financial resources for acquisition, increase or completion of natural and material elements of production – labor instruments and objects of the labor. The means of production consisting of labor instruments and objects of the labor, expressed in a cost form, represent the fixed and revolving business assets. On operating accounting entities the fixed and revolving funds are filled after sales of products (services) and receipt of the corresponding income of which in the form of the depreciation charges means for compensation of wearing-out fixed assets are created, and other part of the income from sales of products goes on acquisition of the commodity -material values which are a part of revolving funds. In case of formation of the new entities or their expansion the considerable part of means is created at the expense of fees of the founders, the raised financial funds from sales of shares; for the state entities are budget funds and the state off-budget funds. The part of means can be 108

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advanced at the expense of centralized financial resources of a higher control link: associations, associations, ministries, departments. Recently the increasing distribution means of foreign investors act as a source of financing. On operating plants an important source of financing of a surplus of business assets is the net income (profit) left at the disposal of the entity, as directly directed on these purposes, and through financial funds – fund of development of production (accumulating fund), fund of production and social development, a financial provision, other investment funds. On these purposes bank loans also are utilized: for financing of fixed assets – long-term, for turnover – short-term. Source of increase in current assets is, besides, the accounts payable and a surplus of steady liabilities – the minimum wages payable, assignments on social needs, and other types of debt of the entity on payments. Thus, sources of financing of creation and a surplus of business assets can be grouped on the following: own, attracted and loan. The most important component of current assets are own current assets as their availability, safety, a ratio with other means, determines degree of financial stability of the entity in the specific market. In Kazakhstan, according to accounting standards in an indicator «the income from sales of products (works, services)» is reflected the income from the core business, including except the income from implementation of the commodity -material inventories, the performed works, the rendered services) also income gained in the form of remunerations (interest), that is percent, dividends, the fee and a rent minus the VAT, excises, other taxes and liabilities, the cost of returned goods and discounts from sales and the price. The difference between the income from sales of products and its cost value forms a gross income. However according to this scheme cost value doesn’t reflect all costs; the part forms «period expenses» of them, namely: – Total and administrative expenses (expense amount of general economy and administrative assignment); – Selling expenses (sale of commodity -material inventories); 109

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– Expenses on payments of remuneration (interest) – percent (for the obtained credits, lease of property and other expenses on percent). The difference between gross income and expenses for the period reflects the financial balance of trade and is called «income (or loss) from operations». The income (or a loss) from not the core business – the financial result received from transfer to using of assets, from revaluation of securities, etc. The income amount (loss) from the core business and the income (loss) from not represents to the core business the income (loss) from regular activities to the taxation. After a deduction from it the income tax income (loss) from regular activities after the taxation is gained. Corrected on a loss from emergency situations it represents a net income (loss) of the entity. The order of income distribution is established also depending on applied schemes of the taxation. So, in Kazakhstan the scheme on a gross annual income and legislatively established deductions including costs for commodity-material inventories, for compensation the depreciation charges, remuneration to banks, contributions to reserve funds, insurance payments and some other costs is accepted. 8.4. Finance of non-profit organizations and organizations Non-commercial activities are provided by its various types which can be united in the following directions: 1) Public administration and state services of general nature; 2) Defense; 3) Protection of an internal law and order and safety; 4) The prevention and liquidation of consequences of the emergency situations connected with the adverse natural phenomena, catastrophic crashes, accidents and other disasters; 5) Education; 6) Health care; 7) Social protection of the population; 110

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8) Fundamental science; 9) Culture and art; 10) Protection of environment; 11) Public and household accomplishment of the cities and settlements (lighting, gardening, roads, bridges, sidewalks, etc.); 12) Public associations and organizations; 13) Welfare and humanitarian institutions and funds. General feature of the mentioned activities is that the main motive of functioning of the organizations or organizations isn’t extraction of profit or the income of results of such activities, and the satisfaction of the public requirements, doesn’t wish or unable to provide which private sector. Besides, for reasons of strategic social development a certain type of activity is necessary for concentrating in a centralized order at the state. Material basis of activities of non-commercial organizations, the organizations are funds of non-productive appointment which have a natural and cash form. Funds in a natural form are purchased by the organizations and organizations as the goods as purchase and sale for determined price and in the course of consumption lose the cost. Forms of movement of the non-productive funds, performed in the course of creation of a non-material product and services, and also conditions of their reproduction have industry features. In this type of activity mental work of high qualification therefore in costs, as a rule, the main place is occupied by compensation is applied mainly. The non-material product isn’t subject to accumulation, it can’t be turned into an inventory, but it has the cash assessment equal to a cost amount of organization, the organization. Methods of conducting business activities of non-commercial activities is estimate financing – in case of gratuitousness of rendered services and the benefits, and in case of a onerousness – on the basis of cost accounting and self-support. In market conditions more and more the organizations pass for the beginning of commercial calculation – implement rendered services in the demand prices with formation of sufficient accumulating for self-development. 1. Estimate financing – provision of money from the government 111

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budget for a covering of expenses of the organizations and the organizations which do not have own income. The amount, the target direction and distribution of budgetary appropriations to content of organizations of the non-productive sphere is determined by an expense budget. 2. The self-supporting method of housekeeping is applied in organizations and the organizations which costs are compensated from proceeds from sales of non-material services and the benefits. Here belong: the education and health care organizations working at a paid basis, the industry research institutions, some organizations of arts, the entertainment entities. This method is used by economic organizations of non-profit organizations and organizations. They make the various money expenditure connected with activities: realizing the benefits and services, economic organizations receive revenue; excess of the income over expenses forms accumulating. 3. The method of self-support of costs provides the organization of business activities on the basis of services for a fee which price is determined with reference to amount of expenses without accumulating. This method is applied in the organizations rendering paid services in the field of cultural and educational activities, the organization of free time etc. (rates and schools on acquisition of household, professional skills and knowledge, learning of foreign languages, national clubs on interests). In types and industries of non-commercial activities there are following financial relations: – Between an industry and the budget in connection with receipt of means as financing and, in some cases, – accomplishment of financial liabilities before the budget; – The intra-branch relations between higher and subordinate bodies in connection with distribution and centralization of financial resources; – Intraeconomic subjects, that is between divisions; – The cross-industry – between the organizations of different industries; – Between the organizations, organizations, and their workers on compensation; 112

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– Between the organizations, organizations and their consumers (on fee). Can put the relations characterizing narrower definiteness of interrelations in specific types of activity, for example: – Between public organizations and their members on payment of fees – introductory and member, and also to payments of incentive nature to members of these organizations for certain achievements and results of activities; – Between non-profit organizations and their sponsors on transfer of means in a material and cash form for organization activity support; – The relations of compulsory insurance of a certain contingent (the military personnel, employees of tax services etc.) the organizations in insurance companies; – Also credit relations in certain conditions are possible. The listed financial relations express forming, distribution and use of cash funds which can be united in the following primary groups: – The funds providing operational organization activity and organizations; – Funds of capital investments; – Funds of incentive and stimulating nature; – The funds connected with satisfaction of material, welfare and household needs of workers and the served contingents (for example, pupils in the educational institutions sick in medical institutions); – Funds of development of the core business. As production of any goods, services, and the benefits is connected with the expenses, the listed types of activity shall be financed for ensuring process of their reproduction. Sources of financing of activities of non-profit organizations and organizations are also various. Each of the directions of non-commercial activities is characterized by the specifics, includes the structures which are carrying out functions, peculiar to the material sphere and a business activity. For example, the majority of them have own entities which work will be organized on general principles of functioning of finance of the entities. However sales of products of such entities are regulated not by market criteria of the demand and supply, and internal requirements of the 113

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organization. Such products are implemented at the prices covering costs of production and creating profit (net income) at normalized level – for ensuring acceptable self-financing and ensuring authorized organization activity – the owner of the entity. Sources of financing of the organizations and the organizations performing non-commercial activities, it is possible to group depending on extent of participation of the state in functioning of these structures. There where the state completely performs the corresponding functions, maintenance costs of the organizations is performed at the expense of means of the government budget. Here belong: public administration, law and order protection, defense, partially education and health care. In other directions the state performs a supervising coordinating role, and sources of financing are obligatory assignments of means by all subjects of the managing, centralized in the state special off-budget funds. It for example, was applied in Kazakhstan till 1998 to financing of a social assistance (through the Pension fund), medical insurance (Compulsory medical insurance fund), social insurance (Social insurance fund). The source of financing of non-profit organizations second for value are own means received in an income type (revenue) from provided services, the carried-out works, direct the organization by the nature of its activities, and also a gross income (profit) on production at jurisdictional enterprises, the income of use of other property being in the property of the organization. As the third source of financing the credits of banks serve. This source is possible to use by the organizations rendering paid services as need of return of borrowed funds requires well adjusted, stable work of the organization throughout the period exceeding terms of using the credit. More we accept this method of financing for the organizations having jurisdictional enterprises, as more guaranteeing security and liquidity of borrowing facilities. Specific method of financing of public associations and the organizations are the membership fees of their participants. As the source of financing of the organizations and organizations of a social orientation, culture and art, public associations, funds 114

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serve assignments on the charitable purposes from the entities and the organizations of the sphere of production of goods, humanitarian assistance of a foreign state, the organizations, the companies, the international organizations. When financing scientific researches the method of grants – nonpaid support is applied from the individual, the company, firm, the international organization, the state, scientific developments of a certain direction, the project, group of scientists (laboratories, departments) or the certain scientist for the purpose of completion of research and finishing of its results before implementation or other application. A certain source of replenishment of means for content and development of the organizations and organizations of non-commercial activities is the income of placement of a part of resources located by them on deposits of commercial and savings banks, and also in securities in the financial market. Expenses of non-profit organizations and organizations are directed on ensuring their functional activities provided by a provision, the charter or other approved document. The structure and an expense structure are determined by accessory of the organization or participants of organization to one of activities, and also a used method of conducting these activities. The organizations and the organizations operating on the basis of self-financing and self-support calculate and plan financial results of work and arrange them in indicators of the regular financial plan or the business plan (see section 6.2. heads «Financial planning and forecasting»). In this case the list of production costs and rendering of services is similar developing in the sphere of production of goods. The organizations and the organizations consisting on budget financing, develop the estimate in which characteristic indicators of activities of organization and distribution of means on classification divisions are reflected. According to economic classification in estimates expenses are grouped on category, a class, a subclass, and specifics. It is necessary to mean that financing of so-called state-financed 115

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organizations shall be organized on the basis of competitive selection of programs of provision of their services when for financing the program of services of that organization or the organization which will provide the greatest efficiency (their quality, the assortment, the accomplishment terms, acceptable cost etc.) gets out of the budget. This principle of optimality conforms to requirements «marginal costs – benefits» marginal theories of utility with reference to productivity of action of any structure in the conditions of the market environment. 8.5. Finance of the state entities In a financial system the important place belongs to the state entities. At the present stage of development, the state-owned property in many countries keeps strong positions in economy. The state entities receive numerous orders, providing private entrepreneurship the extensive and guaranteed market on a number of products, stimulate capital accumulation process by redistribution of a national income for benefit of other links of a financial system (through low prices and rates for products state and high prices on products of private enterprises consumed by state) and investment of own means in remunerative industries of economy. It is possible to allocate some reasons of formation of the state entities which often intertwine and operate at the same time. 1. The economic reasons are caused by need of intervention of the state in economic processes. Functioning of the state entities influences a ratio between separate industries of production of goods, promotes change of its structure, and stimulates growth of progressive industries. Wide implementation of new equipment and scientific achievements, automation of production processes require large financial resources, advanced power supply sources. In this regard special value purchases development within the state of such industries, as gas, electro energy, oil, coal. In addition, the state research centers and the experienced entities are created; the improvement of the monopolistic 116

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enterprises which have appeared on the verge of bankruptcy is made; the new entities in capital-intensive industries are under construction. The state entities are widely used as the instrument of anti-cyclic and anti-inflationary regulation. 2. Development of the above-named industries, carrying out research works requires heavy capital initial investments. Private enterprises reluctantly run risks, connected with development of new productions. Therefore these expenses are financed by the state. The financial reasons also consist in it. 3. The political reasons are caused by internationalization development that led to wide participation of the state entities in processes of integration of production and the equity. In modern conditions the state and mixed entities create foreign subsidiaries with participation of the foreign equity, conclude license and other agreements on ski-tech cooperation and thus become direct participants of the international economic relations. Many state entities implement abroad a considerable part of made products (it is especially characteristic for France which abroad sells 50 — 60 % of all products of a number of state-owned companies). (The field of activity of the state entities in the developed foreign countries is given in appendix 1) The state entities differ on a legal status, a management system, the organization of economy and finance, nature of relations with the budget. They can be divided into three primary groups: state corporations; the mixed entities; the entities being on budget financing. The state corporations which represent the large industrial complexes covering everything of the entity of an industry or their considerable part have the extreme importance. Each corporation affirms the special parliamentary act; it possesses production and financial independence, the right to enter contractual relations with other entities. Distinctive feature of the state corporations is their «autonomy», that is their daily productive activity is out of parliamentary control; finance is separated the government budget. The mixed entities — it the entities which part of the equity belongs 117

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to the state. They are created as a result of acquisition by the state of a part of shares of the entity or construction by the state of the entities with attraction to its participation of a private equity. Management of such entities similarly to management of joint-stock companies. The entities being on budget financing are a part of managements of the relevant ministries or municipalities. All their business activities are regulated by the state. The profit fully or partially arrives in the relevant budgets, and capital investments are financed mainly at the expense of budgetary appropriations. These entities annually constitute the estimates approved at the same time with state or local budgets. On them the procedure operating concerning state and local budgets completely extends. Finance of the state entities represents set of the economic cash relations connected with forming and use of funds of money and accumulating’s of the entities, and also with control of forming, distribution and use of these funds and accumulating’s. Relations of the state corporations with budget system are performed in the area of payment of taxes by them in state and local budgets, percent for the credits and obtaining from the central budget of subsidies, mainly on financing of capital investments, grants and the credits under high percent. Relations of the mixed entities with the government budget in the area of taxes develop as well as at regular joint-stock companies. Questions: 1. Give the determination to concept «Finance of accounting entities». 2. Uncover the meaning of finance of accounting entities in system of financial relations. 3. In what is finance of accounting entities in the process of expanded reproduction expressed? 4. What does finance of accounting entities include? 5. Call the main functions of finance of accounting entities. 6. Uncover the meaning of heat-sink function of finance of accounting entities. 7. What is the specialty of distribution function of finance of accounting entities? 8. What is the role of control functions of finance of accounting entities? 9. What is the essence of communication function of finance of accounting entities? 10. Call the main lines of finance of accounting entities.

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Chapter VIII. Finance of accounting entities 11. Open the economic essence of finance of accounting entities. 12. Give the main classification of accounting entities by different signs and the bases of their differentiation by this or that type. 13. What financial results of business activities are the entities characterized by? 14. What is the specialty of finance of joint-stock pattern of ownership? 15. What is the role of finance of the entities of a public sector? 16. What is the state entity? What is the role of finance in these types of the entities? 17. What is the specialty of finance of joint businesses? 18. Open the role of finance of cooperative sector of economy. 19. Differentiate the meanings: denationalization and privatization, restructuring, sanitation. 20. What is the purpose of a business activity of the entities? 21. Call and open the value of the basic principles of the organization of finance of the entities functioning on the commercial beginnings. 22. What monetary funds do the entities create? Designate their functional value. 23. Call the main sources of attraction of financial resources for the entities functioning on the commercial beginnings. 24. Define turnover and non-current assets of the entity. 25. Differentiate the concepts: own, involved and entity borrowed funds. 26. What are the features of finance of non-profit organizations and organizations? 27. Call the main directions of non-commercial activities. 28. What is the general feature of non-commercial activities? 29. What is the material basis of activities of non-commercial organizations, the organizations? 30. Call the methods of conducting business activities of non-commercial activities. Characterize them. 31. What of the main sources of financing of the organizations and organizations of non-commercial activities do you know? 32. What is the role of public finances at the present stage? 33. What is the «autonomy» in the state entities? 34. Define to the concept «public finances».

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CHAPTER IX GENERAL CHARACTERISTICS OF THE PUBLIC FINANCE 9.1. Economic activities of the state

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he government in any country participates in the economic life depending on a number of factors: from the chosen model of development of the society, political system, the established traditions, external factors. Economic activities of the government is manifested in the following functions: 1) definition of the legal framework conducive to the normal course of economic development; 2) restriction of monopolistic activity and protection of competition; 3) redistribution of income and wealth; 4) the stabilization of the economy; 5) redistribution of resources. Effect of these functions directly or indirectly related to the «Finance» category using; largely this link is apparent for the third, fourth and fifth functions of the government. The government carries out the redistribution of income and wealth, because the market system generates substantial inequality in their primary distribution. The government uses the taxing system, transfers, the regulation of wages, prices for equalization of incomes of citizens. The actions of the state on stabilization of economy include 120

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the control of the level of employment and inflation, caused by the fluctuations in the economic situation, as well as measures to stimulate economic growth. Redistribution of economic resources caused by the imperfection of the market system in two situations: 1) deviation of the equilibrium of the volume of production of some goods from their optimal level; 2) the refusal of the market in resource allocation or their insufficient allocation for production of public goods, benefits and services. In the first situation, the production or consumption of a number of goods and services raise the costs or benefits of subjects, which are not the direct producers or consumers of the goods. These phenomena called «by-effects» or «spillovers» and represent the benefits or costs of individuals or groups, which are not participants of the economic processes. The spillover costs are those, which connect with pollution of the environment, the presence of noise, vibration, and various inconveniences. In these cases, manufacturers are shifting part of their costs on population and the costs of producers are underestimated. As a result, the producers may have a greater volume of production, and resources come in increased volumes for the production of these goods. To equalize spillover costs the government conducts regulatory measures that cover the supply: 1) legislative restriction of activity or requirement to bring it to the conditions, precluding the harmful effects; observance of norms and standards of such activities will lead to increase costs and will lead to adequacy of balanced and optimal production volumes; 2) implementation of special tax, which is equal or close to the spillover costs, which will increase the overall cost of the subject of management and will provide the state of equilibrium. In both cases, the excessive allotment of resources to the product or the service will be disposed. The spillover benefits create education, sanitation, medical care, weather forecast and a number of other services from which not only specific users of these goods have the benefit, but the whole 121

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society has the benefit too. The users of these services form only market demand and the spillover benefits complete the demand to the intrinsic dimension and indicate the required amount of the provision of services. This situation characterizes the lack of resources for such services. Regulating actions of government in the spillover benefits are aimed to increase demand and supply. The demand increases by provision of consumers with additional purchasing power to buy those goods or services, which caused by the spillover benefits. The supply increases by subsidizing producers, which reduce costs and allow expanding production. The process of effect of the spillover costs is shown in the diagrams. Because of the availability of these costs (diagram 9.1.) the supply curve in the position of S1, that is, the enterprise is exempt from part of the costs, which were displaced on society. In case of inclusion of all costs the supply curve would be in the position S2; the equilibrium volume decline from Q1 to Q2, and the equilibrium price will increase from P1 to P2. Deposition of the supply curve is achieved by the mentioned on page actions of the government. The effect of the spillover benefits (diagram 9.2.) means that the demand curve D1, only reflects the market conditions and an underestimate the total demand, which corresponds to the line D2, that is, the market demand does not reflect all the benefits of the company, connected with the provision and consumption of public goods and services. The market value of demand is less than optimal, and resources for these purposes are not sufficient. The adjustment of the spillover benefits shown in diagram 9.3: on the position of «a» this achieved by the increasing of demand from D1 to D2 by government subsidies of consumers of public goods, and on the position of «b» by subsidizing producers. In both cases, the equilibrium volume of production of these goods increases, but in the second case, in addition the drop in their prices achieved. The government takes a direct part in the production, and, accordingly, in the financing of the branches, producing, providing certain goods and services. They called public or social. The principal 122

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distinction of public goods from the market is that they are indivisible and they are not subject to the effect of the exclusion principle.

The divisibility offers the availability of goods for the individual buyer, its ability to acquire specific, necessary to him, the quantity of goods defines the sovereignty of the buyer. 123

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Exclusion principle means that if the consumer cannot or does not want to pay the market price for product, soon he will be removed from the benefits from this product. Public goods are indivisible, because they might be not sold to individual buyers in parts and users cannot be removed from their consumption. In this case there is no the principle of exclusion. An important difference is that the benefits of market goods differ when buying them, and the benefits of public goods – in the production process. The most typical public goods include the structure and the contents of objects of an accomplishment in the cities and settlements: street lamps, planting of greenery, sidewalks, and other conveniences; largely, services for the protection of the law, protection of the state against external attacks, services of state management. A lot of services fall within the effect of exclusion principle, that is, you can set prices for them and actualize through business structures. For example, some of the medical services, increasing the level of education, such services provides in excess of the guaranteed minimum, established by the government. They are museums, libraries, public television and radio broadcasting, road network, etc. They have common property of rendering high spillover benefits, so the private sector is not willing to produce it in sufficient quantities. Therefore, the government ensures their production and financing, to eliminate disproportions in the distribution of resources; it is the «intermediate» public services or quasi-public goods. In any case, market system either does not allocates resources for public goods (for «clear» public goods and services), or sets them in insufficient volumes (for «intermediate» public services). Therefore, the state should make a decision about the production and provision for society with certain amount of such goods and services through the mechanism of public finances. Redistribution of economic resources achieved by the fiscal system: taxes and other obligatory payments, the private sector is limited in the production of the individual, the market of goods, and the population is limited in their consumption. The part of the resources 124

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transfers to the state budget, which finances some needs, industry, production that ensures the satisfaction of public needs. From the theoretical positions the optimal amount of public goods is determined according to the theory of consumer choice, calculating the price and the volume of production by the principle of conformity of marginal benefit with marginal cost (marginal utility theory), when the General willingness of consumers to pay for the last additional unit its price will be equal to the marginal cost of the unit of public goods. However, it is not always possible to calculate production costs and benefits of using the public goods, because in the first case, there may be additional spillover costs, and the benefits spread among many consumers. Therefore, the definition of public goods «benefit costs» using the methods of analysis is supplemented by decisions of the state bodies. The problems of providing with public goods, the distribution of economic resources for their production are the subject of the state socio-economic policy, including financial ones. Such decisions should be made democratically – by the willingness of the citizens of the country, which is equal to the political voting. Voters choose a program and the party, political leaders, which will glut their common interests and preferences. In addition, on the contrary, voters can recall the political leaders from the positions, if they do not have justified their will and not fulfilled or partially fulfilled the pre-election program. Thus, the problem of redistribution of economic resources goes out of the political sphere in the aspects of the activities of the financial policy of the government, which can be solved by the fiscal mechanism and it is the subject of the effectiveness and feasibility of the state financial policy of the given stage of development of the society. 9.2. The concept and the composition of public Finance Public Finance as a part of the financial system is connected with the effect of the production and social relations in the public sector, encompassing diverse relationships in the economy and society. 125

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The economic essence of public Finance is that they express money relations, associated with the distribution and redistribution of the value of the social product and part of the national wealth for the formation of financial resources of the state, the enterprises and the use of funds received for the performance of functions of the state and state-owned enterprises. On the one hand, the subjects of financial relations in this sphere is the state, represented by its government bodies and administration, and on the other hand are enterprises, organizations, institutions and citizens. Functions of public Finance are similar to the functions performed by economic category Finance in general: it is a distribution and control function. There allocated separate parts in public Finance, each of which performs a specific function. There are state budget, non-budget funds, state credit, finances of state enterprises and organizations in the structure of public Finance. According to the level of state leadership of the economic and social sphere the public Finance are divided into the national (republican) and local controllers. Due to this diversity of financial ties on a functional purpose, the government can influence on many economic and social processes in territorial and sectorial aspects. An important role in the structure of public Finance plays budget relations. With the help of the budget correlations amount of money, redistribute from the economic organs in favor of the state, and from the government to the enterprises, organizations and population. The role of the central (republican) budget is that its resources intended for the financing of national activities: state target complex programs, defense, law enforcement, border security, state management, development of the social sphere, the implementation of international obligations. The problems of structural reforms in the economy, its stabilization, the industry’s stability, support of a unified level of social protection of the population are solved with the help of the republican budget. Local budgets are substantially used for regulation of economic processes, placement of productive forces, development of territorial 126

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infrastructure, reproduction of a workforce. Local budgets play a huge role in financing of social infrastructure. Designation of off-budget funds is financing of separate target actions at the expense of special tax or target assignments and other sources. In budgets means are depersonalized, and legal status of off-budget funds allows using means strictly on purpose. Autonomy of funds assumes independent management without participation of representative and executive agencies, which allows using means of off-budget funds more quickly. In the state credit relations are connected with mobilization of temporarily free funds of public, enterprises, organizations and with their transfer to government agencies for financing of the state requirements. In the international credit, the relations are entered by the foreign states, their companies, firms, and with international and interstate financial institutions. A similar variety of forms of use of property allows the state to make flexible and address economic and financial policy, actively apply the financial mechanism of impact on economic and social processes, sending them to the necessary course. Thus is shown the role and value of the category «public finances», as a base of economic functions of the government, implementation of the purposes and problems of development of society at each certain stage of its existence. Questions: 1. In what economic activity of the state is shown? 2. What is the role of the state in regulation of cumulative demand and the cumulative offer? 3. What is the role of the state financial policy in a solution of the problem of redistribution of economic resources? 4. What is the economic essence of public finances? 5. What are the subjects of the monetary relations in this sphere? 6. Give some functions of public finances. 7. Give a structure of public finances. 8. What is the role of the budgetary relations in system of public finances? 9. Designate the role of local budgets in carrying out the state financial policy. 10. What is the purpose of off-budget funds in system of financing of the public expenditures? 11. Open the meaning of value of the state credit in system of financing of the state requirements. 12. What is the role of local budgets in system of regulation of economic processes?

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CHAPTER X STATE REVENUES 10.1. Essence of state revenues

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tate revenues are understood as a system of the economic relations in course of which arrives a set of funds, which become to a property of the state for creation of material resources of its functioning. Income – is a difficult economic category, which works in close interaction with finance. The income is result of the certain activity connected with expenses of means (irrespective of time of their implementation). Income grows out of production, commercial, intermediary, other purposeful activity and arises at a stage of distribution of again created product and services. Income can have intermediate character, that is after the formation they enters a new stage of distribution, or can serve as the final income, passing to a new stage of reproduction - an exchange (the final income is understood as the income which is directly used on accumulation and consumption). Intermediate character of the income is shown that the income of one subject of managing is formed at the expense of expenses of another: for example, expenses of a business sector at payment of income tax are the state income, or expenses of the state on the social purposes are the income of separate groups of the population. Because of distribution of a gross public product, there is the primary income of the state, separate enterprises, economic organizations and public. Primary income is exposed to difficult 128

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processes of distribution and redistribution, in which the important role is played by finance. Because of these processes are formed funds of money and first of the entire state budget. By finance is withdrawn the part of the income of the population for satisfaction of nation-wide requirements; the gross revenue (profit) of the enterprises is exposed to distribution – one part of it arrives in the budget, another remains at the enterprises and is used on on-farm requirements. Primary income of public is redistributed also by the fee, rendered by establishments of a non-productive field of activity. These revenues make the income of the enterprises of the non-productive sphere (for example, consumer services of public, housing and communal services, etc.). Thus, the income acts as the independent economic category expressing the relations of people concerning distribution of cost of a public product by subjects of managing. Financially material part of concept of the income is definition money, focused at the state, managing subjects and public. The economic nature of state revenues and their organization are caused by system of managing, political and economic role of the state. For each socioeconomic structure typical is characteristic system of state revenues caused by a level of development of the commoditymoney relations, way of production, the nature and state functions. Formation of state revenues is carried out with the most active participation of the state: it establishes the share of net income centralized in the budget and left to managing subjects, and concentrates part of the personal income of public and other funds of society. The state is the owner of part of funds of production and, respectively, an additional product. In these conditions, a considerable source of state revenues is the income from state ownership. The part of state revenues is formed at the expense of the income of a business sector, cooperative organizations and public, mobilized by tax system of the state for satisfaction of public requirements. The income from state ownership consists of: 1) income of the state enterprises and the organizations in form 129

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of a gross revenue (profit), a value added tax, excises, the customs income; 2) income from the state property (from the state housing stock, earth, woods, water grounds, other natural resources, funds from denationalization and privatization of state ownership); 3) income from the paid services rendered by the state institutions and organizations (registration fees, charges for checking, a branding and examination of measures and measuring devices, a payment for the analysis and a branding of products from precious metals) and a payment for unthrifty services (the state tax, collecting traffic police, application collecting on trademarks); 4) special funds of the budgetary establishments that includes a rent for rooms, income of the subsidiary enterprises, etc. It is necessary to distinguish the concepts «state revenues» and «state financial resources». Financial resources are a set of funds of the money being in property of the state, enterprises of funding organizations, on this or that time period. The concept «financial resources» according to the contents is broader than the concept «state revenues». Except state revenues, the structure of financial resources joins the funds, which are not the income, but which can be used on public requirements. For example, depreciation charges on restoration of fixed assets, surplus of current assets, the sums of creditor and deposit debt, on which is expired a term of limitation period, revenues from property realization: left, selective, confiscated, passed by a right of succession to the state, unclaimed (unclaimed freights on transport, the unclaimed deposit sums, not distributed mailings). This money funds (as well from property realization) is not literally the income that is the result of the certain activity connected with expenses of funds. For the same reason various penalties, penalties, fines are not considered as the income. Revenues from the state loans also are (before repayment of loans) financial resources of the state, but cannot be considered as state revenues as it is borrowed funds. To financial funds belongs all sum of funds which the state insurance companies (a gross revenue have belongs to financial resources 130

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also treats state revenues and the sums intended for carrying out precautionary actions for fight against natural and other disasters). They are not the state revenues and such on-farm resources as the sums of a gain of steady liabilities (the state enterprises). Thus, the state financial resources formed generally at the expense of state revenues and other sources. State revenues have by the source the national income, and financial resources will be mobilized at distribution and redistribution of all sum of a gross public product. The covering of the public expenditures provided with set of all financial resources of the state. The concepts «state revenues» and «income of the state budget» have the different contents, the last are a component of state revenues; besides, in state revenues all gross revenue of the state enterprises and the organizations, and enters into the income of the state budget – only part pure, mobilized in the budget. 10.2. Classification of state revenues Classification of state revenues allows understanding more deeply their economic nature, structure and a target orientation, the principles of formation, that’s an all system of state revenues. Depending on organizational and legal registration of forms of ownership, state revenues consist on: 1) income of state enterprises and organizations; 2) tax revenues of a private-business sector; 3) tax payments of public; 4) tax revenues of cooperatives and collective organizations and enterprises; 5) tax revenues of public organizations. Depending on creation spheres, the state revenues are classified: 1) on the income formed in sphere of production of goods; 2) the income which is forming in non-productive sphere. 131

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According to the financial contents state revenues share on: 1) tax; 2) non-tax (funds from privatization and privatization, the income from cash and prize lotteries, etc.). In case of mobilization of tax income change of forms of ownership is possible. Income classified by mobilization methods on centralized and decentralized. Separate making costs of a gross public product and national income form a system of state revenues and financial resources of governments and economic units belonging to the state. The main place among them take net income of society in form of net income of state enterprises, a value added tax, excises, foreign economic activity, assignments on social needs (in pension funds). Here belongs also a balance of relationship of the economic organizations on regulation of difference in prices of agricultural production. These types of income are formed at enterprises of different forms of ownership, they differently participate in distributive process. If the revenues from a value added tax, excises, the customs duties are entirely transferred to the state order, net income of the state enterprises, assignments on social needs – only partially. Net income of society expresses the cost of an additional product in a monetary form, that is at realization the additional product receives a form of net income. The most important part of an additional product, and, respectively, net income of society is net income of managing subjects. The main factor of growth of net income is: – labor productivity increase (providing increase in output of products and reducing unit labor requirements, that is prime cost); economy of material and monetary resources on production; – savings of material and financial resources; – improvement of quality of production; – increase of efficiency of use of the fixed and revolving business assets; – natural conditions of production. 132

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In practice certain managing subjects are trying to increase the income at the expense of unreasonable rise in prices that conducts to decrease in profitability at the enterprises-consumers. It contradicts interests of societies as changes proportions of distribution of the national income in interests of certain managing subjects. Questions: 1. Give the definition of the concept «state revenues». 2. Differentiate concept the income, as a result of a certain activity and state revenue. 3. What is the primary income of the state? 4. What does the economic nature of state revenues consist of? 5. Call sources of the income from state ownership. 6. Differentiate the concepts «financial resources» and «state revenues». 7. What is the concept of financial resources of the state? 8. Call sources of state revenues. 9. Differentiate the concepts «state revenues» and «income of the state budget». 10. Bring classification of state revenues depending on organizational and legal registration of forms of ownership. 11. Depending on creation spheres as state revenues are classified. 12. Call types of state revenues according to their financial contents. 13. How is the income classified by methods of their mobilization? 14. Call the main factors of growth of state revenues.

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CHAPTER XI TAXES AND THE TAX SYSTEM 11.1. The concept of taxes and social-economic nature

T

axes are mandatory payment set by the state, what imposes in certain sizes and in a timely manner. The economic essence of taxes is that they are part of the national income which is accumulated by the state to carry out its functions and objectives. Taxes are the basic category of Finance. Tax appears from the emergence of the state and are foundation of its existence. Throughout the history of human development tax forms and methods have changed, perfected, and adapted to the needs and demands of the state. The greatest development taxes reached in the development of commodity-money relations, affecting their condition. Modern principles of taxation are follows. 1. Principles of fairness in taxation is considered in two aspects: a) the achievement of «horizontal equity» - income of taxpayers should be assessed uniformly with the same conditions; b) compliance of the «vertical equity» is a taxation of income, that should be done with the use of differential rates on a progressive scale for the redistribution of income. 3. Principles simplicity. 4. Economic neutrality of taxation. 5. Comparability of tax rates for major taxes with other partner countries of the country on economic relations. 134

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The tax legislation of the Republic of Kazakhstan is based on the principles of taxation. The principles include the principle of compulsory taxation, certainty, justice of taxation, the unity of the tax system and transparency of the tax legislation of the Republic of Kazakhstan. Provisions of the tax legislation of the Republic of Kazakhstan may not conflict with the principles of taxation established by the Tax Code. 1. The principle of compulsory taxation The taxpayer must execute tax liability, the tax agent – the obligation to calculate, withhold and remit tax under the tax legislation of the Republic of Kazakhstan in full and on time. 2. Certainty principle of taxation Taxes and other obligatory payments, that goes to budget of the Republic of Kazakhstan shall be defined. Certainty means an establishing tax in tax legislation of the Republic of Kazakhstan of the grounds and procedure creation, execution and termination of the tax liability of the taxpayer, the duties of a tax agent to calculate, withhold and remit taxes. 3. The principle of equity tax Taxation in the Republic of Kazakhstan is a common and compulsory. Tax benefits of individual character are prohibited from providing. 4. The principle of unity of the tax system Tax system of the Republic of Kazakhstan is unified throughout the Republic of Kazakhstan for all taxpayers (tax agents). 5. The principle of transparency of tax laws of the Republic of Kazakhstan. Normative legal acts that regulate the issues of taxation are the subject to be published in the official publications. A characteristic feature of the tax revenue to the state is their subsequent use for a variety of impersonal social needs. With this they differs from the various taxes mandatory earmarked contributions, fees payment, as established by the state, and other governmental agencies. 135

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The essence of tax is shown in their functions. 1. Historically, the first is fiscal function of taxes that capture the state budget. 2. Redistributive function of taxation is in the redistribution of incomes of various entities in the state. The scale of this function is determined share of taxes in the gross national product, it shows the degree of state control of national income. 3. The third function of taxes – regulatory – occurs with the expansion of economic activities of the state. It is targeting the development of the national economy in accordance with accepted programs. For this purpose the choice of forms of taxes, change their rates, methods of collection, benefits and discounts. These regulators affect the structure and proportions of social reproduction, the amount of savings and consumption. The State shall conduct tax policy – that is a system of measures in the area of taxes – in accordance with the economic policy generated by socio-economic and other goals and objectives of the society each period of its development. 11.2. The tax system Tax system (from the Greek. Systema – is whole composed of parts – is a certain integrity or complex, consisting of a combination of taxes, which are in relation with each other to ensure the interest of taxpayers and the state. Tax system forms a set of taxes, duties and other charges levied in accordance with established procedure, as well as the forms and methods of their construction, are home to certain principles. The most profound, fundamental feature of the tax system is legitimate, legal nature of the payments, the payer’s economic independence. The tax system also contains possibility for the economic impact on production process, its dynamics, structure, and development of scientific and technological progress and market relations. The tax system is a collection of taxes imposed by 136

Chapter XI. Taxes and the tax system

the state of methods of calculation and payment, as well as how to allocate taxes among the various levels of government. The tax system of the Republic of Kazakhstan is a set of tax relations owing to the introduction, establishment and payment of taxes, fees and other mandatory payments to the state budget and taxpayers of the state bodies, regulating tax relations, legal support of this relationship is the Tax Code. Each of the components of the tax system is a real tool of state regulation. The impact of taxes on the economy is not directly, but indirectly. Tax system – the most active arm of government regulation of social and economic development, invest ment and innovation strategy, foreign trade, with structural changes in production, accelerated of the priority sectors. Tax systems can be quite complex model, because there are a lot of taxes, their payers, procedures for collecting taxes, tax benefits. The basis of the tax system, the state set up taxes, which are classified according to different principles: from property taxation and the relationship of the payer and the state; of use; from the authority to levy taxes; on economic grounds. According to the first indications of taxes they are divided into direct and indirect. To include direct taxes, which are mounted directly on the income or assets (income, income tax, property tax, land). Direct taxes, in turn, are divided into real and personal. Real property is subject to over exposure, that is, for taxation takes into account the object of the tax, and not the efficiency of its use, to the real direct taxes: land, property, commercial, for moneycapital. In the personal tax is not only income, but also the financial position of the payer, such as marital status, these include: the income tax, inheritance and gift tax, capitation, etc. 137

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Indirect taxes are levied directly – in prices of goods and services (VAT, excise duties, customs duties). Tax amount after the sale of goods and services transferred by the owner to the state. direct taxes indirect taxes 1. At about the relationship At about the relationship of of taxation come two subjects – taxation come three subjects: budget, project: the budget and the taxpayer. tax, and legal support – tax payer as a mediator between 2. The amount of taxes directly The amount of taxes does not related to the financial perfor-mance depend on financial performance of the payer. payer 3, Income tax on a property These taxes are subjects to taxation on turnover of goods (works, services)

Table 1 Distinction between direct and indirect taxes

On the basis, taxes are divided into general and special. General taxes come to the state and use to be depersonalized. Special taxes have some function (social security tax, used to form the pension payments). 138

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Depending on the agencies that levy, tax and dispose, vary the central (national) and local taxes. On economic signs of object taxes are on the income and consumption taxes differ; the first are levied from the income received by the payer from any object of taxation; in the second case they are the expenditure taxes which are paid in case of consumption of goods and services. There are four methods of collection of taxes depending on methods of accounting and an assessment of objects of taxation: cadastral, according to the declaration of the taxpayer, at an income acquisition source, according to the patent. According to a cadastral method accounting and collection of a tax are performed on basis of the inventory of objects of providing with indication of regulation of their profitability (land, property) without the actual profitability. In the declaration the taxpayer specifies the income size, necessary privileges, deductions estimates a tax amount. At an income acquisition source the tax is estimated and paid on a place of income acquisition by accounts department of the legal entity where the payer works. On the basis of the patent the tax is paid for receipt of the income from various types of activity on which it is difficult to determine and consider their amounts. There are two tax accounting methods: cash and method of charges. According to a cash method the income and deductions are considered from the moment of performance of works, provision of services, shipment and receipt of property and the payment that made on them. On a method of charges the income and deductions are considered from the moment of performance of works, provision of services, shipment and property receipt and it is irrespective of payment time. The second method for tax services is more acceptable and it is accepted application by all payers of Kazakhstan. Its shortcoming for payers – tax payments shall be listed even in case of a non-payment of punctual deliveries that leads to derivation of current assets. 139

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The list of taxes, charges and payments of tax nature in Kazakhstan includes: 1. Taxes: 1) corporate income income; 2) individual income tax; 3) value added tax; 4) excises; 5) rent export levy; 6) special payments and taxes subsoil users; 7) social tax; 8) land tax; 9) tax on vehicles; 10) property tax; 11) tax on a gaming; 12) the fixed tax; 13) single land tax. For separate groups of payers the special tax regimes providide application of the simplified order of calculation and payment of separate taxes and submission of the reporting on them are provided. They are: subjects of small business, country (farmer) farms, legal entities – producers of the agricultural products, separate types of business activity. 2. Charges: 1) registration fees; 2) fees for driving of trucking facilities through the territory of the Republic of Kazakhstan; 3) fee from auctions; 4) license fee for the right of occupation by separate types of activity; 5) collection for issue of permission to use of a radio-frequency range to the television and broadcasting organizations; payment: 6) for using the parcels of land; 7) for using water resources of superficial sources; 8) for issues in environment; 9) for using fauna; 140

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10) for woods users; 11) for use of especially protected natural territories; 12) for use of a radio-frequency range; 13) for provision of long distance and (or) international telecommunication, and also cellular communication; 14) for using navigable waterways; 15) for placement of outdoor (visual) advertising. 3. other obligatory payments in the budget: the state duty. Thus, the taxation system of the Republic of Kazakhstan includes types of tax, charges and duties, the precepts of law regulating the tax relations and agencies of national tax service which is provided in Kazakhstan by the Ministry of Finance which structure includes tax committees in areas, the cities and areas in the cities, and also tax police. The tax service exercises control of performance of laws of the republic about taxes and other obligatory payments in the budget taking into account costs, the prices and rates. 11.3. Organization of collection of taxes The organization of the taxation is reduced to creation and functioning of the tax mechanism, which is switching on forms of the tax relations, that is specific names of types of tax, and also an order and methods of their application, action methods. Elements of the taxation are consisting of: the subject, the carrier, tax source, taxation unit, the tax rate, quota, tax warehouse, tax privileges, terms and payment procedure, the rights and obligations of taxpayers and tax authorities, control of tax payment, sanctions for violation of the tax legislation. The subject of a tax (taxpayer) is a physical person or legal entity to which the law assigned an obligation, to pay a tax. People who carries taxation – physical persons, final taxpayers on whom the actual tax burden falls, that is citizens of the state. The taxable object – income, property, a type of activity, rendering 141

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services, cash transactions, subjects (commodity-material values) which are a taxation basis (with which is estimated a tax). Object of taxation is also the cession of property, using natural resources, value added of products, works and services, economic circulation etc. The nomenclature of taxes (their types and the list) originates from objects of taxation. Source of a tax is the income from which the tax is paid; on a some tax (for example, the income tax) the object and sources match; in certain cases a source of a tax can be the part of property which is sold by the payer to pay a tax. Taxation unit – the unit of measure of a taxable object established for the account (1 tenge, the income, turnover, etc. 1 hectare of the earth, a goods unit of measure, etc.) The tax rate is a size of a tax per unit of taxation, it characterizes regulation of a taxation; expressed as a percentage to the income of the taxpayer, is called as the tax quota. On a method of creation of a rate of taxes happen firm and percentage. Fixed rates established in the absolute amount to taxation unit, irrespective of the sizes of the income (applied in case of taxation by real taxes: land, property, etc.). Percent rates are three types: pro rata, progressive and regressive. Pro rata rates are established in the form of single percent irrespective of the taxable object size; progressive – in the form of a scale on which the percent of withdrawal grows in process of income or property growth. In case of progressive rates two types of a progression – simple and difficult are applied; in case of a simple progression the rate of a tax increases in process of increase in the income or property value; in case of the difficult – the income shares on part, for each of which the increasing tax rate is established. Lack of a tax with progressive rates is that it makes negative impact on an economic and labor activity: the taxation progression is higher, the differentiation in disposable incomes of subjects of taxation is weaker, but the efficiency of economy is lower. Regressive rates go down in process of increase of object of taxation. 142

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In the conditions of market economy these or those rates also are used taking into account solvency of taxpayers and ensuring nation-wide requirements. Rates are established by a legislative way and can be adjusted in case of approval of the government budget for every year. Tax salary is a tax amount, that paid by the subject from one object. Tax privileges is a complete or partial tax exemption of payers according to the legislation. Tax privileges treat: – free minimum – the smallest part of a taxable object which is completely exempted from taxation; – discounts from the estimated income amount; – the amounts which aren’t included in structure of the leviable income; – tax rate reduction for certain subjects of taxation and categories of payers. The tax deferral and write-off of shortages belong to tax privileges on a tax also. Grace period is a time during which works established by the privilege law on taxes. The taxation period (tax period) is a time for which taxation or collection is made. The rights and obligations of taxpayers and tax authorities regulated by the tax legislation, agencies of authority and management. Control of correctness of collection of taxes and other obligatory payments is performed by national tax service in the location of payers or in a place of their activities. Tasks, competence, order of activities of tax authorities and their officials, responsibility for violation of the rights and interests of payers it is determined by the state legislation. To the taxpayers violating the tax law, sanctions in the form of penalties of the amounts hidden by them, the underestimated income, penalties in an equity or short size depending on weight of violation, a penalty fee for delay of payments in the budget are applied. 143

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11.4. Tax policy and tax mechanism Tax policy is a component of financial policy. Tax policy is a system of a legal norms and organizational and economic measures, that have regulatory nature, they adopted and now are implemented by state authorities (at national and local levels) in fiscal relations with businesses organizations, and also with individuals. Targets of tax policy are: 1) Provide full income generation budget system of Republic of Kazakhstan, that required for funding national and local authorities to implement appropriate functions and credentials; 2) Contribute to sustainable economic development, priority sectors and activities, individual territories, small and medium-sized businesses; 3) Ensure social justice in taxation of personal income. Tax policy is formed and implemented at national and local levels within the respective competence. Tools of the tax policy include: manipulations of various types of taxes and tax rates, in addition, transfer payments and other types of public expenditures. Major comprehensive instrument and indicator of effectiveness of tax policy is tax mechanism. Tax mechanism is a set of institutional norms and methods of tax administration, that allows to regularize tax relations, building on tax legislation and tax management framework. Tax mechanism is implemented through the system of various superstructural instruments, tax rates, tax exemptions, methods of taxation. Effectiveness of tax mechanism depends on inner entity of taxes, laws of it motion and economic situation in the country. Tax mechanism is a central lever of state management of economic processes. Tax system must be purposed to solve priority social and economic problems. 144

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The nature of tax mechanism, on the one hand, is that it is a specific form of social relations, that occur between people and state during the processes of production, distribution and consumption. On the other hand, it’s a method of indirect state influence on economy, policy and social sphere through tax planning, tax legislation and system of taxes. Maneuvering the volume of cumulative tax withdrawal of income of juridical persons and individuals, the state redistributes the part of their income at national interests by using tax regulators: object, subject, source of tax, unit of taxation, tax rates, privileges, sanctions, types of tax, structure of tax system, terms of collection, ways of taxation, methods of calculation of tax, etc. Direction and aftermath of taxes and fiscal regulations due to the numerous and multifaceted social relations, arising during the processes of production, redistribution and consumption, so that’s why in each country, in each social and economic situation and concrete time period they are specific. In different countries there can be identified main areas of impact of taxes and fiscal regulation, such as: production, consumption, redistribution, exchange, accumulation, saving and investing; pricing and inflation; supply and demand; structural conversion of economy; resource conservation of economy; social sphere, STP; standard of living; the formations of state budget, the amount of subsidies, subventions, transfer payments. Modern structure of tax mechanism consists of the following parts: a) Tax planning: 1) state planning of tax revenue and” tax expenditure”. 2) account planning to minimize taxes for taxpayers. b) Legal support of fiscal relations: 1) tax legislation 2) control over the implementation of the law 3) responsibility for violation of tax legislation c) System of taxes (tax regulation). 1) elements of tax: object, source taxation, subject, tax rates, tax benefit, tax sanctions, tax salary. 145

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2) types of taxes; 3) structure of tax system – ratio of direct and indirect taxes – distribution of taxes by administrative levels – ratio of factor and commodity taxes; 4) ways of taxation 5) methods of calculation and accounting of taxes 6) terms and time period for taxation etc. Current practices of functioning of tax mechanism in Republic of Kazakhstan characterized by adoption of the new Tax Code. Kazakhstan is now entering a new phase of development. Growth, that based on recovery of the post-Sovieteconomy of 90’s, now followed by growth, that based on diversification and investment in new industries of economy. The Tax Code is intended to contribute to modernization and diversification of economy, and also conclusion for businesses out of the shadows. The adoption of the Tax Code is simultaneously strategic and stabilizing measure. Nowadays, the Tax Code acquired the character of law of direct motion, enclosing from free interpretation of its norms by tax services, combines quality of administration and interests of taxpayers. But the most important thing is, that it provides decrease of common tax load for non-primary areas of economy, especially for small and mediumsized businesses. Expected budget loss must be offset by increase of economic returns from mining sector. The Tax Code provides: – implementation of the principle of law of direct motion. – decrease of common load for non-primary areas of economy – creation of conditions that contribute modernization and diversification of economy – creation prerequisites for doing business by improving tax administration and simplification of tax procedures. Primary and the most important and conceptual point of the Tax Code is phased reduction of corporate income tax (CIT). 146

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It should be noted that, generally, system measures give greater effect than single infusion of one or another sector. Thus, reduction in the rate of CIT, undoubtedly, impact on improvement of non-primary sector in a protracted global crisis processes. Especially, it concerns the small and medium-sized businesses, that represent the largest stratum of society in country. Tax cuts, in general, unleash the disposal of entrepreneurs 361,3 billion tenge , that is 12 % of state revenues or 2,3 % of GDP. At the same time increased transfer period from 3 to 10 years, which fully takes advantage of rapid write-off of investments; value-added tax rate in 2009 is 12 %. The Tax Code also reflects a number of issues, relating to taxation of financial sector during the global liquidity crisis. In particular, in period between 2009 and 2011 was increased deduction of remuneration by increasing leverage ratio limit, (generally adequate capitalization), for financial organizations. Microcredit organizations have the right to deduct the amount of consumtion to build reserves against dubious microcredits, that not exceeding 15 % of amount of loans granted during fiscal period. In addition, also was reformed system of taxation of subsoil users. In this regard, it provides replacement payment. In turn, during unfavorable market conditions, by adoption of relevant concepts subsoil users of uneconomic deposits get relief in form of reduction factors when calculating the tax on mining, but not lower the tax burden in effect before the payment of royalties was and guaranteeing by saving their job and continuation funding especially important investment programs. As a part of the reform of social tax, implemented transition descending with tax rates from 13 % to 5 % to flat scale with 11 % rate. Unified rate on individual income tax retained at 10 %. The Tax Code partly reformed taxation of agricultural producers. In order to promote the efficient use of agricultural land, introduced a progressive scale of rates of unified land tax from 0,1 % to 0,5 % depending on the area 147

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of land. In this case, are retained other models for agricultural producers: tax reduction of 70 % for juridical persons. Tax reform, which in contrast from the other amendments to existing tax system, means a fundamental review its conceptual and methodological foundations is a complex of structural economic system. It is extended in time, dynamic, multivariate and multi-purpose process with a certain set of similar intended, specific on execution and decision- making levels of successive stages, that are its subsystems and consisting, in turn, from a number of primary elements - phases. Normally, there are three phases: preparation, immediate widespread implementation of new legislation and final phase. Consistency and economic classification of all elements of the tax reform is a total complete hierarchical row, every phases and series of which, are subordinated to the previous one. The main development of tax policy of Kazakhstan for 2011-2012 years will focus on creating the conditions for economic recovery and to stimulate further growth. In order to create favorable conditions for the reconstruction and economic diversification, to prevent its “overheating” it will be counter-cyclical fiscal policy that provides cost containment in state period of economic growth and an increase in economic downturn. The Stock Market will be based on non-damaging to macroeconomic stability. In the framework of fiscal policy provides maintaining the level of public spending, providing on the one hand, the level of aggregate demand, on the other – level of investment activity through public investments needed to restore economic growth. It will be disciplined and effective management of oil revenues. 11.5. Indirect taxes Indirect tax called the tax, which is set so that it contributes to the treasury one category of persons, but actually pays the other category. A classic example of this is the sales tax. Submit it to the state seller, 148

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but it actually pays the buyer, since the seller adds the tax to the price of the goods. Indirect taxes reflect fiscal interests of the state. Preferably, they are explained by the presence of the following benefits: unitary approach to tax rates and exemption procedures; simplify monitoring the movement of goods and the cost of export stimulation; provide stable revenues; A final advantage of indirect taxes has made them more attractive for the Kazakh economy. Modern indirect taxes are a result of a kind of merger, connection handling and taxes on consumption taxes. Rejecting the excise taxation of consumer goods (excluding alcohol and tobacco), the modern state was transferred to the collection of the single sales tax paid in each act of sale. VAT has been replaced by the value added tax. This means that at the time of imposition of sales are not subject to the entire value of the goods, but only the part that is added to the seller, the producer of semi-finished products, the cost of raw materials, the manufacturer of the finished product - the value of semi-finished products, merchant the value of the goods, and so etc. Indirect taxes include value added tax and excise duties. Indirect taxes reflect fiscal interests of the state. Judicious use can impact positively on the pricing process and influence the structure of consumption. In addition, for the taxpayers rather increase their tax costs than the growth of the direct taxation of income. The use of consumption taxes, which are the excise tax, sales tax, value added tax, more preferably, because: * they are more difficult to evade; * they have been associated with less economic offenses; * they least reduce incentives to work; * in absence of the deficit, including by substitute products, they make up for consumer choice; *they are characterized by anonymity. Indirect taxes also include revenues from foreign trade (customs revenue in the form of customs duties and taxes on exports and imports, the difference in the prices of goods sold in the domestic market and the invoice value). 149

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It should be noted, that the income of the state budget of the Republic of Kazakhstan indirect tax revenues in 2009 amounted to 23.1%. (Table 2). However, growth in consumption taxes also has drawbacks, the most likely of which is their inflationary and regressive. But the positive effect of the tax override their negative impact. If the price will rise, and with them the budgetary costs, the revenue from these taxes will increase with the increase in prices. This will provide funds for the implementation of social programs. In the budget system will be installed automatic anti-inflationary mechanism. We should be aware that there is a general pattern in the tax system: if the economic crisis, stagnation - stagnation in production, there is an objective reorientation tax on consumption. This caused by the reduction of the tax base in the industrial sector due to the drop in production. At the same time, the cost of the state in this situation are not reduced, and sometimes because of the increasing need to increase social support by reducing its employment, increasing the cost of the restructuring of the economy, to support its life-supporting industries and other urgent expenses. Therefore, there is a need to move the tax burden on those who consume more. This is also reflected a peculiar social trend of indirect taxes on certain alignment in the distribution process. World experience supports the practice. Table 2 Dynamic and structure of tax revenues to the state budget in 2005 – 2009 years. 2005

2006

2007

2008

2009

Title of article of state budget

mln tenge

Part in %

mln tenge

Part in %

mln tenge

Part in %

mln tenge

Part in %

mln tenge

Part in %

Tax revenues

1 998 314

100

2 209 102

100

2 356 040

100

2 819 510

100

2 228 682

100

And also including

150

Chapter XI. Taxes and the tax system IIR

834 332

41,8

776 609

35,2

758 301

32,2

920 912

32,7

643 669

28,9

ICR

122 999

6,2

165 033

7,5

221 025

9,4

267 356

9,5

268 725

12,1

СН

197 300

9,9

236 569

10,7

295 733

12,6

251 222

8,9

232 840

10,4

VAT

343 926

17,2

489 572

22,2

629 279

26,7

640 983

22,7

515 933

23,1

excise

33 416

1,7

47 433

2,1

58 753

2,5

56 528

2,0

57 393

2,6

Other taxes

466 341

23,3

493 886

22,4

392 949

16,7

682 509

24,2

510 122

22,9

* Recourse: Statistic bulletin of Ministry of Finance of the Republic of Kazakhstan.

The most important of indirect taxes is value-added tax – VAT, introduced in 1992, occupies 23.1% of total tax revenue in the budget of the republic (for 2009.). The taxpayer reimburses incurred as a result of the payment of state losses by raising prices and shifts the tax payment to the buyer. The object of taxation is the «added value», which is a product without material costs, (offsetting depreciation) in added products may include comprehensive costs, such as advertising costs, and others. In accordance with Article 205 of the Code of the Republic of Kazakhstan On taxes and other obligatory payments to the budget» (the tax code) is a VAT contributions to the budget of the value of taxable sales turnover, added in the process of production and circulation of goods (works, services), and Remittances to the importation of goods into the territory of the Republic of Kazakhstan. VAT payable to the tax on taxable turnover is defined as the difference between the amount of value added tax charge for the goods sold, work performed, services rendered, and the amount of value added tax, payable for goods, works or services. In the latter mechanism appears to offset the tax. Value-added tax – a tax multiple levied at each stage of production and sale of goods, it includes all the exemptions at the earlier stages of product promotion, but 151

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the state receives only the tax on that value added tax, which is received by the manufacturer of the product at its stage of production and sale. Thus there is equality before the business tax system. The basic rate of value added tax in the Republic of Kazakhstan is 12%. In addition to the standard rate of VAT 12%, there is a zero rate. The export of goods and services related to international transport taxed at a zero rate – under certain conditions, implementation of the National Bank of refined precious metals (gold and platinum). In a second group of indirect taxes are excise taxes. In the budget tax revenue they take a little 2.6%. Excise taxes – taxes on goods that are included in the price and paid by the buyer. Excise taxes paid by producers of goods that are, because of their specific properties monopolistically high prices and strong demand. May be subject to excise duty and service, and the amount of tax included in the price. Excise tax is divided into individual and universal. Excise individual can be quite a lot. Thus, in Kazakhstan excise goods are: 1) All types of alcohol; 2) alcohol products; 3) beer with a volume content of ethanol is not more than 0.5 percent; 4) tobacco; 5) Gasoline (except aviation), diesel fuel; 6) cars (except vehicles with manual control or manual control adapter specifically designed for the disabled); 7) crude oil and gas condensate. Excise rates are set as a percentage of the cost of goods – ad valorem, or an absolute amount per unit in volume – hard. The object of excises in Kazakhstan are operations for sale in the territory of the Republic of excisable goods or transfer (in exchange for processing), services, implementation of the excise, when importing – the volume of imported excisable goods (in respect of which fixed rates of excise) or the customs value goods (with the use of ad valorem rates). Alcoholic beverages and tobacco products sold in the territory of the Republic 152

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of Kazakhstan shall be subject to classification in order to ensure the completeness of the collection of excise and prevent the illegal importation, manufacture and sale in its territory. Responsible for marking are manufacturers and importers of products. In this case, the excise levied by sale of excise stamps due form, and the cost is the down payment for excise taxes and is included in reduction of payments to the budget for excise taxes. 11.6. Corporate Income Tax This type of tax is important in the income of the state budget of Kazakhstan – about 28.9%. Mechanism of corporate income tax determines the order of calculation, payment, terms of charging, incentives and sanctions, the timing of payment of tax by legal entities. CIT pays legal entities, residents and non-residents of the Republic of Kazakhstan, who have incomes, including non-profit and government organizations on income from business activities. The main object of taxation is taxable income, defined as the difference between the gross annual income and statutory deductions. Gross annual income (GAI) is the annual income of a resident legal entity from different sources. It includes: income from sales, income from capital gains, income from derivatives, income from retirement obligations, income for doubtful liabilities, income generated from the reduction of the size of provisions (reserves) of banks and organizations engaged in certain types of banking operations under license revenue decline insurance reserves established by insurance, reinsurance companies on insurance, reinsurance, income from assignment requirements; income received for agreeing to limit or discontinue business, gain on disposal of fixed assets, income from cost adjustments for exploration and preparatory work for the development of natural resources as well as other expenses subsoil; income from the excess amount of contributions to the fund liquidation of mining over the amount of the actual costs in the 153

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aftermath of exploitation income from joint activities, awarded or recognized by the debtor fines, penalties and other sanctions, but to return the budget unreasonably withheld fines if these amounts had not previously been as deductions; received compensation deductions made previously, income received in the form of donated property; dividends, interest on deposits, debt securities, bonds, Islamic lease certificates, the excess of the net foreign exchange gain over the amount of foreign exchange loss, as defined in accordance with international financial reporting standards and requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting; wins, gains made on the operation of social services, income from the sale of an enterprise as a property complex, income on an investment deposit in an Islamic bank, the net income from trust management, received (receivable), owner of the trust under the Trust Deed or the beneficiary in the other cases of asset management, other income. Received total annual income is a subject to correction that consists in exception of the following sums: the following is excluded from total annual income of taxpayers: dividends, except risk investment payable by closed mutual and incorporated investment funds; sum of obligatory calendar, additional and extraordinary contributions of banks received by an organization that executes obligatory accreditation of deposits of natural persons; sum of obligatory calendar, additional and extraordinary contributions of insurance organizations received by the Accreditation fund of insurance payments; sum received by an organization that executes obligatory accreditation of deposits of natural persons and by the Accreditation Fund of insurance payments pursuant to satisfaction of their requirements of reimbursed deposits and executed guarantee and compensatory payments; investment incomes received according to the legislation of the Republic of Kazakhstan about pension maintenance and referred to individual pension accounts; investment incomes received according to the legislation of the Republic of Kazakhstan about obligatory social insurance and referred to increase of active assets of the State Fund of Social Insurance; investment incomes received by mutual and incorporated investment funds according to the 154

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legislation of the Republic of Kazakhstan about investment funds to accounts in custodians; incomes of assignment of debt claims received by a special financial company on a securitization bargain according to the legislation of the Republic of Kazakhstan about securitization; net profit of property trust received (subject to reception) by a founder of property trust according to the contract of property trust or a beneficiary in other cases of property trust; sum of annual obligatory payments received by the Accreditation Fund for fulfillment of obligations on cotton receipts of cotton organizations; sum of annual obligatory contributions received by the Accreditation Fund for fulfillment of obligations on grain receipts of grain-collecting stations; sum received by the Accreditation Fund for fulfillment of obligations on cotton (grain) receipts pursuant to satisfaction of requirements for executed guarantee payments; incomes received by the Islamic Bank in the process of cash management as investment deposits that refer to accounts of depositors of the given investment deposits. Such incomes do not include recompenses of the Islamic Bank; incomes of assignment of debt claims received by the special Islamic Financial Company created according to the legislation of the Republic of Kazakhstan about the securities market; incomes of writing off of liabilities of the bank by the creditor included to the list of restructured assets and liabilities contained in the restructuration plan of the bank confirmed by the court; sales income received (subject to reception) at the expense of a grant under the inter-governmental agreement in which the party is the Republic of Kazakhstan that refers to support (rendering of assistance) to financially disadvantaged citizens in the Republic of Kazakhstan, juridical person - nonresident that executes activity in the Republic of Kazakhstan through the constant institution. The tax benefits are called expenses of the taxpayer related to receipt of total annual income within the frameworks regulated by the legislation. They include expenses of realized wares, services, including: goods and material reserves; expenses of remuneration of labor; other expenses of production and rendering of services; other deductions: (on fixed assets); on remuneration (on credits, loans, deposits, holders of obligations, for property received for 155

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confidential management); on doubtful pledges and demands; on expenses for scientific and research project and development activities; on foreign exchange loss; on payments to reserve funds; on insurance payments (contributions); expenses for social payments; on expenses for geological study and preparatory works for digging of natural resources; on expenses for maintenance of capital funds; penalties and fines (except penalties and fines subject to budget adjustment); taxes paid to budget (except taxes excluded before determination of total annual income and tax for surplus profit). The taxable income received after a deduction is subject to correction. It consists in decrease to the sum of expenses on objects of the social sphere: hospitals, organizations of early childhood education and study, schools, children’s camps, policlinics, habitation and boarding houses that are on balance of the organization – taxpayer. The property transferred gratuitous to non-profit-making organizations as well as sum of address social support for natural persons are excluded. The taxable income of production organizations that use labor of invalids is also corrected (to double value of expenses for labor compensation of invalids). The tax loss carry forwards of entrepreneurial business (that is surplus of specified deductions over corrected total annual income) is admitted for the period of three years (included); expenses related to subsurface use are carried forward for the period to 10 years (included); carry forward means decrease of taxable income of the following tax periods; in this case the income is decreased to the amount of loss, and the payable tax is decreased respectively. Such expenses include expenses of sale of securities, buildings, constructions and structures. The income tax rate is established within 20%. The withholding tax incomes are subject to taxation on rate of 15%. Foreign juridical persons who execute activity in the Republic of Kazakhstan though constant institution are payers of corporate income tax on incomes received in the Republic of Kazakhstan 156

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decreased to the sum of expenses (directly related to execution of activity in the Republic of Kazakhstan through constant institution) that refer to deductions, except expenses that are not subject to deductions according to the legislation. The rates of corporate income tax of foreign juridical persons who execute activity through constant institution are similar to the rate of Kazakh juridical persons that is 20%. In addition to the corporate income tax the net profit of foreign juridical persons received from activity in the Republic of Kazakhstan through the constant institution is taxable on the rate of 15%. We mean the taxable income by net profit minus the sum of corporate income tax. The special provisions are also specified in Conventions about avoidance of double taxation and prevention of tax avoidance of incomes or property (capital) in which one of the parties is the Republic of Kazakhstan. Taxpayers are obliged to contribute monthly prepayments to budget during the tax period, not later than 20th day of each month. The final calculation on tax is made during 10 days after presentation of declaration about corporate income tax. The sums of prepayments for the period of delivery of the declaration are determined in the amount of paid average monthly prepayments for previous tax period. 11.7. Individual Income Tax Incomes of the funds for individual income tax cover about 12.1% of total taxes (Table 2). Payers of personal income tax are individuals and foreign individuals. The object of taxation is the income of the subject to withholding and income tax-free at source. In the first case are incomes of workers, income from one-time payments, pension payments from pension funds, dividend income, 157

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royalties, prizes, scholarships, income from savings of the insurance agreements. Not taxed incomes include property income, taxable income of the individual businessman, the income of lawyers and other incomes. In particular, property income includes increasing of the cost after sale of the property not used in business, and income you get from rental property. The tax rate is set at 10% depending on the income. From income at source deductions are eliminated in the difference between a minimum wage (NMW) and mandatory pension contributions to pension funds. Individual income tax benefits established in the form of exemption from taxation of the income, for the participants of the Great Patriotic War, persons with disabilities, etc. Amount of individual income tax paid outside Kazakhstan, deductible for tax purposes in Kazakhstan. Individual income tax sums paid out of the country offset when you pay tax in the Republic of Kazakhstan. Income of foreign resident individuals includes income derived from both sources in the Republic of Kazakhstan and beyond. The definition of taxable income, the order of calculation, withholding and payment of individual income tax from non-residents depend on the nature of the activity (through a permanent establishment in the source of payment and type of activity). Non-residents not connected with a permanent establishment shall pay the withholding tax with no deductions at rates ranging from 5% to 30% (depending on the type of income), non-residents, the activity of which leads to the formation of a permanent establishment shall pay the tax on income is not taxed at the source of payment reduced by the amount of deductions (except for income are not deductible) at the same rate – from 5% to 30%. Calculation and withholding of personal income tax from payments made by tax agents, from the date of payment of income. The calculation and transfer of tax from income not taxed at source, made by a taxpayer on its own within 5-10 days from the receipt 158

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of income. In these cases, the taxpayer shall submit a declaration of territorial tax authorities by 31 March of the year following the reporting year. 11.8. Special charges and taxes subsoil user Payers of special payments and taxes subsoil users are legal entities and individuals, including foreign, carrying out operations on subsoil use in the Republic of Kazakhstan, as well as the processing of fabricated mineral formations in the public domain. To 01.01.2009, there have been significant changes in the taxation of subsoil users. Among the major changes - the abolition of tax regime stability of subsoil use contracts, except for contracts approved by the President of Kazakhstan, the rejection of a production sharing contract as a type of subsoil use contracts, as well as a tax on mineral extraction tax (MET) in return royalty. Special charges and taxes subsoil user include: 1) special payments for subsoil users, which in turn are divided into: a) signing bonus; b) commercial discovery bonus; c) payment of the reimbursement of historical costs; 2) the tax on mining; 3) the excess profits tax. Subscription bonus is a one-time fixed payment for the acquisition of the subsoil user of subsoil use rights in the contract area. Commercial discovery bonus shall be paid within the subsoil contracts: 1) the extraction of mineral resources in the following cases: – for each commercial discovery of minerals in the contract area, previously announced to the subsoil in the relevant contract area under an exploration contract; – for detection in the course of additional exploration, leading to an increase of installed authorized for this purpose government 159

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agency of the Republic of Kazakhstan recoverable mineral reserves; 2) on the combined exploration and production for each commercial discovery of minerals in the contract area, including the discovery in the course of additional exploration, resulting in an increase of installed authorized for this purpose government agency of the Republic of Kazakhstan of recoverable reserves. Payment for reimbursement of historical costs is a fixed payment of the subsoil user to recover the total costs incurred by the government for exploration contract area and exploration prior to the conclusion of contact for subsoil use. Severance tax subsurface paid separately for each type produced in the territory of the Republic of Kazakhstan of minerals, oil, ground water and mud. In the implementation of activities under the contract on subsoil use monetary form of payment of the tax on mineral extraction by the decision of the Government of the Republic of Kazakhstan may be replaced by a natural form in accordance with the supplemental agreement to be concluded between the public authorities and the subsoil users. Excess profits tax subsoil user - payment for income received in excess of the norm established by the Tax Code. 11.9. Social tax Payers of a social tax are legal entities, including foreign ones, operating through a permanent establishment of branches and representative offices, and individual entrepreneurs. The object of taxation is wages and other payments by the worker, to foreign citizens and the stateless persons who are constantly living in the Republic of Kazakhstan. Payments that are included in salary, are subject to adjustment (to decrease) in the part of the mandatory pension contributions to pension funds, various rebates, bonuses and allowances, social benefits for temporary disability and maternity leave, financial assistance at birth, burial, payments for social support, 160

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payments on grants from other states, payment of public works and training through the budget and grants, and some other benefits. Tax rate – 11%. Individual entrepreneurs, private notaries, lawyers, pay tax payment at double size of the monthly index prescribed by law on the republican budget at the date of payment, for them and the single size of a monthly-calculated index for each worker. Tax is paid to the budget on a monthly basis, not later than the 15th of the month following the tax period (for this tax – a month). 11.10. Property Taxes This group of tax in the market economy acquires prominently in connection with the actual changes that occur in property relations as the process of privatization. The taxes on the property includes: land tax, property tax physical and legal entities, and the tax on vehicles. Property taxes up in local budgets. In addition to the fiscal, these taxes have the purpose of stimulation of effective use of property as rates of taxes established on external signs – the property sizes, instead of on its profitability. Income isn’t always determined by the amount of property (belongings) in a situation where the property tax is not the large owners fall into privileged position in terms of taxation and will not seek to use the property more productively. Taxes on property allow distributing tax social responsibility evenly. Thus, these taxes are real taxes. 11.10. 1. Land tax Land tax is introduced in 1992, his goal – ensuring economic methods of rational land use and income budgets for the implementation of land management, improving soil fertility, their protection, and the social and cultural development of the territory. The object of taxation is a land (land parcels), provided by the taxpayer in the property, the permanent use or primary gratis 161

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temporary use for different purposes: agriculture, human settlements, industry, transport, communications, defense and other purposes. Aren’t object of taxation the public land plots of the settlements occupied with a network of highways, being on preservation. Not subject to the land protected areas, forest and water reserves, and reserve lands. Payers of a tax are legal entities and individuals, the persons having in property, continuous or temporary use the land plots. The tax rates are differentiated by hectare square meter, according to the quality of a land, location, water supply and installed per unit of land area. To base rates the applied coefficient established annually by the Government of RK. The maximum rates are set to land settlements, and these rates are set per square meter and differentiated by type of settlements on land, non-residential building occupied buildings, sites necessary for their maintenance, and sanitary-protective zones facilities, technical and other areas; individual rates apply to the area under housing. The minimum rates are set to non-irrigated land of desert, semi-desert, desert foothill and mountain areas on 1 hectare of land. Rates on lands of agricultural, industrial and other industry purpose, set depending on site class point(a measure of productivity, good quality land) – from 5 to over 100. Is applied to the base rate coefficient is set annually by the Government. Local representative bodies have the right to change the basic rate of 20% (more or less). Rates for land used for commercial purposes, installed on the base rates of settlements (except for land occupied housing stock), and increased from 2 to 10 times. Several categories of payers with humanitarian and social nature of activity apply to base rates coefficient 0,1. Government agencies and businesses, the single land taxpayers, members of the Great Patriotic War aren’t paying a land tax a row. 162

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The tax is brought by agricultural users and owners of sites no later than 1 October of the current year, non-agricultural users is four times in a year, equal shares. 11.10. 2. Property tax The property tax is a direct real tax, its size depends on the cost of property of payers, but not on its profitability. The tax is urged to induce owners of property to its effective use. Taxpayers are legal entities and individuals, including foreign individuals for objects of taxation (property) that is used in business activity, and not used in such quality. The objects of taxation are the main production and nonproduction funds of legal entities and individuals (other than vehicles), premises, garden buildings, garages and other buildings, structures, premises of physical entities that are not used for business. Objects of taxation of property of legal entities and individual entrepreneurs are estimated on the basis of average annual residual cost on accounting data, and individuals – authorized body according to real estate. Property tax of legal entities and individual entrepreneurs paid annually at a rate of 1.5% of the average annual value of the objects. Non-profit organizations, state enterprises of science, culture, social security and social welfare, education, environmental protection, social disabilities – are subject to a tax rate of 0.1% to the average annual value of the objects of taxation. Personal property tax, which is not used in business, paid annually by October 1, at the rate of 0.1% to 1% depending on the value of the property. Source of payment of the property tax is the income tax, that regardless of it is a consequence of the use of property or obtained by other means.

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11.10.3. Tax on vehicles The payers of tax on transport vehicles are legal entities, including foreign, their representative offices, branches, permanent establishments, physical persons, including foreign, individual businessmen. The objects of levying are transport vehicles, being on the right of ownership, passing state registration. Tax rates are set in monthly settling figures depending on power or carrying capacity (to the capacity) of transport vehicle and differentiated on the types of transport vehicles. A row of subjects is not the payers of tax : taxpayers of the united landed tax, some public institutions, societies of invalids and veterans, enterprise and organization, where invalids make no less than 50%% from the quantity of workers, participants of Great Patriotic war, invalids, persons, the recipient of an award higher rewards and some other subjects. Legal entities calculate a tax independently, and to the physical persons are territorial tax organs. In payment of tax legal entities is produced in time not later than July, 5 for a current year, by physical persons – not later than December, 31 tax period. 11.11. The special tax regime The special tax regime is the particular order of settling with a budget, set for the separate categories of taxpayers and envisaging application of the simplified order of calculation and in payment of separate types of taxes, and also presentations of the tax accounting on them. The special tax regimes are envisaged for: 1) subjects of small business; 2) peasant (farmer) economies; 3) legal entities – producers of agricultural products; 4) separate types of entrepreneurial activity. 164

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For the subjects of small business the special tax regime is set in regard to a corporate or individual income tax, social tax except for the individual income tax retained at the source of payment. A calculation and other tax and obligatory payments payment are produced in the general order. The simplified order of calculation of taxes for the subjects of small business is produced on the basis of valid for one occasion coupon, patent, to the simplified declaration. For each of the adopted methods the terms of their application make a reservation: episode of activity, place, character of entrepreneurial activity, size of profit, amount of the carried out types of activity, use of the hired workers. The special tax regime for owners of small business doesn’t extend to some types of activity, for example: production of excitable products, financial services, subsurface use, implementation of oil products, and a number of licensed types of activity, on branches, representations, affiliated and dependent enterprises of legal entities. At the conduct of entrepreneurial activity carrying episodic character(less one month), for tax calculations a valid for one occasion coupon is used is a document, certifying a right for application of the special tax regime and certifying fact of calculation with a budget. The calculation of taxes on the simplified declaration is produced by the subject of small business independently by application to the object of levying of certain a law rate of taxes; tax payment is conducted periodically by equal stakes during a tax period. At the calculation of tax on a patent (in size of the set rate to the declared profit) an in payment is also produced by equal stakes. For individual businessmen the special tax regime is recorded on the basis of patent. Thus the criteria of accordance it is been: 1) the knot use of labor of the hired workers; 2) engaging in one type of activity; 3) limiting to of annual turn the certain size. The special tax regime for peasant(farmer) economies comes true on the basis of payment of the united landed tax, including an individual income-tax from activity on a production, processing and realization of agricultural products, VAT, land-tax, tax on transport 165

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vehicles and property. The object of levying of the united landed taxes is an evaluation cost of lot land, a tax is calculated on a rate 0,1% to this cost. The payers of the united landed tax do not rid of payment of individual income tax, taxable at a source from other types of activity, social tax, obligatory pension payments in story pension fund. Payers pay the half of tax not later than October, 20, and the second half – not later than March, 20 of the year following an accounting tax period. The special tax regime for legal entities - producers of agricultural produce spreads to the subjects, activity of that is constrained with the use of earth for a production, processing and realization of such products, and also to the products of stock-raising, poultry farming, beekeeping, grant of services to the producers of agriculture products on cultivating soil, sowing, harvesting. This tax regime comes true on the basis of patent, a corporate income tax, social tax, land-tax, joins in the cost of that, tax on property and on transport vehicles. Thus the sum of taxes on a patent diminishes on 80%. The payment of tax is produced in terms to May, 20 and November, 20 current tax period and to March, 20 next tax period. Taxpayers present declaration on other obligatory payments. The special tax regime for the separate types of entrepreneurial activity spreads on legal entities and individual businessmen (including foreign legal and natural persons), rendering services in area of gambling business, bowling, carting, billiards, lotto. The subjects of the enumerated types of activity reckon with a budget on the basis of fixed - total tax, pay a social tax, individual income tax at the source of payment. The fixed total tax is distributed: 30% corporate income tax and 70% VATS. Other taxes and other obligatory payments (including excises) are paid in the general order. The base minimum and maximal rates of the fixed total tax are set by Government of Republic of Kazakhstan on every object of taxation (playing table, game machine, cash desk of totalizer etc.). 166

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11.12. Charges, duties and payments Charges, duties and payments, are obligatory payments of legal and natural persons for the services rendered to them by public organs. The sums of these payments either are included in the profits of local budgets, in the set stakes in budgets and corresponding organizations or fully act at disposal of organizations, establishments, rendering the special services for the partial or complete compensation of their expenses, development and perfection of their activity. The in payment of payments comes true on the wide enough circle of activity, including both mainly financial aspects and included in local budgets and related to registration of property rights, technical procedures and registrations, fixing of the certain state of object, activity etc. In first case it is possible to distinguish the next charges raised in Republic of Kazakhstan : registration charges; charges for passage of vehicles on territory of Republic of Kazakhstan; charges from auctions; licensed charges for a right for engaging in the separate types of activity; charges for delivery of permission on the use of radio frequency spectrum to television and radiobroadcast organizations. Variety of types of activity drawing the necessity of payment of charges destroys many of them for scopes cleanly financial, giving corresponding services, frequently intermediate character. Combination of fiscal and tariff-price character of these payments especially developed in the conditions of market relations, when even public organs pass mainly to providing of requiring payment services and examined operations transformed from financial in ordinary commodity-money. The circle of requiring payment services includes such, for example, charges of the Travelling police, charges for verification and stamping of measures and measuring devices, some other. The sums of charges are calculated, as a rule, on the rates set by Government. For some pays of calculation conducted from the volumes of resources (waters, woods) or activity (charges from auctions), other quantitative parameters. 167

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In this connection the base of object of levying charges and pays suffices various, to the base of levying the multiple size of monthly settling index sets for the calculation of tax payments and social payments. Among the examined payments, paying is distinguished for resources: ▪ for the use by lot lands; ▪ for the use by the water resources of superficial sources; ▪ for emissions in an environment; ▪ for the use by an animal kingdom; ▪ for the forest uses; ▪ for the use of the especially guarded natural territories; ▪ for the use of radio frequency spectrum; ▪ for the grant of intertown and (or) international telephone connection, and also to the cellular; ▪ for the use by navigable water-ways; ▪ for placing of the outdoor(visual) advertising. For example, paying for the use by lot lands, levies (unlike landtax), at grant of her in permanent or temporal land-tenure (except for the grant of majority of lands in the primary gratuitous temporal use). The special place among obligatory payments is occupied by a state duty. List of services for that a state duty is paid very vast, and embraces actions accomplished in interests legal and natural persons and delivery to them documents having a legal value : from the points of claim gone to the courts, from appeals; for the feasance of various notarial actions; for civil registration; for the change of pattern of ownership of state enterprise; for processing of documents about an inheritance, giving and in some other cases. The fixed interest rates of state duty, calculated coming from a monthly settling index, are used, or in percent from the sum of lawsuit. Duties are paid or to handing in applications, feasance of actions, or at delivery of a pay a duty document. The special type of state duty is the consulage raised by diplomatic representative offices and consular establishments from legal entities and citizens, including foreign, for the feasance of consular actions and documents. 168

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A state duty is paid by the special notarial brands, cashes in credit establishments, enumeration of money sums from account of payer in credit establishment. The reception of duty cashes comes true by delivery of receipt about a payment. On collections, various privileges are set duties and other payments of legal and natural persons, to both the separate categories of payers and at the feasance of certain actions. Privileges are set as a complete or partial release from the in payment of these payments. 11.13. Tax management The relationship of the state and taxpayers is based on such important actions of the state as establishment of rules of law of collection of taxes, control of observance of correctness of observance of laws, process of collection of taxes, it is thus important to create favorable conditions for a business sector for the purpose of stimulation and business development. Tax management - represents part of the theory of the management which methodological basis is the financial science, its scientific and practical direction – financial management. Therefore management of the taxation is an integral part of all management of object, it has to be considered in the general context of management by finance. At the same time features of process of the taxation and its importance in formation of revenues of budgets cause of allocation of tax management as the independent system which besides is belonging to the class of difficult systems of a special purpose. From these positions it is necessary to approach to studying of tax management, the characteristic of its conceptual bases. As subjects in the field of the taxation the government tax authorities, taxpayers and other participants of the tax relations act. Certainly, the leading role is played by two of them — the state and a business sector (legal entities and individual). Their interests coincide not always. Therefore the general control system of the taxation having in a sense the versatile purposes, it is necessary to consider as two-level system: 169

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• the top level — management of taxes and fees as part of public financial resources, i.e. finance of government bodies of management; • the bottom level — management of taxes and fees of managing subjects. At the state level the main objective when carrying out a tax policy is reduced, first, to formation of revenues of budgets and, secondly, to stimulation of development of economic capacity of the country. This purpose by ensuring relative balance between taxation functions is realized: fiscal and regulating. Problem of management of taxes at the enterprises and in the organizations - optimization of tax payments for the purpose of increase in the size of profit; and it is a question both of tactics of reduction of taxes, and of their steady reduction on long-term prospect. In spite of the fact that managing subjects considerably differ on kinds of activity, the sizes, structure and other parameters that directly affects creation of a control system, the logician and the principles of management of financial resources (including taxes) remain invariable. From considered positions the system of tax management as a whole has to be organized so that to provide management process, both at the state level, and at the level of managing subjects. Therefore Introduction in a scientific and practical turn of the concepts «state tax management» and «corporate tax management» now is lawful. Subject of tax management are: • the relations concerning establishment, introduction and collection of taxes; • tax resources; • financial streams. The tax relations developing between the state, taxpayers and other persons, make a subject of the tax right; they are always connected with withdrawal at legal entities and individuals of part of their income in the relevant budget and in the provided cases – in off-budget trust funds. Therefore the public relations in the field of taxes are directly connected with the state tax control and management of economic and social development of society via the taxation mechanism. The content 170

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of tax management (except these relations) includes different types of tax payments and charges, and also procedures of tax production. The method of tax management covers: 1) ways of influence of the right to the public relations concerning the taxation 2) set of methods, elements of the tax mechanism. The tax legislation regulates the imperious relations concerning the taxation and implementation of tax control. In essence, here it is a question of a method of the tax right which is characterized as imperious and property, caused by need of application of unambiguous, (imperative) norms not allowing a choice for formation of the state budget. Thus the tax mechanism uses methods of the budgetary regulation, tax privileges, the international contracts on avoiding of the double taxation etc. The main methodological basis for tax management is connected with the general theory of management. As tax management is part of the theory of management, the principles of system approach and the system analysis have to be put in its basis. Besides, tax management as multidimensional system is characterized by possibility of its decomposition on the different bases for the purpose of allocation of the conceptual images, allowing to shine these or those parties of this system. 11.14. State tax management The state tax management — is purposeful process where some qualitative and quantitative state of the economy which is reached during a certain period of time by the directed impact on system of taxes and the taxation can be the purpose. Subject of the state tax management are economic processes of movement and redistribution of costs mainly in a monetary form by implementation both obligatory and gratuitous payments, and regulating impacts on participants of economic space in the social and economic direction necessary for society. Object of the state tax 171

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management are various on character and the contents the relations arising in society concerning the organization and implementation of these economic processes at different levels of management. From this definition follows that the State tax management – process of influence by taxes and the taxation on behavior of subjects of managing and the population by means of tax administration and implementation of tax planning, tax regulation and tax control for the purpose of optimum and effective economic and social development of society. Therefore, the state tax management includes activities of financial and tax authorities for definition and the budgetary mobilization of tax potential of national economy, her subjects, territorial educations, branches of economy and taxpayers. Thus tax potential is considered as making part more the general concept of financial potential and represents the maximum possible settlement sum of receipts of taxes and fees in the conditions of the existing tax legislation. The content of the state tax management makes: 1. State tax planning and forecasting; 2. State tax regulation; 3. Tax control. Problems of tax planning and forecasting are identification of the actual tax capacity of territories or subjects of the taxation and its most admissible fiscal use, development of offers on improvement of system of taxation and its legal regulation ensuring peaceful coexistence of conflict spheres «business budget». Production of tax planning can include some stages: 1. Calculation and assessment of tax capacity of territories and subjects of the taxation and prospect of its development: analysis of tax loading of the organizations. 2. Assessment of adequacy of tax revenues from subjects of the taxation to their actual tax potential and a choice on this basis of objects of tax checks; legal and organizational support of increase of a collecting of taxes: forecasting of tax revenues. Core of tax planning is determination of tax capacity of the region, area, branches and taxpayers for the purpose of its subsequent tax 172

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mobilization. Calculation of an actual state and development of cumulative tax base of taxes is put in a basis of establishment of tax capacity of the region on the basis of economically reasonable tax loading of territories and taxpayers which in Kazakhstan differs obvious unevenness. The overall objective of tax regulation consists in counterbalancing public, corporate and private economic interests. Achievement of this purpose is provided with a combination of various methods of tax regulation (the tax credit, a delay and payment by installments of tax payment, tax deductions, etc.), and also their synthesis with all methods of state regulation of economy (pricing, tariffs, regulation of monetary circulation, etc.). As noted, in the framework of the overall objectives of particular importance is the optimization of inter-related elements of taxation: the tax base, tax rates, tax exemptions. The essence of this process is to achieve in practice, the relative balance between the two tax functions: fiscal and regulatory. Recall again that the ways to implement tax regime different and contradictory. On the one hand, this system of tax benefits: the abolition of advance payments, the reduction of tax liability in connection with the charity, deferred payment by the taxpayer. On the other hand, is a system of tax penalties (fines, penalties and administrative sanctions). The right mix of these two systems provides the flexibility of taxation and as a consequence – the effectiveness of fiscal policy. Thus, tax regulations associated with the detailed design methods for realizing the targets, as well as the elaboration of regulatory actions aimed at their implementation. A characteristic feature is that the methods of tax regulations should be required to take into account the legal regulations, the defining aspects of the production and the tax liability for their violation. In addition, this includes a wide range of methods of indirect effects on the behavior of the subjects of taxation, stimulating their decisions, useful to society (for example, through the use of a simplified system of taxation). Management efficiency is in a great deal determined by that, as far as effective is the tax checking system. Last as an element of the state 173

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affecting managing subjects obligates them it is correct to form a tax base and exactly to calculate the size of tax obligation. A control object is all financially-economic operations and their results. Tax control actions embrace all system of taxation; they come true in the cut of territories, taxpayers, classification groups of taxes, and also separate taxes and collections. The observance of one of the basic requirements is thus needed to tax control: an effect must considerably excel expenses on his realization. Providing of state tax control is possible of different ways. One of them is an account of taxpayers. The feature of corporate tax control is that normative acts are set totality of receptions and methods on providing of observance of tax law and tax production. Here maintenance of control plugs in itself: monitoring the controlled objects; there are an account and analysis of tendencies in area of taxes; acceptance of measures on prevention and suppression of tax violations; exposure of guilty and bringing in of them to responsibility. Such control comes true by public organs and auditing firms, bookkeeping and financial services of enterprises. Certainly, aims and tasks of state and non-state tax control are different. 11.15. Corporate tax management A corporate tax management, as type of administrative activity, on an enterprise is all anymore included in practice of economic life of the Kazakhstan enterprises, and the tax manager of organization (expert, consultant on taxes) becomes more meaningful figure. Lately in Kazakhstan a corporate tax management became the article of activity of many auditing and consulting firms working on contractual basis with taxpayers. A corporate tax management is control system by the tax streams of commercial organization by the use of scientifically reasonable market forms and methods and acceptance of administrative decisions in area of tax profits and tax charges on a micro level. 174

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Corporate tax management as a link of the integral system of tax management has the same functional elements, but with the features: ▪ organization of management process by tax streams on an enterprise; ▪ corporate tax planning; ▪ corporate tax adjusting; ▪ corporate tax control (self-control). Organization of corporate tax management in wide sense is totality of organizational forms and methods of the tax planning, tax optimization and tax self-control; in narrow is preparation and conditioning for optimization of tax streams. For organization of management tax streams on enterprises are use the organizational structure of financial management. By management tax payments, either the specialist of financial department (services) or (that undesirable) bookkeeping engages in on the most Kazakhstan enterprises. Rarer, but however meets, external management by taxes. Rationally, when on an enterprise, specialists – tax managers occupy in his financial serving (and in large holding structures – in the specially created tax service) as tax streams. In their duties included: participating in development of regulating documents of company, charter and different positions; development and ground of application of the effective tax mode; creation and maintenance of informative base on a tax law; participating in the ground of the system of agreements and contracts; development ofcorporate tax politics and tax budget; realization of the corporate tax planning, prognostication and budgeting; development of the corporate tax adjusting; realization of internal tax control, analysis of taxation of company; providing of implementation of external tax control (timely and complete presentation of documentation to the tax organs); realization of tax production: timely raising on an account in corresponding organs and re-registering, development of tax calendar and adjusting of payments on separate taxes, cooperating with local tax and financial organs on tax deductions and other tax questions; implementation of organi 175

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zationally-methodical work in area of taxation in the organization; and other questions. The processes of planning and adjusting on an enterprise are very closely associate, case bound and, examining the processes of tax management on an enterprise, them difficult enough to separate. Therefore basic methodical directions of the tax planning and adjusting are examined in totality as single unit, as tax optimization, т. of е. optimization of corporate tax profits, tax charges and tax income by the tax budgeting and other forms and methods of the corporate tax planning and adjusting. Corporate tax control is the systematic activity sent to organization of self-control (of supervision, verifications by the managers of rightness of extra charge and tax, motion of incoming and outgoing tax streams, efficiency of the use of tax income payment, and also exposure and removal of tax errors to verification from the side of tax organs. Organization and realization on the elements of valuable corporate tax management create possibility of decision the subjects of management of row of problems that not always succeeds to be decided within the framework of other types of management and types of management : – to get an additional tool for the use of current and future favorable tax, financial and another terms, – more fully to take into account the changes of environment, – to stimulate the participants of tax management taking into account the results of the accepted administrative decisions, to create pre-conditions for the increase of class and qualification of managers, – to provide more rational distribution and use of different types of resources of managing subject, – to promote financial stability and cost of enterprise at minimum expenses. By the important criterion of decision of question about the necessity of organization the managing subject of corporate tax management is a level of tax burden. If specific gravity of taxes does not exceed 15 % to the net added cost of enterprise, then requirement in the tax planning 176

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and of optimization minimum; at higher values levels of tax burden organization of valuable tax management is needed. What higher tax burden, the more effective there will be expenses of managing subject on organization of tax management, the higher cost of the accepted administrative tax decisions(on condition of their efficiency).

11.16. Setting to and tax evasion Setting to of taxes is a process of transference of tax burden from a payer to eventual vector of taxes - population that assumes basic weight of taxes. Setting to of taxes is related to the lack of coincidence on the row of taxes of not only payer and carrier of tax but also object and source of levying. Setting to takes place in the hidden form, both in the field of production and in the field of appeal. In the field of production, there are the taxes, paid due to an income or profit can be shifted by intensification of labor of the hired workers, id est relative reduction of necessary business hours and increase of additional time. It is the most hidden form of setting to of tax on the hired workers. In the field of appeal taxes are shifted through the mechanism of prices. A corporate income tax can be shifted on the consumers of products of enterprise due to higher prices or on the suppliers of resources due to the understated prices on resources. In case of taxation of profit of the managing subjects, organized in form a joint-stock company a transfer can be carried out on shareholders by payments to them more subzero dividends in part covering all sum of the tax or his stake paid by subjects. Individual income tax paid at a source not carried, because levies from the eventual profit of taxpayer. However, if on the requirements of trade unions to the workers the remuneration of labor will be megascopic, possibility of setting to of part of taxes appears from working and to the employers. Last by a price increase shift the 177

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increase of current expenses in parts of remuneration of labor on the consumers of products or services. As for the individual income-tax paid on declaration, then maybe, his setting to through a price increase on the rendered services(by doctors, advocates, other persons of free professions). Taxes on property are carried partly. So, at the payment of tax on property of legal entities and physical persons, carrying on entrepreneurial activity it is possible in the cases of sufficient demand to set too high a net profit on the sums of tax and thus carry it on the consumers of products and services. Physical persons are small holders of property - the proprietors of apartments can shift a tax only in case of handing over of them in a lease, and mainly are the eventual payers of tax on property. Other direct taxes paid due to a profit are like carried: earth, tax on transport vehicles. Indirect taxes have bigger ability to transposition. The value added tax is completely transferred to consumers, because it has the considerable range of production and services and consumers practically don’t have a choice of the goods which isn’t assessed by this tax. In case of taxation by excises and the import customs duties such choice is available as consumers can reorient on replacing goods and the services which aren’t assessed by excises and duties. In that case the seller will be compelled to reduce the prices because of decline in demand for its goods and tax burden can be distributed – is partially postponed for the consumer. The taxation, as a whole, – as at direct, and indirect taxation – negatively influences producers (sellers) and consumers of goods and services that is expressed in increase in the prices and reduction of outputs. Besides a factor of elasticity of supply and demand, opportunity and extent of transposition of taxes through the prices of goods and services depends in many respects on phases of a business cycle: during lifting more favorable conditions for rise in prices are created, and transposition of taxes is made more intensively and vice versa, at crisis transposition has difficulty because 178

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of production falling, unemployment growth, reduction of solvent demand of the population. Evasion of taxes – intended concealment and reduction of object of taxation (profit, the income, commodity turnover, property) by the taxpayer for the purpose of full or partial failure to pay tax payments. Such illegal actions of taxpayers cause serious damage to the state interests: the state budget will receive less considerable means, additional criminal sources of the income are created at violators of the tax legislation, the main proportions of movement of cost in the sphere of business activity, in branch, the region, etc. are distorted. The evasion reasons from taxes can be different: 1) the considerable tax burden which isn’t allowing normally to carry out economic, business or other activity; a large number and high rates of taxes can promote leaving of the subject of the taxation in «shadow» (illegal) economy; 2) illegibility of the tax legislation, abundance in it of additions, changes, the amendments allowing differently to treat provisions and standards of instructions and rules; 3) shortcomings of the organization of tax service; 4) deliberate aspiration of subjects to failure to pay the tax sums for using it for enrichment or investment in shadow business. Huge scales of «shadow economy», money transfer to accounts in banking institutions of other countries, successful efforts on understating of true scales of business activity, size of cost of property – remove the enormous sums of tax revenues from under state control. According to some information the illegal economy in Kazakhstan makes from one third to 40% of gross domestic product. Unsuccessful situation in legal economy doesn’t allow to use completely its tax base for replenishment of the state financial resources. Practice of maintaining the «double» account was created: for official bodies and for own use of businessmen, in the first minimum admissible results of activity are shown, in the second – true, necessary for management and business development are shown. Variants of actions of tax authorities are determined by administrative provisions about taxes at various deviations from an 179

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established order or non-standard situations at calculation and payment of taxes; for example, ways of definition of object of taxation in case of violation of an order of conducting accounting, destruction or loss of registration documents, discrepancies of the declared income to expenses for personal consumption, to the size of property and other cases. Measures of compulsory collecting taxes are established; seizures of the taxpayer’s property with possible subsequent realization of property and offset of the sums of the account of taxes due to payment, a fine and penalties, stay of economic operations. Responsibility for different violations of the tax legislation is defined: for example, non-presentation or representation with violations of established periods of the tax reporting in tax authorities, failure to pay or incomplete payment of the sums of taxes and other obligatory payments in the budget by not reflection or understating of the taxation object, the wrong calculation of taxes, initiation of false or deliberate bankruptcy, concealment of property, location of taxpayers, use of fictitious invoices. Drastic measures of responsibility in a criminal order for the malicious violations of the tax legislation which have caused a significant damage to the state are established: responsible persons of subjects of managing are punished, according to the Criminal code of the Republic of Kazakhstan, deprivation of the right to hold certain positions or to be engaged in a certain activity for the caused term, to be involved in public or corrective works, and also imprisonment till three years. However all listed measures don’t eliminate an evasion problem from taxes. Only by results of checks of tax service bodies of the additional accrual sums make one third of the budgetary income. Taxpayers apply more and more sophisticated ways of concealment of the taxation objects and the income, cases of granting to tax services of the distorted data become frequent. There are various ways of evasion from the taxation. The greatest distribution was gained by evasion from direct taxes payment. 180

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For indirect taxes it is complicated because of features of their collection. But commission of commodity-money operations without participation of banks, that is the actual concealment of operations of purchase and sale from the account, does possible failure to pay excises, a value added tax. Evasion is promoted by activity of the «short-lived firms» created for cashing in and concealment of the income. Evasion from the taxation can be connected with unsatisfactory statement of accounting or its absence, for example, in country or farms. On the taxation of the income the most characteristic evasion way is understating of the sizes of the income by a way of increase in costs of production or the address (deductions); Understating of the taxable income also is accomplished by the relation on deductions (prime cost) of expenses which have to become covered at the expense of the income left at the payer’s disposal and expenses which aren’t connected with business activity. Widespread way of evasion from the taxation of the income is understating and revenue concealment from business activity. Possibilities of failure to pay or underpay of the individual income tax, withheld source of payment of the income, are connected with the extended practice of calculations for compensation in natural expression, that is production of the enterprise or production received on barter. In such cases, difficulties arise with a real assessment of wages in kind which can be underestimated for the taxation. Practice of overestimate of expenses on compensation by an extract of orders on figureheads, involvement of workers to «performance» of works on the turnkey contract, the contract, rendering fictitious services from outside, made out documentary is widespread. The way of division of the income on some parts is applied to reduction of a progression of taxation, exaggeration of the income on which discounts under the law extend at taxation of the individuals’ income or property. Other ways of evasion connected with features of calculation of 181

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costs of production, an order of registration of firms, the companies, the organizations are possible also: write-off on expenses of expense accounts, publicity expenses, etc. Ways of fictitious registration of taxation object are applied in the territory where the quantity of a privilege works or the norm of the taxation is lower. Possibilities of evasion from taxes open also in the international financial and economic relations. Country’s «tax shelters» are used for this purpose where the policy of attraction of the capitals from abroad by granting wide tax privileges is pursued. Business registration in such country allows removing got profit, interest income, dividends from under the taxation. Such goals are reached by business registration in offshore, free, special zones where the tax mode is weakened or declaring of the income by the legislation isn’t obligatory. Here fictitious subsidiaries, branches through which pass payments can be organized and tax maneuvering for the purpose of understating of taxes or their full avoidance is carried out. Failure to pay or the underestimated payment of the tax sums generates falling of «tax morals», effect of impunity undermining authority of government bodies and the state. Therefore paramount significance in work of tax authorities has to be attached to fight against evasion of taxes. Questions: 1. What are the taxes? What is the economic essence of taxes? 2. When there were taxes? 3. Call the classical and modern principles of the taxation. 4. What is the observance of «vertical equity» in the tax system? 5. Disclose value of «the principle of simplicity» and «an economic neutrality of the taxation». 6. What is the essence of taxes? 7. What is the value of the redistributive function of taxes? 8. Give practical realization of function of taxes as regulating 9. What is the tax policy? 10. Give definition to concept «tax system» 11. Give the main classification of taxes by various signs. 12. Differentiate concepts between straight lines and indirect taxes.

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Chapter XII. Government expenditures 13. Call what taxes is carried to the general and special. 14. Call ways of levy of taxes. 15. What are the methods of tax accounting? Which method of tax accounting banned in Kazakhstan? Explain the answer. 16. Call the main taxes and fees levied in the territory of RK. 17. Give definition to concept the tax mechanism. 18. Call and characterize taxation elements. 19. Give differentiation to the concepts «tax privileges» and «delay from taxes». 20. Call types of tax control 21. What is the tax policy? 22. What is the creation of modern structure of the tax mechanism? 23. What does the new Tax Code characterize? 24. What taxes are indirect? What is their feature at this stage? 25. What are the features of collecting VAT in the Republic of Kazakhstan? 26. What is the economic value of excise duties’ levying? 27. Name the income taxes in the Republic of Kazakhstan. What are the features of collecting CIT in the Republic of Kazakhstan? 28. What kinds of income does the total annual income of a taxpayer form? 29. What are the tax deductions in the calculation of CIT? 30. Indicate the tax rates of CIT? 31. What is the role of Individual Tax Payer Identification Number in the taxation system? 32. What taxes and payments are collected from users of mineral resources? 33. What is the role of collecting MET? 34. Disclose on the meaning of social tax. 35. What taxes are identified as property taxes? 36. What are the features of collecting taxes on vehicles? 37. Disclose the economic value of collecting land tax. 38. Define the role of estate tax with regard to collecting property tax. 39. What is the special tax regime? 40. Can you distinguish the notions “charges”, “pays”, and “duties”? 41. What is tax management? What is the meaning of state tax management? 42. Indicate the levels of tax management. Characterize them. 43. Give the definition of the notion “state tax management”. Indicate the goals and objectives. 44. Disclose the meaning of the notion “corporate tax management”. 45. Shifting of taxation and tax evasion in the system of corporate tax management.

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CHAPTER XII GOVERNMENT EXPENDITURES 12.1. The nature of government expenditures Government expenditures are cash expenses associated with state functioning. As an economic category government expenditures express the relations connected with distribution, re-distribution and consumption of a part of gross social product in order to develop and improve public production as well as to meet diverse needs of the society. The notion “expenditures” has a double meaning: 1. Use of monetary funds according to their designated purpose, which is the direct spending of monetary funds in the process of exchange. In this case expenditures include expenditures of enterprises and organizations of both production and non-production spheres, and the population, carried out by means of disposable incomes, while gross social product is divided into three funds: compensation fund, accumulation fund and consumption fund. 2. The actual funds application in the process of exchange should be separated from the expenditures of distributive nature which are formed by means of finances: using national funds and distributing funds of the enterprises according to their designated purposes; cash expenditures serve as the basis for formation of disposable incomes for all business facilities. These two aspects reflect contradictory and complicated nature of the notion “expenditures” when it is transformed into the notion “spending”: if “expenditures” refer to final expenses, consumption 184

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(as contrasted to “income”), while “spending” mean expenses “as an offset advance”, beforehand, expecting the future income or profit. Government expenditures consist of expenditures of state budget, non-budgetary funds, state enterprises and organizations, enterprises of production and non-production spheres. The expenditures of public sector enterprises consist of: 1) expenses related to production, economic and operational activity; 2) for extended reproduction (to basic and current funds); 3) payments to budget and non-budgetary funds; 4) to bonus incentive funds The first group of expenses is associated with circulation of funds (capital) and represents a reimbursement of production costs and refers to expenditures nominally (see the definition of the term “expenses”). Therefore, government expenditures of enterprises include only the second and the third groups of expenditures. Expenditures of state budget are set out in section 13.2. The position of government expenditures among the other categories is defined by the importance of state property and the role of the government in the present conditions. The state owns the means of production, acts as the organizer of production process, participates in creation and distribution of gross social product and in accordance with its functions and objectives meets a major part of social needs through the system of government expenditures. Although the share of public sector in the economy of the Republic has sharply declined over the period of reforms, but even with implementation of the program of denationalization and privatization this share will keep within 30-40%, which corresponds to the full-fledged market relations. Therefore, category “government expenditures” reflects strong economic relations and keeps its meaning in the long view. The role of government expenditures is defined by the fact that their dominating part is directed for production or providing the population of the country with public goods, amenities and services. The expenditures for social and cultural purposes, defense, law enforcement, management as well as production and services of state infrastructure enterprises and organizations are designed to meet 185

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general demands of population in addition to provision with market goods and services both by public and market sectors of economy. The totality of all kinds of expenditures by directions and purpose makes up the system of government expenditures. The vast majority of government expenditures are made by means of net income of society centralized in the state budget or used by state enterprises. They can be reimbursed by depreciation amounts included in a production prime cost that are directed to capital investments, provided for increasing production funds of public sector. A part of government expenditures is reimbursed by means of population funds in the form of tax payments; proceeds of loans and others. Long-term credits of banks are attracted for financing government expenditures, in order to increase and technically improve the basic production assets and which are reimbursed in the future from profits and other incomes of an enterprise. The organization of government expenditures is achieved by both forecasting and establishing of the strict order of their financing and attracting the funds. Therefore, one of the principles of organizing government expenditures is planning. The government takes part in distribution and redistribution of gross social product and the national income between production and nonproduction spheres, industries, economic areas for the purpose of balanced development of national economy and increase of social living standard of people. The main principle of planning government expenditures is balance method. Purpose- oriented financing of government expenditures suggests the use of state funds for strictly defined activities. This ensures achievement of proportions in the development of individual sectors of national economy and regions, appropriation of funds primarily for the development of the most prospective and progressive sectors which determine scientific and technical progress and address the most critical social problems. Irrevocable financing of government expenditures does not demand direct reimbursement of the resources provided (in contrast to credit method). Provision of financial resources in accordance with 186

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this principle in the latest time is combined with credit methods of financing the state budget (for instance, via State Fund for Financial Support of Agriculture); this improves the efficiency of the resources used. Financing to the extent of fulfillment of plans (forecasts) of development suggests the allocation of financial resources only at performing operational indicators and carrying out activities in accordance with forecasts of economic and social development. Compliance with economy regime in the use of funds is an important principle of organizing government expenditures aimed at mobilization of internal resources and control enforcement over spending state funds in all sectors of production and non-production spheres, their rational and economic use. The essential principle of organizing government expenditures is an optimal combination of budget, credit and own sources of their reimbursement. 12.2. Classification of government expenditures Certain kinds of government expenditures are plural by economic content and meaning. This determines the difference in sources, ways and methods of financing expenditures. The most important criterion of distinguishing government expenditures is a relation to the process of material production and creation of national income. In accordance with this, government expenditures by their economic content are divided into three main groups: 1) expenditures related directly to material production and related to production sphere; 2) expenditures in non-production sphere of activity; 3) expenditures for creating state reserves. The first group of expenditures is determined by economic activity of the state and associated with creating national income. The second group of government expenditures is associated with 187

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the consumption of national income for meeting social demands of society. Funds used for non-production sphere are primarily directed for maintaining education and health care institutions, development of science and culture, residential and cultural construction, social insurance for employees as well as social security for all members of society. The government also spends funds for defense, maintaining state apparatus and other events related to the activity of state authorities. Charges on the needs of unproductive sphere are that part of national income, that enters fund of consumption. However height of expenses in an unproductive sphere in final analysis also affects on the themes of height of public production and increase of his efficiency. It is arrived at due to training of skilled personals, introduction of achievements of science in a production, providing of medical service of workers of sphere of material production. Optimal allocation of state charges between the fund of accumulation and fund of consumption is the major task of economic politics of the state. Correlation of fund of accumulation and fund of consumption changed: the last years the rates of height of fund of consumption exceeded the rates of height of fund of accumulation. Specific gravity of fund of consumption in the national income used on a consumption and accumulation made in Kazakhstan 86%. Government spending of the third group - on creation and addition to government reserves target at satisfaction of necessities to both productive and unproductive spheres under emergency circumstances, for example, at natural calamities, for the compensation of losses and providing of continuity of supply of enterprises, establishments, organizations and population by commodities and foods. Accumulation of such reserves and the decentralized order(separately at every enterprise and organization) would be inefficient. The centralized order of their education allows relatively to bring down their necessary sizes and most effectively to draw on these reserves. On a subject sign (to having a special purpose) the government spending is divided by charges on an economy, sociocultural measures, science, defensive and management. 188

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On a territorial sign the government spending is divided on economic regions. Such classification allows actively to affect placing of productive forces and perfection of proportions in a national economy. The government spending on a branch sign in the field of material production is divided by expenses in industry, building, agriculture, transport and connection, trade, supply and purveyances; in an unproductive sphere subdivided into expenses on education, science, health protection and physical culture, social security and public welfare, on a defensive and management. The government spending must provide the most complete satisfaction of state necessities at the maximally effective use of facilities. In this connection there are two methods of financing of the government spending, managements determined by features : ▪ financing of self-supporting enterprises and organizations; ▪ estimate-budgetary financing. As a method - in exceptional cases the emission financing is used due to producing of cashes in an appeal and credit emission (cashless). In first case charges are produced due to own resources, credits of bank and in failing part - due to budgetary assignations. In the estimate order financed expenses on sociocultural measures, maintenance of public and management authorities, defensive, determined on the basis of the special documents - estimates. The establishments and organizations, financed in the estimate order, are named budgetary. The next forms of the budgetary financing are used: grants, subvention, and subsidies. At grants monetary resources are distinguished in the irretrievable order from a budget and off-budget funds for coverage of losses of enterprises and organizations, and also for balancing of lower-level budgets. This form was widespread as a compensation of difference in prices on an agricultural produce, maintenance of socially-acceptable prices on separate foods and commodities, on coverage of losses of housing and communal services, partial compensation of expenses of theatrically-spectacle and other organizations of unproductive sphere. 189

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Subvention is a form of having a special purpose state financial help on the programs and measures on providing of social support of population and other aims; in case of violation of the having a special purpose use of means subject to the return. Subsidies are manuals in a money or natural form due to facilities of budget, off-budget and special funds on the irretrievable financing of certain measures on by share basis. The enumerated forms (in the cases of their normal realization) assume an air of the transfer financing. Transfers, in wide sense is a gratuitous and irrevocable transmission of facilities at their redistribution for financing of certain necessities from a budget and off-budget funds. As a rule, it is payments on social security and providing, doles, on maintenance of the system of education, health protection, culture etc. 12.3. Financing of the economy Charges on development of economy are the monetary resources sent to conditioning for the permanent height of production and increase of his efficiency volumes. To them behave: ▪ expenses on capital investments, ▪ repair of capital assets, ▪ increase of turnover means, ▪ accumulation of material reserves, ▪ formation of the special funds and funds of single sourcing. Main place in charges on an economy occupy capital investments totality of expenses of the material, labor and money resources sent to the extended reproduction of capital assets of all industries of national economy. In the complement of capital investments expenses are included: 1. on building and installation works; 2. acquisition of equipment, instrument, inventory; 3. other capital works and expenses(project, geological survey and boring works, expenses on taking of lot lands and migration etc.); 190

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4. expenses on training of personals for the again built enterprises. Financing of capital investments is produced for an account: 1. the personal funds of managing subjects; 2. long-term credits of banks; 3. economies of population(on housing); 4. assignations from a budget. The stake of the personal funds of enterprises increases, these self-supporting facilities are intended on a technical rearmament and reconstruction and enterprises bear the complete responsibility for the extended reproduction. Herein there is main sense of alteration of investment politics. And budgetary facilities are mainly used for financing of large productive building, having a priority state value, and also building of objects of social infrastructure. Charges on repair (for partial renewal of physically threadbare and morally out-of-date capital assets and maintenance of them in the capable of working state) produced due to the special fund of the repair of capital assets, created on norms with plugging of expenses in an unit, works and services of enterprises and organizations cost. The increase of turnover means is financed due to the personal or equated with them funds of enterprises. At their defect budgetary facilities are distinguished, mainly for new enterprises, or allotted credit with his subsequent redemption. In addition, facilities of singlesourcing head for coverage of lack of own turnover means. Expenses on the accumulation of reserves are the necessary condition of providing of continuous circulation of facilities and all process of the extended reproduction, observance of economic proportions, compensation of losses from natural calamities. Financial backlogs give an opportunity to maneuver money resources, to remove temporal financial difficulties arising up in the process of economic activity at an enterprise. The systems of accruals are created on the different levels of management. Government reserves are the supplies of major types of raw material, materials, fuel created by the state, some types of machines and equipment, grain, food stuffs, products intended for the needs of defensive. Government reserves make the special centralized fund 191

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of the state, constantly refurbishable and filled up; the expense of government reserves is admitted to the exceptional cases and only on the special decisions and decisions of government. Government reserves appear due to facilities of the state budget. 12.4. Charges on social and cultural measures Important direction of the government spending is financing of expenses on sociocultural measures – enlightening, informative services (printing, broadcast and television), culture, art, health protection, physical culture and sport, state social security and public welfare These charges are large-sized divided into next kinds: 1. education and professional training of personals; 2. culture, art, sport and mass medias; 3. health protection; 4. state social security and social help. In the conditions of market relations, walking happened away from financing of charges on sociocultural aims from the before formed public funds of consumption. In the conditions of market direct dependence of size of consumption from a labor deposit, possibilities of man in the different types of activity is formed. Therefore in modern terms individual profits are formed depending on an enterprise and other capabilities of people, and also the decentralized funds increase, because at disposal of economic organs there is part of profit (arrived) depending on their job performances. Lately establishments of social sphere partly pass to the selfsupporting beginning of financing, on principles of insurance. In the field of education is this application of the requiring payment educating for acquisition of knowledge and professional skills additionally to the assured budgetary norms, in a health protection is development of requiring payment medical services. Charges on education include: universal AV education, out192

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of-school education (child’s establishments, musical schools of and other), vocational, AV special and higher education. All enumerated charges are covered by budgetary resources in part of the level guaranteed by the state. By a legislation envisaged that financing of establishments of education comes true in accordance with the state norms determined and settling on every studying on every kind and type of establishments of education. Charges on preparation and in-plant training and other shots of workers on a production join in an unit cost and work. Establishments of education attract off-budget facilities and resources, including currency, due to the grant of requiring payment educational services; part of facilities is given by enterprises in organization are sponsors. Since 1999 the new mechanism of financing of higher education is used on the basis of underbacks and credits; in first case of means distinguished gratuitously due to the state budget for preparation of specialists of necessary profile, in the second – due to a long-term credit student from the side of business bank corporations on contractual basis (bank establishment is a student – institution of higher learning is Department of education). Financing of culture and art is included maintenance of libraries, clubs, houses of culture, museums and exhibitions, theatres, philharmonic societies, musical collectives, ensembles, film studios; they are financed from a budget, and also facilities of enterprises, public organizations. A row of establishments of culture and art is on self-supporting basis(theatres, circus) and on them set sum of grants from a budget on the size of the charges, not covered by own profits. Charges on maintenance of mass medias in Republic of Kazakhstan head for financing of state broadcast, television, publishing houses, newspapers and magazines in that the state comes forward as a founder. The sourcing of health protection it is: ▪ facilities republican and local budgets, distinguished on of long duration economic norms; 193

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▪ withholdings from the profit of managing subjects, having a special purpose subsidies of ministries, departments and other organs of management; ▪ facilities of international organizations on the special programs; ▪ currency assignations from republican and local currency funds; ▪ facilities of medical establishments, got for implementation medical and other services to the employers and for providing of requiring payment services and other types of economic activity; ▪ eleemosynary holding of organizations and citizens, including other states. Facilities of state health protection head for: ▪ providing of medical care to the citizens; ▪ having a special purpose complex programs of health protection; ▪ development of material and technical base of state health protection; ▪ table of contents medical and preventive in sanitary establishments; ▪ preparation and in-plant training of medical shots; ▪ development and introduction of medical science; ▪ liquidation of epidemics of infectious diseases. Charges on a physical culture and sport are financed due to facilities of the state budget, facilities of trade-union organizations, profits of managing subjects, personal funds of sporting societies. From the state budget capital investments are financed on building of stadiums and other sporting building, maintenance of vehicle of sporting organizations, assignation on realization of educational training collections and competitions. Part of charges is compensated by organizations are sponsors, as a rule, in advertisement aims. In expense part of the state budget of Republic of Kazakhstan the half of all expenses is made by a social and cultural sphere(education, health protection, social help and public welfare): 49%% – 2001, 49,9%% – 2002, 49,2%% in 2003, 47,9%% in 2004, 40,5%% in 2005, 45,2%% in 2006, 46,9%% in 2007, 45,9%% in 2008, 49,9%% in 2009.

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Picture 1 – Dynamics and stake of charges on a social and cultural sphere in the state budget of Republic of Kazakhstan in 2005-2009 * Source: the Statistical bulletin of Ministry of finance of Republic of Kazakhstan.

12.5. Charges on social defense of population This group of charges occupies most specific gravity in the system of the government spending. In the conditions of passing to the market relations charges on social defense of population become priority and increase in connection with a price advance on consumer goods and services, and because of inflation and depreciation of money. Social defense is the system of priorities and mechanisms of their realization through state and other institutes, for providing avouched for the citizens of level of normal vital functions in accordance with the concrete terms of community development. This level depends on socio-economic development of society, sizes of gross internal product, accumulated national riches 195

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and character of their distribution status, from efficiency of work of mechanisms of realization of the system. Financial expression of social defense shows up in the relations of redistribution, related to forming and use of the special money funds from those different social payments to the population is produced. By basis for settling of sizes of minimum social payments, the size of middle per head population of consumer budget serves. A cost and composition of minimum consumer basket on basic foodstuffs, clothing, medications, fuel, and set of services necessary for family settle accounts for this purpose. The size of minimum consumer budget is periodically looked over in connection with the change of standard of prices and again becomes firmly established a representative organ. Charges on social defense of population in financial documents, plans, prognoses, reports are reflected as charges on public welfare and social help. There are distinctions in the concepts plugged in the category of social defense of population. Public welfare embraces the wide spectrum of relations on material support of the disabled and unemployed members of society. As forms of public welfare comes forward social security, payments of social manuals and so-called «social help» to the poor layers of population. Social security on the economic nature contacts with labor activity of man and forming of funds for corresponding payments depending on the results of this activity. Id est. facilities on social security appear largely on principle of self-finance, with a large or less temporal interval from their receipt by a user (insure). A social help spreads poor to many categories of population, being mainly after the line of poverty» and has character «of assistance» due to the state or benevolent funds – public, having a special purpose, private and has an aim – of «charity poor». Thus, it is possible to distinguish three methods of forming of facilities for financing of social needs: insurance, budgetary, eleemosynary payments (offering). An insurance method supposes withholdings of facilities in 196

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determined size from the volumes of activity, enumerated on the channels of redistribution for financing of kinds of social payments. At a budgetary method provided funds from the national fund of money resources, at level determined by possibilities of the state and aims of social and budgetary politics. At the method of eleemosynary payments (offering) of means does not have the fixed sizes and expended to the extent of their receipt on channels and on the aims, determined by organizations carrying out eleemosynary payments. Social security will be realized mainly through the system of the pension system, payment of manuals on temporal disability, social support at the loss of work. A pension is the assured monthly cash disbursement for providing of citizens in old age, in case of complete or partial disability, loss of breadwinner, related to the achievement of the set experience of work in the different types of labor activity. With passing an act «About the pension system in Republic of Kazakhstan» from 20th June 1997 pension reform is begun. Her essence – in the transition of the pension system from existing for 1997 principle of solidarity of generations at forming of pension fund on principle of individual accumulations. The State center on payment of pensions and State story pension fund, formed by the in payment of social tax all legal entities and physical persons, occupying entrepreneurial activity, are envisaged for this purpose. In addition, employers monthly enumerate in form obligatory pension payments 10% from the remuneration of labor, including all types of salary, different bonuses, additional charges, raises. Due to this source the pension accumulations of depositors of story pension fund are formed. Depositors or their employers can bring in to obligatory pension payments voluntarily pension payments the size of that is unreserved; they are brought in onetime or repeatedly, regularly or irregularly, by cash or enumerations (cashless). Pension payments are directed in State story pension fund or non197

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state story pension fund on the choice of depositor that, on the basis of pension agreement a pension account is opened to individual and personal number – social individual code (SIC). Accumulated contributions of investors pass pension funds through authorized bank (custodian) to the organizations exercising investment control of pension assets (OOIUPA) which place means in securities, deposits of banks and other financial instruments. Income gained at placement, is called as the investment income, is distributed on individual accounts of investors according to the sum of the savedup means. The second direction in social insurance is payment of grants. The grant is the guaranteed monetary payment at a temporary break in work, and also for compensation of the raised expenses arising in certain cases. The grants paid within social insurance include: 1) payments according to sick-lists; 2) grant on care of the child; 3) maternity allowance; 4) grant to a funeral; 5) expenses on acquisition of vacation packages in sanatorium. In the Republic of Kazakhstan the system of social insurance is carried out on the basis of the Law RK of April 25, 2003 «About obligatory social insurance». Main objective of introduction of system of obligatory social insurance in the republic was providing working citizens for whom obligatory social assignments, along with basic welfare payments, additional payments in case of approach of risks were listed. Social risks usually possess the following signs: First, economic. They include: – threat to lose work on the reason of discrepancy of supply and demand of labor as a result of restructuring of economy, an economic crisis, restructuring, production optimization, etc.; – disability threat owing to an occupational disease, the production trauma being usually a consequence of unwillingness of businessmen to invest in providing safety measures and creating favorable 198

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conditions of work. In these cases of the reason of risk don’t depend or depend on the worker a little. Secondly, the part of risks is directly connected with approach of the cases connected with temporary disability and achievement of a retirement age, etc. The risk of material neediness can be defined as probability of approach because of a production injury or occupational disease. These risks have mass character. But their feature is also that they don’t come at the same time for all insured, all population. At the same time there are the risks caused by social and economic conditions, which as, for example, inflation, a default, etc., can come at the same time for all population. Similar risks aren’t covered by social insurance. Important and necessary condition of creation of originally insurance system of social protection of the population – identification of real functions of insurance payments in material security insured. In turn it makes a basis of methodology of establishment of their size, conditions, a form and an order of payment of insurance payments. Such risks aren’t covered by social insurance. Important and necessary condition of creation of originally insurance system of social protection of the population – identification of real functions of insurance payments in material security insured. In turn it makes a basis of methodology of establishment of their size, conditions, a form and an order of payment of insurance payments. The International Labor Organization defines concept of social protection as the system, urged to provide a certain level of access to the vital benefits and a certain welfare of citizens which in accordance with the circumstances (an old age, the state of health, loss of the supporter or work) can’t be economically active and provide itself with the income by participation in adequately remunerative work. According to it for years of reform in Kazakhstan the three-level system of social protection is created. The first level – the Republic of Kazakhstan guaranteed by 199

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the Constitution social payments, i.e. payments to all citizens at identical level without a personal contribution of the citizen to society development (basic pension payment, welfare payments, single payments on birth/care of the child); the second level – pension payments at the expense of obligatory pension contributions and social payments from JSC State Social Insurance Fund, i.e. the additional social security of citizens considering their personal contribution to development of society; the third level – social payments at the expense of voluntary insurance. It should be noted that today the system of social insurance became the most important and necessary element of the social and economic relations of modern Kazakhstan. The legislative base defining bases of system of obligatory social insurance of the republic is developed. Its fundamental difference from other types of insurance (insurance of property, vehicles, etc.) consists that it provides protection of the person against material neediness in connection with impossibility of participation in labor activity. Therefore social insurance first of all captured hired workers and the people living at the expense of own work, the main which source of existence is the salary or the income. Thus, the system of obligatory social insurance is understood as set of norms and the rules established and guaranteed by the state, regulating the relations between participants of system of obligatory social insurance. The basic principles of obligatory social insurance are: 1) generality of observance and performance of the legislation of the Republic of Kazakhstan about obligatory social insurance; 2) guaranteeing by the state of the measures applied to ensuring social payments; 3) obligation of participation in system of social insurance; 4) use of social assignments on social payments at approach of social risks; 5) obligation of social payments at approach of social risks of participants of system of obligatory social insurance; 6) publicity in activity of the government bodies providing obligatory social insurance. 200

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The system of obligatory social insurance of Kazakhstan is an additional form of social protection of participants of system, i.e. working population of the republic. Since 2005 social payments for participants of system of social insurance at approach of social risks are carried out at the expense of financial resources of «State Social Insurance Fund» Joint-stock company (further – Fund or GFSS), created with absolute state participation in authorized capital. Thus financial resources of GFSS are formed by redistribution of a social tax and accumulation of social contributions to the Fund, paid by payers on the following rates established by the Law RK «About Obligatory Social Insurance»: – since January 1, 2005 – 1,5% from object of calculations; – since January 1, 2006 – 2% from object of calculations; – since January 1, 2007 – 3% from object of calculations; – since January 1, 2009 – 4% from object of calculations; – since January 1, 2010 – 5% from object of calculations. Participants of system of obligatory social insurance are individuals for whom social assignments were made and which have the right to receiving social payments at approach of social risks. Payers of social assignments are employers or independently busy person (the individual entrepreneur, the private notary, the lawyer providing with work, the income bringing in to them), carrying-out calculation and payment of social assignments. The fund carries out primary activity on the insurance principles of similarly insurance company and answers according to the obligations with the assets. GFSS is founded by the state as the off-budget organization and isn’t included into the budgetary system of the state. Defining moment of activity of Fund is not commercial, but the social purpose: implementation of social payments at approach of social risks of participants of system of obligatory social insurance (further – SOSS). The right to social payments from GFSS of the participant of system of obligatory social insurance for whom social assignments were made, arises: 201

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1) on a disability case – from the date of establishment by authorized body to destination social payments of extent of disability on the basis of medical certificates; 2) on a case of loss of the supporter – from the date of the death specified in the certificate on death, or from the date specified in a judgment about recognition of the citizen it is unknown absent or about the announcement of the citizen the dead; 3) on a case of loss of work – from the date of the request of the participant of system of obligatory social insurance for check in as the unemployed in authorized body concerning employment; 4) on a case of loss of the income in connection with pregnancy and childbirth – from the date of a maternity leave, the disability specified in a leaf; 5) on a case of loss of the income in connection with adoption (adoption) of the newborn child (children) – from the date of holiday to the workers, adopted (adopted) the newborn child (children), the disability specified in a leaf; 6) on a case on income loss, in connection with care of the child on achievement of age of one year by it – from date of birth specified in the birth certificate of the child. In case of the birth of two and more children, social payment on a case of loss of the income, in connection with childcare on achievement of age of one year by it, is appointed to each child separately. Thus the amount of the minimum social payment on child care on achievement of age of one year by it is established not lower than a size of the public welfare payment paid from the republican budget (depending on priority of the birth of the child). And the maximum size – no more than 40 percent from the 10-fold size of the minimum wage, established by the Law on the republican budget for the corresponding year. Since the introduction beginning in SOSS action since 2005 as of October 1, 2008, the amount of the performed social payments from GFSS constituted 21 314 million tenge, from them 20 491,3 million tenge only in 9 months of the current year. According to the Message of the Head of state to the people of Kazakhstan of 2007 «New Kazakhstan in the new world» 202

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for the purpose of providing to the woman of possibility of a combination of professional activity with education of children since January 1, 2008 compulsory social insurance of pregnancy, childbirth and motherhood for working women – participants of SOSS is entered. The amount of social payments from system of compulsory social insurance is determined on the basis of actually arrived social contributions to Fund on the specific participant of SOSS, taking into account duration and the amount of assignments. In structure of social payments on the republic following the results of 9 months 2008 the main share is occupied by maternity payments – 10 484,4 million tenge (51,2%) and on child care – 8 998,8 million tenge (43,9%). The greatest share of social payments in 9 months 2008 are performed in Almaty (18%), the Southern Kazakhstan area (10%), Astana (9%) to the total amount of social payments on the republic. The analysis of activities of JSC State Social Insurance Fund showed that social insurance isn’t the universal mechanism of social protection for all times. It depends on state of the economy, the labor market, demographic conditions of development of society and some other factors. For example, structural transformations of economy, differentiation growth in the population income, long-term demographic changes, growth of life expectancy of the population – these and some other problems can demand further upgrade of economic, legal and organizational mechanisms of institutes of social insurance. All this means that social protection ceased to be monopoly of the state and purchases multisubject nature. Her subjects in addition to the state (The government and local executive bodies) are employers, workers, public organizations, the offbudget organizations and associations, charity foundations, the commercial organizations sponsors, certain patrons. Representation that social protection is only care of the state, any more doesn’t answer today’s realities. Moreover, it can be rather effective only in case of consolidation of efforts of workers, employers and the states. 203

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12.6. Defense expenditure Each state should support the defense capacity, which is one of the major state functions. Armed forces are an obligatory element of structure of the independent state. Before creation of comprehensive system of the international security the country will conduct military construction and improve armed forces. In their structure – land forces, military and air forces, armies of antiaircraft defense, naval parts, and also connections and parts of providing and service. Management and management centralization in the Ministry of Defense of the Republic of Kazakhstan demands the corresponding centralization of the financial resources directed on defense. Therefore all costs of defense are financed only from the republican budget. Financial security of defense includes: a) financing of armed forces; b) costs of development, production and acquisition of arms, military equipment, industrial goods; c) general construction of military facilities (airfields, ranges, bases, places of dislocations of military units and divisions etc.); d) obligatory, state personal insurance of the military personnel; e) individual share in the maintenance of joint armed forces and military facilities at formation of the military-political unions of several states. Basic data for planning of defense expenditure are plans of combat and political training, material and economic plans, states, number of staff, norm of a material and monetary allowance, the price for subjects of military deliveries. In planning expenses are used material and monetary norms. At summary financial planning the combined norms are applied, and by comparison of estimates of financing of military units – individual financial norms. The self-supporting industrial enterprises and the construction organizations of a defensive profile are financed generally on the same principles, as managing subjects of branches. 204

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The Ministry of Finance checks estimates of the Ministry of Defense from the point of view of validity of calculation, compliance to their established norms; analyzes its annual reports and draws on them the conclusions; checks expediency of use of the allocated resources and economic validity of expenses. Defense expenditure is considered by the Government as a part of the republican budget, and the Parliament passes the Law on the republican budget for the corresponding year, where defense expenditure affirms separate functional group. Bodies of financial service in military districts and in military units, educational institutions and other organizations carry out control of an expenditure of money on the maintenance of army. 12.7. Expenses on management The government of management possesses an important role in economic construction, in carrying out in life of economic policy. By means of governing bodies the state presides at political, economic and cultural life of the country. The solution of new tasks in economy is impossible without deep reorganization and the flexible control system allowing more completely realizing possibilities of the market. The public, economic board needs continuous improvement. Essence of radical reorganization of management of economy – transition from mainly administrative to economic methods of the management at all levels, to management of interests and through interests, to wide democratization of management, all-round activation of a human factor. The system of state bodies represents set of legislative, executive and representative bodies of all levels, and also the device of an economic board. The supreme state authority which is carrying out legislature, the Parliament of the Republic of Kazakhstan, the head of the republic, its executive power – the President is. Executive power is carried out by the Government. 205

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Executive and administrative organs in the territory of area, the area, the city in the city are heads of local administrations – akims, representative bodies – corresponding maslikhats. These bodies direct economic and other spheres of public life. Judicial authority is carried out by the Supreme Court and inferior courts, bodies of prosecutor’s office. Maintenance costs of law enforcement agencies include the maintenance of bodies of the Ministry of Internal Affairs, Committee of national security, the State committee on protection of frontier, internal troops. The central state body, presiding the relevant branch – the ministry. The ministries direct the managing subjects subordinated to them, associations, the organizations and establishments directly or through the economic managements (departments) which were in their maintaining. Recently a number of new systems of interdisciplinary, branch and territorial administration is created: the national companies, concerns, associations, the companies, societies etc. with different extent of centralization of functions. The optimum scheme of an economic board the two-sectional control system as which main link in the sphere of production of goods the enterprise acts is considered. Maintenance costs of management personnel of the state managing subjects join in costs of production and are reflected in product cost, and their coordinating bodies – at the expense of assignments from the income, being at the command economic subjects after payment of prime payments (according to the signed contracts on division of powers and management functions). Maintenance costs of state bodies annually affirm as structure of expenses of budgets of all levels – from republican to local. Budgetary funds are spent according to the approved estimate which is the main document defining volume of expenses of establishment, the target direction of means and their quarterly distribution. Into compliance with economic classification structure of maintenance costs of management personnel enter: operating costs (expenses on the goods and services, including salary, compensatory and other monetary payments; payment of compensation 206

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(interest); subsidies, etc. current transfer payments); capital expenses; granting credits, individual share and financing. The main documents defining maintenance costs of management personnel are the staffing table and the estimate of expenses. Bodies of an economic board, the enterprise and the organization at formation of the staffing table are guided by standard structures, standard states, number standards, schemes of official salaries of workers of management personnel, rates of their salary and norms on other types of expenses. Questions: 1. Give definitions to the concept «public expenditures». 2. Differentiate the concepts «public expenditures» and «expense». 3. What types of expenses are included by the concept «public expenditures»? 4. That includes concept «expenses of the enterprises of public sector». 5. What types of the public expenditures form system of the public expenditures? 6. Open value of principles of the organization of the public expenditures. 7. Give classification of the public expenditures on the basis of their relation to process of production of goods and creation of the national income. 8. Give classifications of the public expenditures by a subject sign (target). 9. Call methods of financing of the public expenditures. 10. Differentiate concepts of the grant, a subvention, a subsidy. 11. What are the transfers? 12. What types of expenses include expenses on economy development? 13. What role of the public expenditures on welfare actions? 14. What funding mechanism of the higher education in the Republic of Kazakhstan? 15. Call the main sources of financing of health care? 16. Characterize a role and value of expenses on social protection of the population. 17. Differentiate the concepts «social security», «social insurance», «the social help». 18. What methods of financing of expenses on social needs exist? 19. In what feature of accumulative pension system of Kazakhstan? 20. What are the grants? What main sources of its financing distinguish? 21. What are the social risks? 22. What is understood as system of obligatory social insurance? 23. Call the basic principles of obligatory social insurance. 24. What features of financing of STP? 25. What main objectives and RK National innovative fund activities? 26. How it is carried out financings of defense expenditure? 27. What features of financing of expenses on management?

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CHAPTER XIII STATE BUDGET 13.1. Concept of the state budget and budgetary systems.

T

he state budget – the cumulative monetary fund of the state representing in a form indicator of education and an expenditure of money for ensuring of functions of public authorities. The state budget (according to the Budgetary Code of RK from 04.12.2008 N 95-4) decides as the centralized monetary fund approved by the law or solutions of local representative bodies, intended for providing with the state of the functions and created at the expense of taxes, collecting, other obligatory payments, the income of operations on the capital, the non-tax and other receipts provided by acts. The state budget of RK is based on the following principles: 1) a unity principle – application of uniform principles of the organization and functioning of the budgetary system, use of uniform budgetary classification and uniform procedures of the budgetary process in the Republic of Kazakhstan; 2) completeness principle – reflection in the budget and National fund of the Republic of Kazakhstan of all receipts and the expenses provided by the legislation of the Republic of Kazakhstan, prevention of offsets of mutual requirements with use of budgetary funds, no less than concessions of the rights according to budgetary funds; 3) realness principle – compliance approved (specified, corrected) budget indicators to the approved (corrected) parameters, the directions 208

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of forecasts of social and economic development and the budgetary parameters, strategic plans of state authorities; 4) transparency principle – obligatory publication of regulatory legal acts in the field of the budgetary legislation of the Republic of Kazakhstan, approved (specified, corrected) budgets and reports on their execution, strategic plans and reports on their realization, on formation and use of National fund of the Republic of Kazakhstan, except for data, components the state or other secret protected by the law, and also obligatory openness of the budgetary process for society and mass media; 5) sequence principle – observance by state authorities of earlier accepted decisions in the sphere of the budgetary relations; 6) productivity principle – development and the budget performance, focused on achievement of straight lines and the end results provided by strategic plans of state authorities; 7) principle of independence of the budget – stable distribution of receipts between budgets of different levels and definition of the directions of their expenditure according to the present code. The right of all levels of public administration independently to carry out the budgetary process according to the present code. Inadmissibility of withdrawal of the income which has been in addition received in course of execution of local budgets, and the remains of budgetary funds of local budgets in higher budgets. Inadmissibility of assignment on subordinate budgets of additional expenses without their corresponding compensation; 8) continuity principle – planning republican and the local budgets, based on forecasts of social and economic development and the budgetary parameters, the base expenses approved during the previous periods, results of the budgetary monitoring, an assessment of results; 9) validity principle – budget planning on the basis of regulatory legal acts and other documents defining need of inclusion in the draft of the budget of these or those receipts or expenses, validity of their volumes; 10) timeliness principle – transfer of receipts in republican and 209

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local budgets, into the control account of cash of National fund of the Republic of Kazakhstan and their transfer to government accounts in National Bank of the Republic of Kazakhstan. Adoption of obligations by public institutions according to individual plans of financing according to obligations. Carrying out payments according to individual plans of financing on payments and transfer of budgetary funds to accounts of recipients of budgetary funds in terms with observance of the order established by the relevant regulatory legal acts; 11) principle of unity of cash desk – transfer of all receipts in the budget into the uniform exchequer account and implementation of all provided expenses from the uniform exchequer account in national currency; 12) efficiency principle – development and budget performance proceeding from need of achievement of the best direct result with use of the approved volume of budgetary funds or achievements of direct result with use of smaller volume of budgetary funds; 13) responsibility principle – adoption of the necessary administrative and administrative decisions directed on achievement of straight lines and the end results. Ensuring responsibility of managers of the budgetary programs and heads of public institutions for the decision-making, not corresponding to the legislation of the Republic of Kazakhstan; 14) principle of addressing and special-purpose character of budgetary funds – the direction and use of budgetary funds by managers of the budgetary programs for achievement of the results provided by strategic plans of state authorities, with observance of the legislation of the Republic of Kazakhstan. Social and economic contents of the state budget that is impact on economy are shown in the course of realization of its functions. They treat: 1. redistribution of the national income. The state budget provides formation, distribution and use of the centralized fund of money as indispensable condition of functioning of any state. By means of the budget intersectional, intersectoral and interter210

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ritorial redistribution of gross domestic product, the national income are carried out. 2. state regulation and economy stimulation. In the conditions of market economy the main instrument of state regulation is the financial system which central link is the budget. Any significant decisions in the field of economic policy should have financial security therefore they are supported with the corresponding budgetary expenses. By means of expenses on support of separate branches to economy production of the socially significant goods and services which from the point of view of the market can be inefficient is provided. The budget also is the tool of regional policy as at the expense of means of donor regions it is carried out to support of the depressive and crisis territories having insufficient economic potential or testing consequences of emergency situations. 3. financial security of social policy. Accumulation of means in the budget allows the state to carry out the social programs directed on development of health care, culture, education, support of the needy. Carrying out expenses on health care, education, social security, the state regulates social development and a standard of living of the population of the country. 4. control of education and use of the centralized fund of money. The budget allows to carry out control of actions of executive power, which can be carried out in various forms – from the specialized bodies allocated with control powers (for example, Audit Chamber), from the higher organization, etc. In the countries with the developed democratic traditions the importance is allocated for public control for which development special programs of increase of transparency of the budgetary system are accepted. The budget is passed as the law and by that imposes restrictions on government actions. In it limits of separate articles of the income and expenses which the state should observe accurately at carrying out social and economic policy are legislatively fixed. Totality of all types of budgets in the country, having the relationship among themselves established by the law based on the economic relations and legal norms form the budgetary system. 211

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The budgetary system is based on interaction of budgets of all levels, carried out through use of regulating profitable sources, creation of trust and regional budgetary funds, and their partial redistribution. It is realized through uniform social and economic, including tax, to policy. The main document in creation of the budgetary system – the Constitution of country. Except the Constitution of the Republic of Kazakhstan and the Budgetary Code of RK the Law on the republican budget the forthcoming three years is passed annually. In Kazakhstan as the unitary state, the budgetary system is presented by two levels: the republican budget and the local budgets forming in aggregate the state budget. The structure of creation of the budgetary system in a cut of links is schematically presented in picture 2.

Picture 2 – Structure of creation of the budgetary system

The budgetary system of the Republic of Kazakhstan includes the budgets of various levels based on the economic relations and the 212

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relevant rules of law. In the Republic of Kazakhstan the republican budget and local budgets, in aggregate, making the state budget independently function. Functioning of the budgetary system is based on interrelation of budgets of various levels and is provided with order of their development, consideration, the statement, execution, control, and also reports on their performance of republican and local budgets.

Picture 3 – Formation of Medium-term fiscal policy of the Government of the Republic of Kazakhstan for 2011-2013

Proceeding from practice of construction and maintaining economic and budgetary policy in the country, the fiscal policy the forthcoming three years will be under construction according to long-term and medium-term program documents the states (picture 3). With introduction in action since December 4, 2008 the budgetary code of the Republic of Kazakhstan, the organization of the budgetary process is carried out on the basis of its norms. Adoption of the budgetary code allowed strengthening a role of medium-term planning and provided legislation harmonization in the budgetary system. 213

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For implementation of the Budgetary code 31 regulatory legal acts, including the rules defining an order of development of drafts of the republican budget the forthcoming fiscal year and the extreme state budget, development of drafts of local budgets, and also registration and the accounting of the loans of the Republic of Kazakhstan state and guaranteed by the state, execution republican and local budgets were adopted. With the adopted budgetary code are brought into accord of a rule of drawing up and submission of the budgetary demand by managers of the budgetary programs (picture 4). The main objectives in the sphere of improvement of the budgetary legislation and as a whole the budgetary system are: 1) gradual transition to achievement of the balanced budget at the expense of oil receipts. For the purpose of implementation of the concept of National fund new concepts – «the consolidated budget» and «oil deficiency» are entered. The consolidated budget consists of the republican budget, the budget of area, city budgets of republican value, the capital, and receipts from the enterprises of oil sector and their transfers to National fund. The oil budget deficit is equal to the sum of receipts of the budget, except receipts from National fund, minus budget expenses. 2) Toughening of requirements to development of investment projects (programs). Investment projects (programs) will be included in the list of priority budgetary programs (subprograms) in case they correspond to actions of the accepted state, industry and regional programs and provisions of annual messages of the Head of state. Existence of the positive conclusion of branch examination, compliance to their plan of measures of the approved Programs, feasibility study existence with the positive conclusion of economic examination will be an indispensable condition of inclusion in the above-named list. 3) Observance by all participants of the budgetary process of requirements of the budgetary legislation. 214

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Picture 4 – the Method of a balancing of the budget

Introduction since July 1, 2006 of new system of functioning of National fund, according to the Concept of National fund, will provide optimum balance of distribution of oil receipts between the republican budget and National fund. According to this document the method of the balanced budget at which the income of oil sector completely goes to National fund was developed, and the revenues of the republican budget are formed only at the expense of not oil sector (picture 4). The main sources of formation of National fund are: – direct taxes from oil sector (except for the taxes enlisted in local budgets) which treat corporate income tax, a tax on excess profit, NDPI, bonuses, a share according to production section, a rent tax on exported crude oil, gas condensate. The other types of tax paid by oil sector according to the tax legislation of the Republic 215

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of Kazakhstan are subject to transfer in the relevant budgets. Thus all legal entities who are engaged in production and (or) realization of crude oil and gas condensate treat the enterprises of oil sector; – receipts from privatization of the state property being in a republican property and relating to mining and processing branches; – receipts from sale of the land lots of agricultural purpose; – investment income of management of National fund; – other receipts and the income which has not been forbidden by the legislation of the Republic of Kazakhstan. Expenses of the republican budget on the current budgetary programs are financed at the expense of contributions to the republican budget from not oil part of economy, and financing of expenses on the budgetary programs of development is carried out at the expense of the guaranteed transfer from National fund. Thus a certain share of an account part of the budget can become covered, including at the expense of loan within the established restrictions. Use of oil receipts within the guaranteed transfer allows pursuing the weighed fiscal policy as the «pure» budgetary effect from liberalization of a tax mode which is, as a rule, distorted at the expense of the super income arriving from the enterprises of oil sector is visible. The size of the guaranteed transfer from National fund affirms the act of the Republic of Kazakhstan for the three-year period and remains invariable during this period. According to the Concept of National fund the Government of the Republic of Kazakhstan will start with need of optimum use of the oil income taking into account observance of optimum proportions between consumption and accumulation, creations of favorable macroeconomic conditions for development of non-primary sector of economy, savings of a considerable part of the oil income and prevention of exhaustion of National fund, improvement of the mechanism of formation and use of fund. 216

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In 2007-2009 work on improvement of the budgetary planning with a view of creation of the system focused on achievement of the end results, providing bigger independence to state authorities is continued at formation and use of budgetary funds, introduction of target indicators and creation of new system of the reporting, internal and external control. Measures for improvement of planning and budget performance are based on the following principles: – harmonization with the strategic, medium-term objectives, problems of social and economic development of the republic and steady growth of competitiveness of economy; – achievements of the end results and the target indicators corresponding to indicators of strategic, medium-term problems of social and economic development of the republic and steady growth of competitiveness of economy; – corporate governance; – granting bigger independence to managers of the budgetary programs and strengthening of their responsibility for achievement of the end results of realized programs; – achievements of objectivity of formation of the operating and capital costs of state authorities and organizations; – integration of procedures on development and budget performance; – exceptions of duplicating actions in budget performance procedures in state authority and between state authorities; – labor productivity increases at planning and budget performance stages with optimum use of information systems. The state budget is one of the main instruments of realization of a state policy. Any budgetary system is guided by achievement of the following global purposes: economic efficiency, social justice, and political stability, domination of the law and strengthening of unity of the state. Around the world the budget serves not only for accumulation of the means necessary for financing of state authorities, but also for partial redistribution of the income between regions for 217

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stability maintenance in the state differently this process is called the budgetary regulation. The budgetary regulation – system of redistribution of the money, consisting in transfer of a part of resources of the higher budget subordinate and on the contrary, with a view of equation. The mechanism of regulation treat: subsidies; subventions; regulating profitable sources. Regulating profitable sources share on fixed and regulating. The fixed income is budgetary funds which are in whole or in part transferred in a certain type of the budget. Regulating income – means which go for a reinforcement of the subordinate budget, observing subordination. The list of the fixed and regulating income is fixed by the special tax legislation in the Republic of Kazakhstan – the Law on the budgetary system. The budgetary system is considered balanced down if the volume of receipts in cumulative budgets at each level of the power as a whole is sufficient for implementation of their functions. Horizontal equation – is the general compliance of the income and expenses in budgets of separate regions and territories of appropriate levels of the power. Achievement of vertical equation –is the I stage of the general equation, and achievement of horizontal equation – the II stage of alignment which is carried out by means of the budgetary transfers. Transfer – the budgetary assignments (help) which regions, where receive the income on one person below an average about the country. In the interbudgetary relations there are problems of inconsistency of financial powers of budgets of different levels and ensuring their powers and the income; weak tax base of territorial budgets; uncertainty in redistributive policy. Non-tax income, receipts of which are in local authorities: tenancy and sale of land; tenancy of forests; other receipts. About 85-70 % is the share of the tax and non-tax income in local budgets.

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13.2. Structure of the income and expenses of the state budget The functioning of the budget connected with formation and use of centralized fund of funds of the state, occurs by means of special economic forms – the income and budget expenses. They express separate stages of cost distribution. Both categories are objective, as well as the budget, and have specific public appointment: the income provides the state with necessary money; expenses distribute the centralized resources according to nation-wide requirements. The structure and structure of the income and expenses depends on the directions of implementation budgetary and tax the politician of the state, carried-out in specific social and economic and historical conditions. Thus the state uses forms accepted in certain conditions and methods of formation of the income and implementation of expenses. As a rule, a source of the income is taxes or payments adequate of. The structure and structure of the income of the state budget of the Republic of Kazakhstan is defined by operating system of tax payments and receipts of non-tax means of rather unstable character. Structure of the state budget: 1. receipts; 2. expenses and crediting; 3. deficiency (surplus); 4. deficiency financing (surplus use). Receipts include: а) income; b) the received official transfers; c) repayments of a principal debt on earlier given out credits. In turn the income is subdivided on: – tax revenues; – non-tax receipts; – the income of operations with the capital. Income of the state budget for 2009-2013 is defined on the basis of look-ahead parameters of macroeconomic indicators for 219

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the medium-term period taking into account provisions of the new Tax code providing decrease in tax load of non-primary sector of economy. In calculations of the income salary increase to workers of a state administration and state institutions in 2009 and in 2010 for 25 %, in 2011 for 30 % and decrease in receipts of a social tax as a result of increase in contributions to the State social insurance fund from 3 % to 4 % in 2009 and to 5 % in 2010 and increases in minimum wage in 2009-2013 was considered. Table 3 Income of the state budget in % to gross domestic product Name of indicators Incomes tax revenues Non-tax revenues receipts from sale of fixed capital

2009 16,7 16,1 0,3 0,3

2010 16,2 15,6 0,3 0,3

2011 16,1 15,6 0,3 0,2

2012 16,0 15,5 0,3 0,2

2013 15,8 15,3 0,3 0,2

These three main categories of the budgetary receipts are supplemented with category «the received official transfers», that is the means received as from national authorities of other levels of public administration (the current and capital subventions and subsidies, clearings), and means from abroad on an irrevocable basis (grants). The category «repayments of a principal debt on earlier given out credits» represents receipts of money from the state managing subjects on the budgetary credits (provided on a returnable basis – crediting during the previous periods (years). In the second part «expenses and crediting», except expenses on the main functional groups (management, defense, law and order protection, education, health care, social protection, economy), is allocated the funds, intended for crediting of other economic units – subjects in the subsequent to return to the budget in the form of repayments (see above). 220

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The forecast of expenses of the state budget shows moderate growth rates in comparison with the pre-crisis period, at the level which is not exceeding growth rates of gross domestic product that doesn’t mean refusal of social obligations of the state.

Picture 5 – the Income (without receipts transfers) and expenses of the state budget in 2008-2013

The functional group of expenses«Financing» ref ects expenses on repayment of an internal and external public debt. Expenses on service of a public debt are carried out in separate division of classi f cation – «the expenses which have not been carried to the main groups» on function «operations with the state obligations». The third part – a budget deficit – represents a negative difference between receipts and expenses, including crediting; the positive difference between these sizes means surplus of the budget. The fourth part (and at the same time category) « deficiency financing (surplus use) the budget has a dual purpose: 1) in case of def ciency – attraction of means from internal sources (from National bank, commercial banks, implementation of securities, on offset, the remains of budgetary funds on the beginning the years turned on a covering of expenses) and from external loans; 2) at surplus – use of super planned receipts, f rst of all, on repayment of the state obligations, or additional f nancing of prime budgetary programs. 221

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The detailed list and group of the income and expenses is defined by the budgetary classification. The budgetary classification is the systematized group of the income and expenses of the budget for the homogeneous signs, put in a basis of all budgetary activity of financial bodies of the state. The budgetary classification provides close connection of the budget with plans, forecasts and programs of economic and social development of the state, with financial plans of the ministries and departments, the organization and establishments; allows uniting individual estimates and financial plans in summary estimates and plans, provides coordination between consolidating plans and the budgetary list. To 1996 years the budgetary classification contained the following structural divisions: section, paragraph, article, and head. However classification applied long time ceased to meet modern requirements of forecasting, the account and control of budgetary funds, and also implementation of the budgetary process. Therefore with 1996 years it is replaced on new, corresponding to the international standards. Receipts in the budget are classified on four divisions: category, class, subclass, specifics. Categories include: operating costs, capital expenses, granting credits, financing. The class, a subclass and specifics specify appointment and character of expenses, for example, in operating costs: expenses on the goods and services – a salary of workers and employees – the main salary and employees. The budgetary classification allows comprehensively accurately and to systematize receipts and expenses for achievement of high efficiency of management with application of an automation equipment. 13.3. Budgetary deficiency The budgetary deficiency is a financial phenomenon at which excess of an account part of the budget over its revenues is observed. The best option: if expenses are equal to the income is the balanced budget. 222

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Expenses there are less than income – a positive difference surplus. Expenses there are more than income – a negative difference deficiency. Quality of the deficiency can be various: 1. Deficiency can be connected with need of implementation of large state investments in economy development. In this case it reflects not the crisis course of public processes, and state regulation of an economic environment, aspiration to provide progressive shifts in structure of a social production. J.M. Keynes proved possibility of an assumption of advancing growth of the public expenditures over the income at certain stages of development of society; 2. Deficiencies result from force majors (war, large natural disasters, etc.) when usual reserves becomes insufficiently and it is necessary to resort to special type of sources. 3. Deficiency can reflect the crisis phenomena in economy, its disorder, an inefficiency of financial and credit communications, inability of the government to keep control of a financial situation in the country. In this case it – the phenomenon demanding acceptance not only urgent and effective economic measures (on economy stabilization, financial improvement of an economy, etc.), but also the relevant political decisions. From here it is clear that in the conditions of dynamically developing economy with steady, including effective international relations the budgetary deficiency (certainly, in quantitatively admissible borders) isn’t dangerous. Recently deficiency began to have chronic character. There are following methods of decrease in the budgetary deficiency: 1) expenses are constant, the income grows; 2) the income is constant, expenses fall; 3) the income grows, expenses fall (deficiency decreases quicker in 2 times). Deficiency financing – is research of additional money for a covering of the budgetary deficiency. 223

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Ways of financing of the budgetary deficiency: 1. Issue of bank notes. This way conducts to inflation with negative social and economic consequences. 2. State loans. In this case the companies, banks participate in financing, etc. which have free money. Now it is the most practiced method. 3. Foreign loans. They are provided by IMF, other international financial organizations, the governments, banks. 4. Use of national wealth. Thus the state sells the assets to other subjects. The increase in rates of taxes isn’t a method of financing of the budgetary deficiency, and way of its reduction. At elaboration of strategy of fight against the budgetary deficiency it is necessary to be guided by the following: 1) the budgetary deficiency – the undesirable phenomenon, but even more undesirable to economy and finance of the country is its imaginary elimination by a way of monetary manipulations for in this case instead of economy «treatment» its illness passes to the hidden forms, to fight with which much more difficultly; 2) the balance of the budget and even excess of the budgetary income over expenses shouldn’t be considered as the integral line of healthy, dynamically developing economy. World experience convincingly shows that at separate stages of development of society in the conditions specific to each country, we will quite allow the budgetary deficiency; 3) the size of the budgetary deficiency to what world experience testifies, shouldn’t exceed the maximum permissible size defined of 1-3 % of a gross national product. Existence of the deficiency exceeding the maximum permissible sizes, demands implementation of such measures which would lead to its fastest reduction; 4) for a covering of the budgetary deficiency various forms of the state credit (both internal, and external) can be used. The operation of the press leading to a currency issue, not caused by requirements of commodity turnover, should be regarded as a measure which is roughly breaking laws of monetary circulation, and therefore 224

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inadmissible. It is better to cover deficiency on an extra basis with a placement way in the financial market of the state securities; 5) for overcoming of the budgetary deficiency «treatment» of the economy for without ensuring dynamism in its development and really notable efficiency it is impossible to achieve financial stability of the country is necessary, whatever progressive financial measures were applied thus. The listed principles should be realized surely when developing the specific program of measures for decrease in the budgetary deficiency and to management by it in which it is necessary to include and consistently to put into practice such measures which, on the one hand, would stimulate inflow of money to the budgetary fund of the country, and with another, – promoted reduction of the public expenditures. Here belong: – wide use of financial privileges and the sanctions allowing more completely to consider specific conditions of managing and stimulating growth of a social production; – reduction of public sector of economy and public financing; – decrease in military expenses; – financing preservation only the major social programs; the moratorium on adoption of the new social programs demanding considerable budgetary financing; – prohibition to National Bank of the country to provide the credits to governmental structures of any level without appropriate registration of debt by the state securities. Attraction of the foreign capital solves at once some tasks, and not only fiscal, but also economic character; the budgetary expenses intended on financing of capital investments (means the gap between the income and expenses decreases) are cut down, the base for production of the goods and services extends, there are new taxpayers (therefore, profitable receipts in the budget increase), the condition of the balance of payments improves. According to a forecast of social and economic development and the RK budgetary parameters for 2009-2013 of the Ministry of Finance of the Republic of Kazakhstan, parameters of deficiency 225

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of the state budget are de f ned taking into account need of ensuring equation of budgets proceeding from look-ahead volumes of not oil def ciency (picture 6).

Picture 6 – of Loudspeaker of def ciency of the state budget and not oil def ance

Development and consecutive realization of the measures directed on increase in the income of the budget and reduction of its expenses, regulation of the budgetary de f ciency, purposeful management in its size in aggregate with other economic anti-recessionary measures allows stabilizing a f nancial position, promotes its return to a way of social and economic development and prosperity.

13.4 Budgetary process The budgetary process (the budgetary procedure) is regulated activities of governing bodies for drawing up, consideration, the statement, and control of execution and to the approval of reports on performance of budgets. The budgetary process in the Republic of Kazakhstan is de f ned by the budgetary code of the Republic of Kazakhstan, the Law on the republican budget on the 3rd summer period, other laws of the Republic of Kazakhstan, and also decisions of executive authorities. Drawing up, performance of budgets, drawing up of reports on performance of budgets are functions of executive authorities, 226

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consideration the statement – functions of Parliament and local Maslihat; control of performance of budgets is carried out by both branches of the power. Development of the budget consists of the following stages: 1. Approval by the Government of the scenario of development of economy of the project of the Forecast of social and economic development on 5th the period (the budgetary parameters for the 3rd summer period) no later than April 15; 2. Granting by managers of the budgetary programs (UUF) in the Ministry of Finance of the budgetary demands and drafts of strategic plans till May 15. And акимы areas and the cities of Astana and Almaty determine the list and limits of local budgetary programs on the basis of the volumes of receipts coordinated with the Ministry of Finance, limits of loan and the minimum sums of expenses by especially important local budgetary programs. 3. Removal at consideration and approval of the Republican budgetary commission of key parameters of the budget and the conclusions according to the budgetary demands. So, for development of the draft of the republican budget the President of the Republic of Kazakhstan forms the budgetary commission which on the basis of parameters of the indicative plan of social and economic development of the country forms and brings the major budgetary indicators on the statement of the Government of the Republic of Kazakhstan: • volumes of receipts in the republican budget, budgets of areas and the cities of Astana and Almaty, financial funds (budgets) of special zones; • limits of expenses and crediting of the republican budget for functional groups and managers of the budgetary programs; • extent of deficiency (surplus) of the republican budget; • cumulative limit of loan by local executive bodies. 4. Development by the Ministry of Finance of the bill on the republican budget for the 3rd summer period and entering into Parliament of RK no later than September 1. The law on the republican budget should contain: volumes of the income, the received official transfers, repayments 227

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of a principal debt on earlier given out credits, expenses, crediting and deficiency (surplus) of the budget; minimum sizes of a monthly salary, pension and monthly settlement indicator; size of reserves of the Government of the Republic of Kazakhstan; limits of a public debt, duty of local executive bodies, representation of the state guarantees, crediting of local executive bodies; the list of limiting expenses on functional groups, managers of republican budgetary programs and according to programs; list of republican budgetary programs, not subjects sequestering*; especially important budgetary programs financed from local budgets, in a cut of areas and the cities of Astana and Almaty with definition of the minimum sum of expenses. 5. The approval of the bill on the republican budget in Parliament no later than December 1 of the current fiscal year. The adoption of the republican budget and introduction in it of changes and additions occurs at joint meeting of chambers, after procedures of consecutive consideration of the draft of the budget at first in Mazhilis, and then – in the Senate. The republican budget affirms at level of republican budgetary programs at joint meeting of chambers of Parliament not less than as two readings and no later than December 1 of the current year. In case the Parliament in this term doesn’t pass the Law on the republican budget, the President has the right to issue the Decree «About the republican financial plan for the 1 quarter of the forthcoming fiscal year» which acts to the approval by Parliament of the republican budget. Local budgets develop local executive bodies of areas and the cities of Astana and Almaty: they till September 1 on the basis of the volumes of receipts coordinated with the Ministry of Finance and the limits of loan finished by it develop drafts of local budgets and represent forecasts of budgets to the Ministry of Finance. Akima of areas and the cities of Astana and Almaty no later than two weeks after coming into effect of the law on the republican budget specify earlier made look-ahead volumes of the budget and submit 228

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them for consideration маслихатов which within two weeks make the decision on their statement. Akima of areas (cities) in two weeks after the adoption of the regional budget submit the draft of budgets for consideration corresponding маслихатов which no later than two weeks makes the decision on the adoption of the budget. The decision маслихата about the local budget should contain: volumes of the income, the received official transfers, repayments of a principal debt on credits earlier given out from the local budget, expenses, crediting and deficiency (surpluses) of the budget; standards of distribution of the income between the regional budget and budgets of areas (cities) on the basis of the approved stable sizes; sizes of reserves and limit of a duty of local executive bodies; sizes of local state fund of environmental protection; limiting expenses on functional groups, managers of local budgetary programs and according to programs; list of the local budgetary programs which are not subject to sequestering. To the adoption of local budgets corresponding маслихатами budget performance of the I quarter is carried out at a rate of ¼ parts of the draft of the annual budget for the corresponding fiscal year. Intervention of higher state authorities and local executive bodies in process of formation and performance of subordinate budgets isn’t allowed (except for the cases provided by the Budgetary Code of RK). 6. Adoption of the resolution of the government of RK (RGRK) about implementation of the Law on the republican budget within a week from the date of Law signing by the President of RK; 7. The approval of strategic plans of state authorities within a week from the date of Law signing by the President, the conclusion of agreements on results on target transfers no later than January 20 of the current fiscal year; 8. Formation and the approval of consolidating plans of financing according to obligations and UUF payments within 10 working days from the date of RGRK acceptance about implementation of the Law on the republican budget; 229

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*the sequester – a ban on an expenditure of means in certain limits; it is entered in cases when at budget performance there is an excess of the established level of the budgetary deficiency, or receipts from profitable sources therefore there is impossible a financing of in full provided budgetary programs are reduced. 9. The approval of individual plans of financing of UUF, subordinated establishments within 2 working days after receiving the breakdown of financing approved by the consolidating plan on months; 10. Carrying out a complex of actions for performance of the republican budget by the Government within fiscal year; 11. Maintaining account and reporting. Monthly (quarter) reports on performance of the republican budget (following the results of a quarter consideration at Government meeting); 12. The budgetary monitoring and an assessment of results (an assessment of efficiency on management of budgetary funds) 13. Submission of the annual report on performance of the republican budget by the Government in Parliament no later than April 20 of the year following fiscal year 14. The approval by Parliament of the annual report of the Government about performance of the republican budget for fiscal year. The annual report on performance of the republican budget represents the Government of the Republic of Kazakhstan to Parliament and Calculating committee on control of performance of the republican budget no later than July 1 of the year following the reporting. Local executive bodies monthly deliver reports on performance of budgets to higher executive body and corresponding маслихату. Regional executive bodies and the cities of Astana and Almaty deliver monthly reports to the Ministry of Finance. The Ministry of Finance monthly makes the summary report on execution republican and local budgets for the reporting period an accruing result and represents it to the Government of the Republic of Kazakhstan. Control of correctness of drawing up, and the approval of estimates of expenses of the public institutions financed from the republican 230

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budget, and also behind use of budgetary funds according to exchequer permissions is carried out by the Ministry of Finance and its territorial divisions, and the public institutions financed from local budgets, and also behind use of budgetary funds according to financial permissions, carried out by local executive bodies. Control of performance of the republican budget is carried out by Calculating committee on control of performance of the republican budget, and local budgets – audit commissions of representative bodies of an appropriate level, and also the Ministry of Finance of the Republic of Kazakhstan and its territorial bodies with obligatory informing of the appropriate local executive and representative bodies. 13.5 The main directions of the state and republican budgets, National fund of the Republic of Kazakhstan, the consolidated budget of the Republic of Kazakhstan Steady growth of economy till 2008, providing surplus of the consolidated budget, allowed the country to save up the reserves which have softened negative influence of the current world economic crisis. The measures taken by the Government for decrease in account load of the budget were also directed on overcoming of consequences of crisis, including reduction of not priority expenses, and also revision of approaches to implementation of the budget of the development, allowed optimizing expenses according to investment projects and increasing in authorized capitals of the state organizations. Income of the state budget for 2011-2013 is defined on the basis of look-ahead parameters of macroeconomic indicators of social and economic development of the country for the medium-term period taking into account provisions of Tax and Customs codes and other regulatory legal acts, and also influences of the introduction of Kazakhstan in the Customs union. In calculations of the income for 2011 salary increase to workers of the budgetary sphere for 30 % was considered. The forecast of the income of the republican budget is calculated 231

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taking into account introduction since 2010 of the export customs duty on oil and assumes use of the mechanism of transfer and distribution of the sums of the customs duties in the Customs union. In 2011 in a forecast of the income receipt of a part of a net profit of National Bank of the Republic of Kazakhstan of 18, 4 billion tenge is considered. The forecast of expenses of the state budget shows moderate growth rates in comparison with the pre-crisis period, at the level which is not exceeding growth rates of gross domestic product that doesn’t mean refusal of social obligations of the state.

Picture 7 – Growth rates of expenses of the state budget and gross domestic product in 2008-2013

Despite an insignificant gain of the income, the social orientation of the budget in medium-term prospect will be kept, and the main priority when planning the public expenditures will be steady growth and increase of a standard of living of people without adoption of the new overestimated obligations involving growth of a budget deficit. At a forecast of expenses of the state budget actions for realization of orders of the Head of state sounded in annual messages to the 232

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people of Kazakhstan «Increase of welfare of citizens of Kazakhstan – a main goal of a state policy», «Through crisis to updating and development», «New decade – new economic recovery – new possibilities of Kazakhstan» are considered. And also actions developed in the realization, the President of the Republic of Kazakhstan confirmed by the Decree from February 1, 2010 of No. 922 «The strategic development plan of the Republic of Kazakhstan till 2020», the State Program of the Forced Industrial and innovative development (SPDFII), state programs of a development of education for 2011-2020 and health care for 2011-2015, the developed program of development and functioning of languages in the Republic of Kazakhstan. As well as in former years in system of social security the special attention will be given to formation of financial and steady pension system. In 2011 in realization of orders of the Head of state the amount of pension payments will be increased by 30 %. By 2015 the amount of base pension payment will be increased to level of 60 % from size of a living wage, and the sizes of the welfare social benefits - are increased in 1, 2 times in relation to 2010. Expected result of realization of the offered measures is transition to new higher standards of provision of pensions and stable preservation of percent of replacement of average pension at level isn’t lower than 40 % from an average salary. Further development will be received by institutional system of providing special social services in the direction of its approach to consumers and fuller accounting of their individual trouble. Extension of the list and volume of the guaranteed special social services will be reached on the basis of introduction of market principles of providing social services, state-private partnership and wide use of possibilities of civil society. Within realization of the State program of development of health care of the Republic of Kazakhstan «Safe Kazakhstan» for 2011-2015 the great attention will be given to questions of decrease in incidence and further strengthening of health of the population, 233

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increase of availability and quality of medical care by a free choice of the doctor and the organization, improvement of medical and pharmaceutical education and development of the medical science focused on development and introduction of innovative technologies. The forecast provided continuation of building of objects of health care in regions of Kazakhstan within implementation of the project «100 schools and 100 hospitals», and also medical ambulance stations on the village. Expenses in the fields of education in 2011-2013 will be directed on cardinal modernization of system of secondary education in the conditions of 12-year school, assuming creation of system of electronic training. On ensuring complete coverage of children of preschool age with preschool education and training «Balapan» program financing for 2010-2014 will be directed. Within SPDFII introduction of the modernized system of the technical and professional education allowing a message training of specialists, answering to the international standards is provided. In this regard, with participation of employers new professional standards will be developed, is high-grade the independent assessment of qualifications by employers, i.e. certification of experts is introduced. For the purpose of the training of specialists, answering to the specified standards, updating of material base of educational institutions of technical and professional education is supposed. Measures for development of system of state-private partnership will be taken. Further work on improvement of system of the higher and postgraduate education will allow satisfying needs of branches of economy for the qualified and competitive experts of technical and serving work, the training, corresponding to requirements of the Lisbon Convention of UNESCO and Bologna Process. Measures for ensuring communication of a science with production will be taken, to be improved the mechanism of employment of graduates. In a forecast of expenses actions for carrying out the 7th winter 234

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Asian games of 2011, as one of significant events in the history of our state, testifying to an increasing role of Kazakhstan as independent sovereign state on the world scene are also considered. And also continuation of the coordinated work on creation of conditions for high-quality preparation and successful speech of athletes on the international scene on the one hand and on development of mass sports and sports and improving movement with another. The investment policy in the forthcoming medium-term period is closely coordinated to the long-term measures of system character directed on ensuring of steady growth of economy at the expense of acceleration of a diversification through industrialization and development of infrastructure, according to the second key direction of the Strategic plan – 2020. Acceleration of a diversification of economy is supposed to be carried out by the forced industrialization in the following directions: 1. Development of traditional branches: oil and gas sector, an ore mining and smelting complex, the nuclear and chemical industry with the subsequent transition of raw productions to more advanced processing; 2. Development of the sectors based on demand of subsoil users, the national companies and the state: mechanical engineering, construction industry, defensive industry, pharmaceutics; 3. Development of the productions which have not been connected with raw sector and focused mainly for export, agro-industrial complex, light industry, tourism; 4. Development of sectors of «future economy» which will play a dominating role in world economy the next 15-20 years, information and communication technologies, the biotechnologies, alternative power. In the medium-term period on achievement of the steady and balanced growth of economy through a diversification and increase of its competitiveness actions SPDFII are directed. Tasks SPDFII are: – development of priority sectors of the economy providing its diversification and growth of competitiveness; 235

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– strengthening of social efficiency of development of priority sectors of economy and implementation of investment projects; – creation of the favorable environment for industrialization; – formation of the centers of economic growth on the basis of the territorial organization of economic potential; – ensuring effective interaction of the state and business in development of priority sectors of economy. The operative solution of the tasks facing investment policy will be solved on the basis of development of the summary card of industrialization of Kazakhstan in which optimum places of implementation of the large investment projects provided by industry programs and master plans will be defined. The main role implementation of this program are urged to play at republican level of JSC «FNB Samruk-Kazyna», JSC «NUH Kazagro», at local level – social and enterprise corporations, and also the specialized service organizations. Design measures of support SPDFII will be at the republican level, the industries developed by the Ministry and new technologies of the Republic of Kazakhstan of the program: the forced modernization operating and creations of new productions – «Productivity - 2020», developments and export advances – «Export – 2020», supports and stimulations of direct foreign investments – «The Investor - 2020». At local level – programs of development of territories and the budgetary program «A road map of business till 2020». The successful solution of tasks SPDFII will allow to increase stability of domestic economy in relation to cyclic crises and to increase welfare of Kazakhstan citizens. The forecast of receipts in National fund is calculated on 2011-2013 on the basis of predicted parameters of macroeconomic indicators: oil production, the world price for oil, a rate of tenge to US dollar, and also loudspeakers of receipts for previous years, the analysis of the current situation. In 2011 of receipt of direct taxes in National fund are predicted at level – 7,8 % to gross domestic product, in 2012 of – 7,2 %, in 2013 – 6,4 % (pic7). 236

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Operating from the middle of 2006, the scheme of the direction of means of National fund in national economy, assumed guaranteed and target transfers in the republican budget, and also long-term investment of means in domestic securities. Thus the size of the guaranteed transfer from National fund was limited 1/3 parts of assets of fund on the end of the year previous to year of development of the budget. Carrying out the specified policy allowed to create reserves for carrying out anti-recessionary policy within which in 2008-2009 from National fund of the Republic of Kazakhstan in the form of a target transfer in the republican budget it was allocated with 955, 4 billion tenge.

Picture 8 – the Forecast of receipts of direct taxes in National fund of the Republic of Kazakhstan for 2011-2013

In 2008 these means of a target transfer in the sum of 607,5 billion tenge were directed on increase in authorized capital of joint-stock company «National welfare fund «Samruk-Kazyna» for realization of measures for ensuring competitiveness and a sustainable development of national economy of the Republic of Kazakhstan, the specified means are mastered completely. In 2009 – on realization of actions of the Plan of action of the Government of the Republic of Kazakhstan for 2009 on implementation of the Message of the Head of state to the people of Kazakhstan from March 6, 2009 «Through crisis to updating and development» 237

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(Road map), the actual development made 261, 5 billion tenge of 347,9 billion tenge of a target transfer. Assets of National fund as of the end of 2009 made 4,5 trillion tenges, from which 750,0 billion tenge are placed in internal assets (bonds of joint-stock company «National welfare fund «SamrukKazyna» and joint-stock company «National operating Kazagro holding».

Picture 9 – Dynamics of assets of National fund

In implementation of the message of the Head of state «New decade – new economic recovery – new possibilities of Kazakhstan» from January 29, 2010 the new Concept of formation and use of means of National fund of the Republic of Kazakhstan is developed. Taking into account the approaches set forth above, additional accumulation in National fund by 2020 will make more than 40 billion dollars USA, and assets should increase to 90 billion dollars USA that will make not less than 30 % to gross domestic product. Achievement of planned indicators will provide increase of a sovereign rating of the country. It in turn, will allow involving new loans on more preferential financial terms that will promote stimulation of growth of investments. Parameters of deficiency of the republican budget are defined taking into account need of ensuring equation of the budget, proceeding from look-ahead volumes of receipts and budget expenses. 238

Chapter XIII. State budget Questions: 1. Give definition of concept «State budget». 2. Call the basic principles of the state budget. 3. Open value of functions of the state budget. 4. What features of the budgetary system of Kazakhstan? 5. How formation of Medium-term fiscal policy of the Government of the Republic of Kazakhstan for 2011-2013 is carried out 6. What features the organization of the budgetary process in RK? 7. Call the main objectives in the sphere of improvement of the budgetary legislation in RK. 8. Differentiate concepts «the consolidated budget» and «not oil deficiency». 9. What feature of system of functioning of the RK National fund? 10. What treats the main sources of formation of the RK National fund? 11. Give definition of concept «the budgetary regulation»? 12. Call principles on planning and budget performance improvement. 13. Explain the budgetary equation on - verticals, across. 14. Give definition of the concept «transfer». 15. How there is a budget functioning? 16. What influences structure and structure of the income and expenses of the state budget? 17. Give structure of the state budget. 18. Of what indicators there is income of the state budget? 19. How the income of the state budget for 2009-2013 is defined? 20. Give key parameters of the income of the state budget. 21. Give parameters of a forecast of expenses of the state budget. 22. Make definition of concept «the budgetary classification». 23. Call the reasons of deficiency of the state budget. 24. Call methods of decrease in the budgetary deficiency. 25. Open economic value of «the budgetary process». 26. What articles of the state budget aren’t subject to sequestering? 27. Call the main directions of the state and republican budgets, National fund of the Republic of Kazakhstan, the consolidated budget of the Republic of Kazakhstan. 28. What directions of development are included by the State Program of the Forced Industrial and innovative development (SPDFII)? 29. Tell about realization of the State program of development of health care of the Republic of Kazakhstan «Safe Kazakhstan» for 2011-2015. 30. That the System of improvement of the higher and postgraduate education in RK includes. 31. In what directions in the forthcoming medium-term period the investment policy of RK will develop? 32. Call tasks SPDFII.

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CHAPTER XIV OFF-BUDGET FUNDS (SPECIAL FUNDS) 14.1 General characteristic of off-budget funds

O

ff-budget funds – set of monetary resources which are at the disposal of state authorities and have a designated purpose. The order of education and use of these funds is regulated by the financial right. Depending on a designated purpose off-budget funds are subdivided on economic and social, and depending on management level – on state and regional. Economic funds – the funds intended for the solution of problems of economic development. Social funds – the funds intended for the solution of social problems of society. The state funds – is funds which are formed at the state level; regional funds – at regional level. Sources of off-budget funds can be constant and temporary. Main directions of an expenditure of funds of off-budget funds following: authorized activity; investment of a certain share of excessive money in the state securities; commercial activity. Off-budget funds are one of links of public finances. On the essence off-budget funds are a form of redistribution and use of 240

Chapter XIV. Off-budget funds (special funds)

the financial resources involved by the state for financing of some public requirements and complex spent on the basis of operative independence. Appointment – financing of target actions at the expense of special target assignments: a) special target taxes; b) at the expense of loans and carrying out cash and prize lotteries; c) at the expense of subsidies from the budget; d) in addition revealed income and the saved financial resources; e) voluntary contributions and donations of legal entities and individuals. By means of off-budget funds it is possible: to influence production process by financing, subsidizing, crediting of the domestic enterprises; to provide nature protection actions, financing them at the expense of specially certain sources and penalties for environmental pollution; to render social services to the population by payments of grants, pensions, subsidizing and financing of social infrastructure as a whole; to provide loans, including to foreign partners, including the foreign states. The organization of functioning of off-budget funds is under the authority of state authorities of the power – central, republican and local. Off-budget funds can have certain privileges: a) releases from payment of taxes; b) release from payment of the customs duties (privileges on commercial activity are excluded). Sources of formation of off-budget funds it is in many respects predetermined by character and scale of tasks for which realization they are created. A variety of sources and their size are influenced by an economic and financial position of the country at this or that stage of development. Thus, sources of formation of off-budget funds have both rather constant, and a temporality. They can be different in the state territory, differing on administrative and territorial units. The direction of an 241

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expenditure of the means arriving in off-budget funds is caused by appointment of funds, specific economic conditions and contents of the developed and realized programs. The part of means goes on promotional activity, and also is put in securities. Off-budget funds can act as investors and participants of the financial market because, first, quite often use of money doesn’t coincide over time their educations, and, secondly, the income of investments is additional sources of financing of expenses of the relevant fund. In Kazakhstan different state off-budget funds, since 90th years functioned. But from 1999 year their existence was recognized inexpedient in connection with carried-out policy of centralization of financial resources of the state: means of funds were consolidated in the republican budget. At the same time the world practice confirms efficiency of decentralization of independent formation and use of the state financial resources for the purpose of an operational management with them when ensuring control of an expenditure of means from society. 14.2 Pension funds – off-budget funds of the Republic of Kazakhstan In the Republic of Kazakhstan June, 1997 the law «Was passed about provision of pensions in the Republic of Kazakhstan» according to which functioning of new system of provision of pensions were laid the foundation. In 1998 Kazakhstan became the first state in the territory of the CIS which started systematic transition to accumulative system of provision of pensions. The basic principles of accumulative pension system are: – state regulation of pension system; – providing to citizens of an option of an accumulative pension fund for formation of pension accumulation; – direct state guarantees on providing the established minimum pension for citizens; – differentiation of pensions and other forms of social security; 242

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– obligation of participation of each citizen of able-bodied age in formation of pension accumulation; – an individual responsibility of able-bodied citizens for the provision of pensions in old age; – efficiency of investment of pension accumulation in a combination to safety and safety of money of the population in accumulative pension funds; – providing a right of succession of citizens on accumulation in accumulative pension funds; – right of each citizen to additional voluntary provision of pensions; – a contribution to economy through investment of pension savings of citizens. The accumulative pension system will provide the solution of the following social and economic tasks: – more effective and fair organization of maintenance of the income of investors (recipients) of accumulative pension funds depending on the size of a salary, duration of payment of pension contributions and efficiency of investment of pension accumulation; – removal from the state and the taxpayer of a part of obligations on complete social security of senior citizens in the conditions of a worsening demographic situation; – representation of long-term investments for modernization of production base of national economy and increase of its competitiveness. In RK two systems now operate: – pulled (for present pensioners and those citizens, whose seniority for January first, 1998 made not less than six months); – accumulative (for those who since January first, 1998 started to deduct obligatory pension contributions to accumulative pension funds from a salary of 10 %). At accumulative pension system each participant saves pension individually, listing contributions from the income, and pension accumulation are its property. Thus, the pension won’t depend on quantity working for the retirement moment, and will be paid from an individual retirement account. In accumulative system on contributions 243

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percent (the investment income) which will provide more rapid growth of accumulation and protection them from inflation also are charged. Provision of pensions of Kazakhstan represents now system from three levels combining at the same time mechanisms of pulled and accumulative systems. The first level is the pulled pension system inherited by Kazakhstan from the USSR after its disintegration and based on «solidarity of generations» in which the state budget at the expense of tax assignments of a working part of the population and other receipts becomes a source of pension payments. The amount of pension payments is defined by the seniority. Now within this level pension payments for are formed what seniority at the moment of a retirement as of January 1, 1998 makes not less than six months. The second level is a system based on a binding character of assignment of pension contributions to the period of labor activity in pension funds which already obliges young generation to bear independent responsibility for level of the income after a retirement as a source of pension payments become created by them on individual retirement accounts of accumulation. The third level – the accumulative system based on voluntary and voluntary professional pension contributions. Possibility at the expense of voluntary pension contributions to increase the accumulation and by that to provide to itself higher income after completion of labor activity is offered to each citizen. Main stages of development of accumulative pension system: 1997: – the Concept of reforming of system of provision of pensions is developed and affirms as the Republic of Kazakhstan the resolution of the government of the Republic of Kazakhstan; – the Law of the Republic of Kazakhstan «About provision of pensions in the Republic of Kazakhstan» comes into force; – RK resolution of the government «About closed joint stock company creation «The state accumulative pension fund» is accepted. SAPF was taken away a special strategic role: stimulation of development of NAC, ensuring the maximum involvement of the population in accumulative pension system and to formation of base 244

Chapter XIV. Off-budget funds (special funds)

of investors of accumulative pension system, trust formation to new pension system from the population, to creation of bases of the pension market and the competitive environment. 1998: – start of accumulative pension system and creation of infrastructure of the pension market; – On January 19 in SAPF the first arrived in the history of accumulative pension system of Kazakhstan a pension contribution. 1998-2002: – SAPF carries out activity in a mode «Fund by default»: obligatory pension contributions are listed by the employer in SAPF if the worker didn’t decide on a choice and didn’t sign the contract with other pension fund. 1999: – SAPF first among pension funds in the history of accumulative pension system obtained the license for independent management of pension assets. 2003-2004: – granting the state guarantees to investors at a rate of actually brought obligatory pension contributions taking into account a rate of inflation at the moment of acquisition by the recipient of the right to pension payments; – schemes of pension payments are defined and possibility of receiving pensions through insurance companies is created; – the size and structure of rates of compensation of accumulative pension funds are changed; – responsibility of agents for payment of obligatory pension contributions is strengthened; – voluntary professional pension contributions are entered; – the Program of development of accumulative pension system for 2005-2007 is developed and accepted. The program of development of accumulative pension system is developed by Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations, the Ministry of Labor and Social Protection of the population of the Republic of Kazakhstan, the Ministry of Finance of the Republic of Kazakhstan and the Ministry of Economics and the budgetary planning of the Republic of Kazakhstan in response to instructions of data the President of the Republic of Kazakhstan on August 12, 2004 245

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N 3274 and 15 of November, 2004 on the IV Congress of financiers of Kazakhstan, and also the order of the Prime minister of the Republic of Kazakhstan from September 27, 2004 of N of 281-r. 2005: – SAPF replaced the official name with JSC “State accumulative pension fund” with JSC “Accumulative pension fund” SAPF where behind an abbreviation already former contents doesn’t remain. 2006: – the uniform registration center with a view of optimization of payments in accumulative pension system on the basis of SCPP «The state center for payment of pensions» is created; – extrajudicial responsibility of pension funds and the organizations exercising investment administration of pension assets, on maintenance of nominal profitability of accumulation of investors is established; – implementation of transfers of pension accumulation of investors between pension funds through the State center for payment of pensions. 2007: – the organization and carrying out at the initiative of SAPF of the international conference «The pension market of Kazakhstan – 10 years to system reforms», the accumulative pension system of Kazakhstan devoted to the 10 anniversary. 2009: – the automatic translation system of accumulation from one fund in another is introduced; «auto transfer» through the State Center for Payment of Pensions is carried out. 1. At the first stage (since April 1, 2009) pension accumulation of only those investors which were concluded by new pension contracts, accumulated on one INFORMATION RETRIEVAL SYSTEM. 2. At the second stage, (since July 1, 2009) all investors (recipients) who signed earlier two and more contracts on provision of pensions with various APF are involved in system of auto transfers. At this stage all accumulative pension funds and the state center for payment of pensions of SCPP are involved. Some kind of «collapse» of pension accumulation on one INFORMATION RETRIEVAL SYSTEM of the investor in that fund with which the investor has a contract with later date the conclusions was made. 3. And the third stage (2012) becomes transition to service by 246

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means of electronic cards when the owner of a card, that is the investor can carry out a choice of fund to which he will wish to entrust the accumulation and simultaneous transfer of accumulation through electronic system of service. At the final stage, NPS will pass to qualitatively new level when the investor, being based on the personal preferences, can choose the investment portfolio itself. Now in the Republic of Kazakhstan the regulatory legal base for functioning of accumulative pension funds, the organizations exercising investment administration of pension assets is created. Provision of pensions in the Republic of Kazakhstan is regulated by the Law of the Republic of Kazakhstan from June 20, 1997 «About provision of pensions in the Republic of Kazakhstan» (with changes and additions as of 19.03.2010). The system of relationship with state authorities, investors (recipients), agents for payment of obligatory pension contributions and banks of the second level, allowing carrying out the personified accounting of pension accumulation is defined. 14.3 National fund of the Republic of Kazakhstan The national fund of the Republic of Kazakhstan was created according to the Decree of the President of the Republic of Kazakhstan from August 23, 2000 of No. 402 «About National fund of the Republic of Kazakhstan» in May, 2001. The national fund represents state assets in the form of the financial assets focused to the account of the Government of the Republic of Kazakhstan in National Bank of the Republic of Kazakhstan, and also in the form of other property, except for intangible assets. The purpose of creation of National fund was ensuring stable social and economic development of the country, accumulation of financial means for future generations (savings function) and decrease in dependence of economy from influence of adverse external factors (stabilization function). During 2001 necessary events for ensuring 247

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functioning of National fund were held. Rules of formation and use of National fund of the Republic of Kazakhstan», resolutions of the government of the Republic of Kazakhstan were approved by the Decree of the President of the Republic of Kazakhstan from January 29, 2001 of No. 543 «: The list of the organizations of raw sector on which super planned tax and other obligatory payments in the budget were enlisted in National fund, the Contract on trust management by National fund, Rules of implementation of investment operations of National fund of the Republic of Kazakhstan, the Rule of a choice of the independent auditor for carrying out annual external audit of National fund of the Republic of Kazakhstan. The national fund is urged to provide the budgetary and macroeconomic stability, and the savings of the most part of the oil income in National fund should promote carrying out more weighed fiscal policy, to help the solution of tasks on a diversification of the economy, put in Strategy of industrial and innovative development, and also to give the chance to future generations to use the benefits of the Kazakhstan oil resources. Management of National fund carries out an advisory body at the President of the Republic of Kazakhstan – Council for management of the National fund which main objective is rendering of assistance and development of recommendations to the President of the Republic of Kazakhstan concerning use of National fund. The prerogative is fixed to the President of the Republic of Kazakhstan to give obligatory for instruction execution to Council, the Government of the Republic of Kazakhstan and National Bank concerning National fund - to carry out control of activity on management of National fund, other powers. The national Bank of the Republic of Kazakhstan on the basis of the Contract on trust management by the National fund, concluded between National Bank and the Government of the Republic of Kazakhstan, carries out independent investment of National fund, including transfer of its part to management of the external managing director. The national Bank of the Republic of Kazakhstan signed contracts with external managing directors on management of assets of National fund. With a view of savings and obtaining the investment 248

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income the National fund takes place in reliable and liquid foreign financial assets. With a view of ensuring transparency of the activity connected with management of National fund, external audit of National fund annually is booked. The government of the Republic of Kazakhstan together with National Bank of the Republic of Kazakhstan annually no later than May 1 of the current year delivers the annual report on formation and use of National fund of the Republic of Kazakhstan on the statement to the President of the Republic of Kazakhstan. The government of the Republic of Kazakhstan after the approval by the President of the Republic of Kazakhstan of the annual report on formation and use of National fund of the Republic of Kazakhstan represents it as information in Parliament of the Republic of Kazakhstan, publishes in mass media and places on an official site of the Ministry of Finance. Concerning use of means of National fund it is necessary to note that there are various directions of use of means of similar funds: stabilization transfers in the republican budget, repayment of external debts, distribution of a part of the investment income among the population, financing of ecological programs and others. In Kazakhstan possibility of distribution of oil money among the population was alternatively considered. However for some reasons this approach now we do not accept. First, superfluous inflow of petrodollars to the country will cause increase in monetary weight that will provoke growth of inflation and will lead to strengthening of national currency. It will make domestic producers noncompetitive and will lead to reorientation of demand to fallen in price import production. Secondly, in case of sharp recession of the prices for oil the state will undergo shortage of money and can’t pay off according to social obligations at the proper level. Existence of National fund promotes fiscal stability of Kazakhstan, and the savings of means in National fund correspond to a principle of uniform distribution of natural riches between generations. With a view of improvement of activity of National fund, taking 249

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into account a developing situation in economy, the Concept of formation and use of means of National fund on medium-term prospect which was approved by the Decree of the President of the Republic of Kazakhstan from September 1, 2005 of No. 1641 is developed. In the Concept transition to a method of the balanced budget in which all income of oil sector goes to National fund is offered. It means that the state in the long term should do without the income of oil. The role and value of processing sector as without its dynamic development there will be no growth of receipts in the state budget in turn rises. The method of the balanced budget provides stable level of expenses of the budget. As the oil income is listed in National fund, and from National fund the guaranteed transfer goes to the budget, expenses of the budget don’t depend any more on growth or reduction of prices of oil in short-term and medium-term prospect. In long-term prospect the sum of the guaranteed transfer will be no more sum of the income received from management of National fund. Since July 1, 2006 transition to a new method of formation of accumulation of National fund according to the Concept of National fund when it became a part of the consolidated budget is carried out. Now on a daily basis transfer is carried out to National fund of receipts of direct taxes from 55 enterprises of oil sector for the approved list, from privatization of the state property being in a republican property and relating to mining and processing branches, and from sale of the land lots of agricultural purpose. Means of National fund can go on providing the guaranteed transfer and a covering of the expenses connected with management of National fund and audit. Thus from National fund additional resources for financing of expenses on the current budgetary programs owing to decrease in receipts from not oil sector shouldn’t be withdrawn. Also, it would be desirable to note that the National fund can’t be used on crediting of physical and legal entities as providing performance of obligations. 250

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As a result of reforming of system of the taxation of subsoil users the increase in receipts in National fund is expected. The forecast of volumes of receipts in the budget, directed to National fund, for 2009-2013 is made on the basis of predicted parameters of macroeconomic indicators: oil production, the world price for oil, a rate of tenge to US dollar, and also loudspeakers of receipts for previous years, the analysis of the current situation.

Drawing 10-the Forecast of receipts of direct taxes in National fund of the Republic of Kazakhstan for 2009-2013

In 2009 of receipt of direct taxes in National fund are predicted at level – 8,1 % to gross domestic product, in 2010 – 7,0 %, in 2011 – 6,0 %, in 2012 – 5,4 %, in 2013 – 4,7 %. In 2009-2013 for financing of the budgetary programs of development from National fund the guaranteed transfer which volumes for the forthcoming three-year period will be approved by the law on the republican budget for 2009-2011 will be sent to the budget? The forecast of volumes of the guaranteed transfer for 2009-2013 is determined according to the base scenario of macroeconomic development of the country and a forecast of the public expenditures by development programs.

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Table 4 Capacities of guaranteed transfer from National fund to republican budget at 2009-2013 years. Name of indicators The guaranteed transfer in the republican budget, billion tenge share from assets of National fund to the end financial year, previous to year of development republican budget, % share of investment income from management of National fund in volume of the guaranteed transfer

2009 year 843,1

2010 2011 2012 year year year 1075,7 1012,4 1000,4

2013 year 1 000,0

30,8

27,2

21,3

18,7

16,7

21,6

19,1

22,8

26,0

29,1

In long-term prospect the policy of prevention of «exhaustion» of National fund according to which the size of the guaranteed transfer won’t exceed one third part from assets of National fund on the end of the year previous to year of development of the republican budget will be continued. As it is already noted above, the part of means of National fund can go to the republican budget in the form of the guaranteed transfer only on a covering of the budgetary programs of development i.e. on implementation of investment projects and programs. From National fund in the republican budget the Government of the Republic of Kazakhstan has the right to use the sum of the guaranteed transfer not transferred for last fiscal year current financial year for financing of republican budgetary programs of development of previous year. One of the basic principles of National fund is ensuring transparency of the activity connected with management of National fund. Following this principle, the Ministry of Finance on a constant basis 252

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(quarter, annual) publishes in the Statistical bulletin reports on results of management of National fund. Necessary information on activity of National fund, the regulations regulating activity of National fund, and also information on current state of National fund take place on an official site of the Ministry of Finance. Questions: 1. Give definition to concept «Off-budget Funds». 2. What economic essence of off-budget funds? 3. Call sources of formation of means of off-budget funds? 4. Call the main directions of use of means of off-budget funds? 5. What does the pension system of the Republic of Kazakhstan represent? 6. Call the basic principles of accumulative pension system. 7. What purposes and problems of accumulative pension system. 8. Give the main stages of development of accumulative pension system of Kazakhstan. 9. What represents National fund of the Republic of Kazakhstan? 10. How means of the RK National fund are used? 11. What mission National fund of the Republic of Kazakhstan?

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CHAPTER XV

STATE CREDIT 15.1 Essence of the state credit

D

eficiency of the state budget leads to that there is a need of attraction of free financial resources on its covering. These resources will be mobilized as within the country (from legal entities, and from other countries (the governments, financial credit institutions) and international financial and credit institutes. The main way of attraction of these means is the state credit. The state credit – is the monetary relations arising at the state with legal entities and individuals in connection with mobilization of temporarily free money in the order of public authorities and their use on financing of the public expenditures. The state credit carries out function of redistribution of money on the terms of their subsequent return. It is connected with accumulation of temporarily free funds of the population and managing subjects. In this function the state credit is one of forms of the organization of savings of the population. By means of the credit, rather small, on the average, population savings concentrate at the state and go on financing of his requirements. It is reached by issue of bonds of the state loans placed among the population, managing subjects, an admission of other types of securities of the state (treasury obligations, treasury checks, certificates); there is «a spatial redistribution» money. Existence only of freely addressing loans gives the chance to the population a freedom of choice of organizational forms of savings. Objective results of 254

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action of this function are the increase in volume and acceleration of rates of expanded reproduction. The state can act in the following roles: creditor; borrower; the guarantor (means the state guarantee for the borrower). Differences of the state credit from the private: Private credit: 1) it will be mobilized for production needs; 2) the loan capital will be mobilized. 3) repayment is made from an additional product or cost which arises in the course of production; 4) expands scope of the capital (the production sphere)

State credit: 1) it will be mobilized for production and non-productive needs; 2) it will be mobilized payment and consumer means; (generally at the expense of tax revenues). 3) narrows scope of the capital.

Redistributive function of the state credit is shown also in its “antitsinirovaniye” property when the means used in the current period, can come back to the creditor through tens years, that is at the expense of the taxes raised from future generations; thus redistribution of means of future generations in favor of present («redistribution in time») is reached. The second function of the state credit – regulating. First of all the state regulates cash flows, influencing the size of loan percent: acting as the borrower in the market of the loan capitals it increases demand for this capital therefore the norm of loan percent increases. Thus the state enters the competition in this market and forces out from it private investors («effect of replacement»). It causes restriction of their investment in certain types of business. At the same time upon purchase of securities of the state reduction of money (cash and non-cash) in the address that can be effective for elimination of consequences of a currency issue is reached. Thus, if by means of redistributive function of the credit the state directly sends monetary resources to certain branches or on 255

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development of necessary productions, by regulating functions additional indirect impact on subjects of the economic relations which aren’t taking part in the relations on the state credit is reached. The role of the state credit is reduced to its opportunities in mobilization of temporarily available funds of the population, the enterprises, the organizations and their direction on financing, prime needs of the state. The state can act not only as the borrower, but also as creditor. The state crediting is a form of subsidizing and means of redistribution of financial resources on credit channels. The main sphere of the state crediting – capital investment: financing of priority productions; financing of housing construction; financing of branches of economic and social infrastructure. The state acts as the guarantor in the market of the loan capitals. It is a special form of the state crediting in case of risks on a delay of payments; bankruptcies; political and other causes. Sources of the state credit – temporarily available funds which appear at the enterprises, banks, pension funds, insurance funds, and the population. Credit resources it is used by the state for: 1) financings of the budgetary deficiency; 2) financings of capital investments in the nationalized and mixed enterprises; 3) financings of economic organizations of local authorities; 4) regulations of monetary circulation of the country. Classification of the state credit can is made in compliance: with maturity dates; with profitability; with loan currency; with a place and way of placement; Forms of the internal state credit: 1) release of the state loans 2) the address of part of treasures of the population in the Savings Banks in the state loans. 3) treasury loans. 256

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The state loans – the credit relations between the state and legal entities and individuals as a result of whom the state receives certain sums of money for a certain term for a certain payment. Difference of loans from taxes: Loans Taxes 1) voluntary nature; 1) compulsory character; 2) hidden form of coercion. 2) obvious form of coercion. The law of the Republic of Kazakhstan «About the loan state and guaranteed by the state and a debt» provided the following types and forms of the state loans: 1) in relation to the borrower: Government loans; loans of National bank; loans of local executive bodies; 2) on the markets of the loan capital: external state loans; domestic state loans; 3) in a loan form: emission of the state securities; conclusion of contracts (agreements) on a loan. The state emissive securities on validity periods are subdivided on: 1) short-term, with circulation period till 1 year; 2) the medium-term – from 1 to 10 years; 3) the long-term – over 10 years. The address of part of the remains on population deposits in banks in loan fund for financing of the public expenditures, is usually carried out through savings banks and if their capital belongs to the state, on risks of use of deposits the state answers; in case of the state participation in the capital of savings bank (joint-stock) – there are problems of options of effective use of the raised funds according to opinions of establishments (shareholders) of bank. Treasury loans express the monetary relations on financial assistance to managing subjects in which stable work the state or to the population in state governing bodies at the expense 257

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of budgetary funds are interested. But it is carried out on the terms of urgency, availability at a price and recoverability. 15.2 International state credit The state credit differs by types: internal, external (international), conditional. In the internal credit the state and credit relations arise between the government, local authorities, the enterprises, the organizations and the population of this country from versatile positions: both as borrowers, and as creditors. In the international credit the relations are entered by the governments, local authorities – on the one hand, and the governments, banks, the companies of other states, and also the international financial and bank organizations – with another. The party, representing (giving) the credit is called as the donor state or the donor organization, and the country obtaining the credit – the country recipient. The international credit is the loans provided by the states, banks, and also other legal entities and individuals of one country, to the states, banks and other legal entities and individuals of other countries. Due to the development of foreign economic relations more and more important place in the sphere of the international credit is occupied by the international currency and credit organizations: The International Monetary Fund (IMF), the International Bank of Reconstruction and Developments (IBRD world bank) and its organizations - the International Association of Development (MAP), the International finance corporation, Multilateral Agency on guarantees of investments (MIG), the European Bank of Reconstruction and Development (European Reconstruction and Development Bank), Asian Bank Is developed I (ABR) and others. The IMF promotes international trade and currency cooperation by setting standards of regulation of exchange rates and control of their observance, elimination of currency restrictions among the participating countries, granting means to them for regulation of balances of payments. 258

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In the international credit the relations are entered by the governments, local authorities – on the one hand, and the governments, banks, the companies of other states, and also the international financial and bank organizations – with another. The party, representing (giving) the credit is called as the donor state or the donor organization, and the country obtaining the credit – the country recipient. The international credit is the loans provided by the states, banks, and also others judicial and individuals of one countries, to the states, banks and other legal entities and individuals of other countries. Due to the development of foreign economic relations more and more important place in the sphere of the international credit is occupied by the international currency and credit organizations: The International Monetary Fund (IMF), the International Bank of Reconstruction and Developments (IBRD world bank) and its organizations - the International Association of Development (MAP), the International finance corporation, Multilateral Agency on guarantees of investments (MIG), the European Bank of Reconstruction and Development (European Reconstruction and Development Bank), the Asian Development Bank (ADB) and others. The IMF promotes international trade and currency cooperation by setting standards of regulation of exchange rates and control of their observance, elimination of currency restrictions among the participating countries, granting means to them for regulation of balances of payments. The World Bank and its organizations keep economic development of the countries by means of rendering to them technical assistance and financing of the projects, capable to realize the economic capacity of the countries. The international state credit represents movement of material resources of the countries in the sphere of the interstate economic relations represented in commodity and monetary forms in temporary use for a certain payment – percent, on the terms of recoverability. Subjects of the credit the countries represented by the government authorized bodies act. On the essence the international credit is one of means of ensuring 259

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of expanded reproduction, in for the sake of cases – means of rendering the economic help to developing countries. Need of the international credit is defined by all set of economic laws. Development of the international credit is caused by the following factors: 1) deepening of the international division of labor and economic integration; 2) specialization, production cooperation; 3) unequal security of the countries with natural resources and labor; 4) need of overcoming of unevenness of economic development of the certain countries; 5) need of rendering the economic help to developing countries; 6) trade and economic cooperation of developing countries with the developed countries. Credit resources of the state for granting the international credit consist from: 1) means of the state budgets relating to funds of accumulation; 2) collective loan funds (own and raised funds of national and international banks); 3) means of the state enterprises and the organizations (when granting the commercial credits). The international loan in a monetary form is granted in national currencies and hard currencies. Function of the international credit is redistribution of commodity and monetary resources of the states in the course of their foreign economic activity on the terms of durability, availability at a price and recoverability. Use of the international credit promotes | to acceleration of development of economy, process of alignment of levels of economic development, growth of foreign trade, acceleration of economic integration. The arrangement between the parties in the international state credit is made out usually as credit lines – obligations of the creditor (donor) to provide to the borrower to the recipient) during the caused 260

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period the credits within the coordinated limit. Within open credit lines separate credit agreements on the basis of which loans by series – trenches are provided are concluded. Use of a method of credit lines allows reaching stability and reliability in the credit relations as for the borrower, and the creditor at environment change in the world market of the loan capitals. The main form of the international credit are external loans at which transfer by the creditor to the borrower of the caused sum of money (or goods or services for this sum) for term after which the borrower undertakes to return to the creditor with percent (sometimes without them) the taken sum takes place. ‘Borrowed funds are used for implementation of the foreign trade transactions or for assistance to export and import – financing of foreign trade. When financing foreign trade granting, use and repayment of the credits is provided in appropriate programs and budgets of the countries that allows them completely and freely to fulfill the obligations. In forms of the international credit the official aid to development provided for the purpose of support of economic development by the foreign governmental or multilateral organizations (IBRD, the European Reconstruction and Development Bank, ABR) is allocated. The purposes of providing the help have noncommercial character, unlike the loans provided on market conditions, that is the multilateral currency and credit organizations don’t seek to maximize the profits, and finance those spheres which can provide structural transformations and economic growth of the country. For example, the loans of IMF are granted to Kazakhstan on programs of macroeconomic stabilization and structural reforms, maintenance of a rate of tenge that is one of receipt conditions to the country of loans of other international organizations. In practice of the international economic relations the form export or «the connected credits» is applied also. Granting such credits «contacts» deliveries to the country borrower of concrete goods under which purchase the loan is granted. Usually connected loans are granted on favorable terms that is caused by need of advance of goods with insufficient demand in own country on the markets of other countries. 261

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Use of the export credits has that consequence that they influence trade balance of the country. At the expense of additional financing import that can cause or increase deficiency of trade balance increases. Besides, the export credits negatively influence economic growth in the country recipient as, first, appropriate means could be enclosed to the production sphere and in the future to bring in the income instead of moment satisfaction of the current requirements; secondly, imported goods as better and cheap, втесняют domestic or suppress their production. In modern conditions when purchasing the equipment, materials, the food in the developed countries the foreign trade organizations and the external economic bank utilize the bank and commercial credits obtained from banks and firms of these countries on the basis of contracts and agreements, including compensation agreements. Compensation agreements are a type of the foreign trade agreements at which the buyer of goods pays its cost deliveries of other goods. Compensation agreements provide, as a rule, receiving from foreign banks of the long-term credits at the expense of which to foreign firms goods acquired at them for a construction of a certain object are paid. Compensation of cost of deliveries is made at the expense of export of production of the built objects in the volume which is completely covering the sum of the granted loan, including percent. Since 1996 Kazakhstan began issue of Eurobonds – the sovereign bonds nominated in US dollars and euro, for placement in the international financial markets. The purposes of the state external loans are financing of deficiency of the republican budget and maintenance of the balance of payments. The means received on external loans by the government, are enlisted in the republican budget and used as budget performance, and received by National bank are used on the purpose of realization of a monetary policy. These means, depending on purpose, can directly go for gratuitous use or be provided on a returnable basis by the internal (final) borrower. Gratuitous use is carried out by the budgetary expenditure (allocation) or use of means by National bank. Means for internal (final) borrowers are provided according to credit agreements by the creditor according to which the government or National bank 262

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acts. Control of target use of borrowed funds is exercised by the creditor according to the legislation and the credit agreement, and at non-compliance with the stipulated conditions the corresponding sanctions are applied. For a solvency assessment the international rating agencies develop a credit rating of the country, the following aspects are thus taken into account: 1. Progress in creation of democratic political system; it is meant as efficiency of democratic political institutes, transparency of decisionmaking process, political commitment to carrying out economic reforms and ability to their practical implementation. 2. Successes in achievement of financial stability and economic growth. They include: efficiency of fiscal and monetary policy, maintenance of a low rate of inflation at stability and convertibility of national currency. 3. Progress in transition to market economy. In particular, interest is represented by the following factors: role of the private sector and economy (extent of privatization of a public sector, successes of the private companies, extent of restructuring of the enterprises, efficiency of corporate governance, change in the relation of society to the taxation and payment discipline, liberalization of economic activity (freedom of pricing, openness of the markets for the new domestic and foreign companies, openness in foreign trade and investment activity), a condition of financial sector (development of the banking sector and its regulation, development of financial mediation, development of stock market and non-bank financial institutions), development of market institutes (existence of effective infrastructure and the legislation). 4. Reorientation of trade streams. Management level, transfer of technologies is estimated through dynamics of growth and export and import structure, participation in the international economic and trade organizations, a role of direct foreign investments as a financing source. In recent years Kazakhstan obtained the considerable credits abroad. Therefore the rational, economical expenditure of currency means gains paramount value. They have to be used first of all for creation and reconstruction of the enterprises making goods of 263

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consumer appointment, and development of priority productions, that is taking into account the structural policy planned for improvement of economy. 15.3 Government debt Public debt – the sum let out, but not extinguished state loans with the added percent which has to be paid together with percent to a certain date or through a certain term. The public debt is a structural element of a financial system (there is even a body on coordinating of a public debt in the Republic of Kazakhstan – Department of the state loan as a part of the Ministry of Finance). Service of a public debt – set of the relations on repayment of a debt and new loans. In order that the state could pay off with debts it can specify loans. Specification can concern: profit abilities of loans (decrease in percent) – conversion; the conditions concerning terms – consolidation; associations of several loans in one loan - unification. The law of the Republic of Kazakhstan «About the loan state and guaranteed by the state and a debt» set limits of such loan for the relevant state structures: 1) limit of a governmental debt; 2) limit of an external debt of National bank of the Republic of Kazakhstan; 3) limit of a debt of local executive body. These limits represent planned, respectively, in the republican budget, National bank, the local budgets, the fixed sums of the obtained and outstanding loans which shouldn’t exceed the actual debt of the relevant structure for the set date (the end of fiscal year). So, for National bank that sum is determined at the level of 50% of net gold and exchange assets of bank, except cases of attraction by National bank of program loans from the international financial organizations. The limit of loan of the Government of the Republic of Kazakhstan is set by the Law on the republican budget in which it is approved both 264

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a limit of a governmental debt, and volumes of the funds allocated for its service. The limit of a debt of local executive body shouldn’t exceed 25% of the income of the local budget for the corresponding year; the volume of expenses on repayment and service of a debt of local executive body shouldn’t exceed 10% of the income of the local budget for a year. Besides, for local executive bodies the loan limit – set in the local budget for the corresponding year the limit volume of attraction by local executive body of loans on accepted in the order established by the Government conditions and restrictions is provided. The limit of loan of local executive body for a year shouldn’t exceed 10% of the income of the local budget for this year. The law sets a limit of representation of the state guarantees – the fixed sum approved as a part of the republican budget for the corresponding fiscal year within which the state guarantees of the Republic of Kazakhstan can be given out State (governmental, sovereign) a guarantee of the Republic of Kazakhstan – the obligation of the Government to the creditor in whole or in part to extinguish debt in case of failure to pay by the borrower – the resident of the Republic of Kazakhstan of the sum due from it in due time. 15.4 Management of a public debt Management of a public debt includes a certain activity from the Ministry of Finance, as body coordinating and regulating the state loan. The annual assessment of a condition and the forecast for the forthcoming ten-year period of the loan state and guaranteed by the state and a debt is carried out. This assessment defines indicators according to which repayment and service volumes, limits of a governmental debt, loan and a debt of local executive bodies, granting the state guarantees are established. Preparation of this document is carried out by the Ministry of Finance of the Republic of Kazakhstan together with National bank of the Republic of Kazakhstan and 265

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authorized for development of the Program of the state investments by government body on the basis of the long-term forecast of economic development of the country, volumes and structure of the debt saved up state and guaranteed by the state, forecasts of changes in the markets of the loan capital. The Ministry of Finance of the Republic of Kazakhstan determines volumes, forms and conditions of loan by the Government of the Republic of Kazakhstan, limits and volumes of repayment and service of a governmental debt, limits of loan and a debt of local executive bodies. These indicators are approved in republican and local budgets for the corresponding year. On loans of National bank of the Republic of Kazakhstan similar procedures are carried out by National bank of the Republic of Kazakhstan. The Ministry of Finance of the Republic of Kazakhstan registers loans of National bank of the Republic of Kazakhstan, the Government and local executive bodies of the Republic of Kazakhstan, exercises control and monitoring of conditions of governmental loans and loans of local executive bodies and their changes, control and monitoring of receiving, repayment and service of the specified loans, a public debt of the Republic of Kazakhstan. The gross external debt of Kazakhstan as of the end of 2010 made 119,243 billion dollars against 113,239 billion dollars for the beginning of the past year. Including the short-term external debt for 2010 was reduced by 12,2% – to 9,037 billion dollars, the long-term debt for the same period increased by 7% – to 110,206 billion dollars. The external debt of banks of Kazakhstan for the reporting period decreased by 33% – to 20,024 billion dollars. The long-term debt of banks decreased almost by 30% – to 18,346 billion dollars, short-term was reduced by 2, 3 times – to 1,678 billion dollars. Thus, for January 1, 2011 the external debt state and guaranteed by the state made 4,3% of a gross external debt, and the external debt unwarranted by the state, - 95,7%. As of the beginning of 2010 these indicators respectively made 3, 3% and 96, 7%. For January 1, 2011 of 44, 7% of a gross external debt it was the share of inter-firms debt, that is of obligations to the foreign 266

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parent companies, the affiliated and associated enterprises, and also obligations of branches of the foreign companies operating in the republic. As of the beginning of 2010 the inter-firm debt made 44, 3% of an external debt. Within management preparation and realization of actions for optimization of structure of a debt, including on the state securities, on restructuring of a public debt, risk management of the state loan is carried out. Questions: 1. Call the main reasons for emergence of the state credit. 2. Give definition to the concept «State Credit». 3. Give signs of difference of the state credit from the private. 4. What functions are carried out by the state credit? 5. What role of the state credit in system of financial resources of the state. 6. What main sphere of the state crediting. 7. Call sources of the state credit. 8. What main directions of use of credit resources state. 9. Give classification of the state credit. 10. What forms of the internal state credit? 11. Give definition to the concept «State Loans». 12. What main difference of loans from taxes. 13. Give main types and forms of the state loans. 14. What purpose of treasury loans. 15. What essence of the international credit. 16. Give definitions to concepts the donor state and the country recipient. 17. What factors caused development of the international credit. 18. Give structure of credit resources of the state for granting the international credit. 19. What main functions of the international credit. 20. What main forms of the international credit. 21. Give definition to the concept «Eurobond». 22. What purposes of the state external loans. 23. What aspects are important at definition of a credit rating of the country by the international rating agencies? 24. Give definition to the concept «Public debt». 25. In what purposes are established a limit of an external and internal debt of the Republic of Kazakhstan. 26. That includes concept «Management of a Public Debt». 27. Than external and internal debts of the Republic of Kazakhstan are presented.

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CHAPTER XVI THE STATE FINANCIAL REGULATION 16.1 General characteristic of the state financial regulation of economy

F

or adjustment from the state of development of a social production in the necessary direction the state financial regulation is carried out. The state financial regulation of economy is characterized as process of purposeful and consecutive application by the state of forms and methods of financial impact on subjects of managing for rendering influence on macroeconomic balance and forward development of economy at each concrete stage of its functioning. Preconditions of implementation of the state financial regulation are the following initial bases. 1. Accounting of action objective economic laws of advancement. As process of financial regulation proceeds in subjectively planned direction of financial policy and the mechanism of its embodiment in economic practice, actions of this policy and the mechanism will be especially effective and meeting the requirements of practice, than more stoutly in them interests of subjects of the managing, reflected in economic laws and economic categories corresponding to them are considered. And reaction of rejection of forms and methods of the financial mechanism in real economic life will be shown otherwise. 2. Development of the scientific and reasonable strategic program of development of the society, expressing radical interests of all his 268

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members. The program is defined as the integral, long-term direction which provides regulations of the state and subordinate structures; correction of tactical character on unforeseen circumstances is allowed. 3. Existence of democratic system of expression of views and democratic institutes representing them for possibility of free expression of interests of all segments of the population, social, national, professional groups. 4. Existence in the country of the debugged system, performance of laws and other regulations, accurately and quickly reacting to derogation from norms and behavior rules in economic activity. Productivity, which is real result of the state financial regulation, is reached at observance of certain conditions of its implementation. The following belongs to such conditions: a) economy restructuring with gradual development of probably bigger set of productions on technological repartitions: from production of natural resources before production of goods and products of final consumer appointment according to demand of the population; b) deregulation of economic processes and structures at all levels of management and in forms of ownership; c) development of the competition, business on the basis of creation of original equality of all forms of ownership of all subjects of the managing opening a scope to a market initiative, freedom of the commercial activity, equal opportunities in a choice of kinds of activity except for stipulated in the law; d) from the previous conditions follow following from it: possibility of free movement of mobile factors of production (the capitals in a different form, labor, technologies, information, the property rights, etc.) between branches, productions, territories both in state borders, and within uniform integration space of several countries uniting in the economic unions on development of cooperation of proceeding from advantages of the international cooperation and division of labor. Process of regulation is characterized by variety of objective and subjective factors, economy operating conditions, use of different categories, and their elements. Therefore it is important to 269

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differentiate system of state regulation on these bases, to classify on types, parts, types, forms and methods. Types include: economic and administrative. In economic type of regulation parts are allocated: financial, price, credit, currency, and also connected with compensation. Types of financial regulation cover: tax, budgetary, state and credit, customs and tariff, monetary, internal (intra firm, within the enterprise, the organization, corporation, etc.). Forms of regulation designate the processes proceeding in listed types, as characteristic for the corresponding type of the financial subcategory, and the general for all: for example, in the budgetary look forms are financing (subventions, subsidies, transfers), in tax – the direct and indirect taxation, in monetary – external investment, external loans, an external debt. Forms in a state and credit look are various. (see section 15.1. ) . The general form is planning (forecasting). The most numerous elements of classification are regulation methods which can be also as specific to separate forms (for example, a rate method in taxes, conversion in loans) or to be applied to use in several forms (for example, a balancing method in budgets and in financial plans of managing subjects, formations of reserves in these forms, an indexation method for different forms and types, etc.). Methods are differentiated for independent ways, receptions and are the most mobile, changing elements of system of regulation. For example, in the taxation methods of sanctions, declaring of the income, property, assets, an allowance, advance payments, etc. are applied. At the budgetary financing – rationing of expenses, percentage allocations of means, methods of financing of a budget deficit, use of the budgetary surplus, etc. The main methods in monetary regulation are: 1) exchange rate; 2) interest rates on the monetary capital; 3) courses of the international means of payment and securities; 4) various methods of insurance of currency risks. In an internal type of regulation methods of commercial or cost 270

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accounting, rationing of means, standards of contributions to financial funds and their uses are applied. Elements of system of financial regulation – types, forms, methods – are urged to provide the coordinated, sustainable development of economy in the accepted direction. In the conditions of the market the bigger attention is paid to indirect methods of regulation. The state establishes the general for all participants of economic process of a condition and the activity rule, for priority fields of activity – preferential (preferential); these are taxes, their rates, the amount of assignments of means, subventions, privileges, the tariffs, the fixed prices, standards of monetary and credit, currency, customs and social regulation. On the basis of these main indicators of influence the secondary, market focused elements of regulation dictated by nature of compliance of supply and demand are formed: free prices, interest rates for the credits, an exchange rate, standards of formation of different funds and their use at managing subjects. However action of indirect elements of regulation can be supplemented with straight lines, directive methods from the state, especially at considerable undesirable deviations from the planned course of development. Applied elements – regulators, work in difficult interrelation in the uniform economic mechanism (see 4.3.); therefore the state, establishing a course financial, a monetary policy has to consider carefully an economic situation and a social condition of society and at a choice of certain types, forms and methods of influence on economic and social interests, truly to define the strategic and operational objectives of social development. 16.2 Macroeconomic balance and finance Impact on social and economic processes by means of various forms and methods, both indirect, and straight lines, includes their financial types. Such influence aims at evolution of the national economy, being accompanied economic growth, consecutive steady development of 271

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the social sphere in certain temporary periods of functioning of this social and economic system. The condition of macroeconomic balance assumes balancing of the major economic parameters, such as: 1) supply and demand; 2) commodity and monetary masses; 3) savings and investments; 4) inflations and unemployment; 5) labor productivity and its payment; 6) financial resources and social and economic requirements of society; income and expenses of the state budget; 7) extent of the budgetary deficiency and sources of its covering; 8) asset and passive of the balance of payments. In the financial theory the concept «animator» for an explanation of influence of public finances on the production, a national product measured by size is used. The concept of the animator proceeds from gross national product (GNP) scoping by two methods: 1) on expenses, that is set of all expenses of the economic subjects, necessary to redeem all made mass of production; 2) according to the income (or to distribution), that is from the point of view of income gained by subjects from production. By the first criterion the cost of GNP develops on a formula: GNP = С + Ig + G + Xn, where: С – the volume of consumer expenses of house farms, or all population of the country; Ig - gross private internal investments; G – government procurements of goods and services (excepting the transfer payments which aren’t increasing productions; Xn – pure export, that is excess of volume of export over import. GNP measurement on the sum of all income is made by summation of the following elements: 1) the volume of the consumed capital (depreciation); 272

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2) indirect taxes on business; 3) salary of hired workers; 4) rent payments; 5) percent (payment of the monetary income of private business to suppliers of the monetary capital); 6) the income from property (from individual investments); 7) profits of corporations (tax on this profit, dividends, retained earnings). Further, from a gross national product the pure national product (NNP), as a difference between GNP and assignments is allocated for consumption of the capital or depreciation charges. The indicator of GNP inflation-adjusted or a deflation (drop in prices), represents real GNP. In Keynesian models balance between output, the income and the employment, called changes in expenses speaks. The equilibrium level of production is such output which provides the general expenses, sufficient for purchase of this volume of production, or, at the NNP equilibrium level total of the sold goods (NNP), is precisely equal to total of the bought goods (C + to Ig + to G + to Xn). Respectively, violation of balance is any excess of the general expenses over total production that leads to growth of the last; any insufficiency of the general expenses causes decrease in NNP. Justification of action of the animator is defined by the concepts «limit tendency to savings» – MPS and «limit tendency to consumption» – MRS. In the first case this relation of change in savings to change in the income, in the second – the relation of change in consumption to change in the income. Proceeding from it, numerical value of the animator is expressed by a ratio 1 1 me = ------- = --------- . MPS 1- MPC The phenomenon of the animator is used when carrying out discretionary fiscal policy which is understood as a 273

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conscious manipulation by the public expenditures and taxes for the purpose of change of real volume of national production and employment, control over inflation and accelerations of economic growth. Taxes cause reduction of the income which leads to decrease in volumes of consumption and savings and reduction of size of equilibrium NNP. Savings and import have similar effect on output (along with taxes). In total together they represent leak from system of the income expenses, which is don’t affect internal consumption. Consumption decreases, creating a separation in expenses which can be filled with investments, export and government procurements. Decrease in taxes causes movement of the schedule of cumulative expenses and multiple increases in NNP. The action of the tax animator opposite to action of the animator of expenses is so shown. The important characteristic of the tax animator is that dependence from consumer income components that is it is equal: mt = Т х МРС, where: T – the size of tax payments. Thus, quantitatively tax animator is less than animator of the public expenditures (at these sizes MPC and MPS). Therefore, changes in the public expenditures have stronger impacts on cumulative expenses, than changes of taxes of the same size. These properties of animators of expenses and taxes cause a phenomenon of the animator of the balanced budget at which equal increases in the public expenditures and the taxation lead to growth of equilibrium NNP at the same size. For example, if T and G increase by 10 billion tenge everyone, it is necessary to expect increase in NNP at 10 billion tenge. Thus, the animator of the balanced budget is equal to unit: me = me + mt = 1. 274

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16.3. Options of fiscal policy There are options of discretionary fiscal policy depending on character of a business cycle. During recession the stimulating fiscal policy providing is pursued: 1) increase in the public expenditures; 2) decrease in taxes; 3) combination of these directions of fiscal policy taking into account bigger effect of increase in the public expenditures. The constraining fiscal policy caused by excess demand and inflation, includes the opposite directions: 1) reduction of the public expenditures; 2) increase in taxes; 3) combination of these directions. The constraining fiscal policy has to be guided by achievement of the budgetary surplus. The discretionary fiscal policy is supplemented with the mechanism automatic, or built-in, stabilizers (built-in stability). In this case it is supposed that the sum of tax withdrawals varies in proportion to the size of a national product in different phases of a business cycle: when lifting tax revenues increase, limiting demand, and automatically contain excessive economic growth; at recession, on the contrary, tax revenues decrease, softening reduction of national production. On the scheme 17.2 these changes on condition of an invariance of size of the public expenditures are shown. Important feature of operation of automatic stabilizers is regulation of the budgetary deficiencies and surplus: in a phase of lifting it is reduced, and the budgetary deficiency then is liquidated and there is the budgetary surplus that promotes inflation control as high level of a national product accompanies inflation; the budget deficit which stimulates recession overcoming starts increasing in a phase of recession gradually.

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In practice the considered dependences in models of balance experience influences of additional factors: 1) timeliness of accepted actions of fiscal policy (temporary logs); 2) action of effect of replacement that is shown in reduction of an element of private investments at increase in governmental expenses in connection with growth of interest rates in the monetary market; 3) stimulation of demand will be reflected in the cumulative offer which will react inflationary increase in the prices and will reduce effect of increase in cumulative expenses; 4) in open economy national production comes under influence of changes of an exchange rate (including at the expense of changes of interest rates) which changes the size of pure export as element of cumulative expenses.

Therefore actions of stimulating fiscal policy can be weakened by actions of above-mentioned factors. Thus, the Keynesianism marks out demand for goods and services as a fundamental factor of regulation of economy: the state promotes stimulation cumulative demand; influences increase of an employment rate of resources, expands the volume of government procurements, and regulates credit cost. Keynesian measures assume decrease in taxes, increase in expenses, and stimulation of investments (by means of decrease in a rate of percent). Unlike Keynesian and neo-Keynesian theories the monetarism recognizes as the main instrument of regulation of economic processes monetary circulation. It is thus supposed that the markets competitive 276

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and provide high degree of macroeconomic stability. A course on minimization of the state intervention in economy functioning is conducted. Money is considered by a decisive factor of indirect regulation of economic processes. The principle put in the equation of an exchange of M x V = P x Q is used. In the left member of equation the total of expenses of buyers on acquisition of volume of the made benefits, and in right – total sales of sellers of this volume is shown. The monetarism recognizes that the speed of money a constant (for stable economy it as a whole is true). Then rate of change of output will coincide with rate of change of quantity of money in circulation and if the state needs to increase output, it achieves it increase in monetary weight at the corresponding size. If the task consists in inflation overcoming (price level fall), it is reached according to equality of P = M x V: Q by reduction by the necessary size of monetary weight; if the output is constant, rate of reduction of prices will depend entirely on reduction of the offer of money. Stabilization programs of monetarists include: 1) reduction of the budgetary deficiency (sequestering of the state investments, social expenses, subsidies, rise in prices for public sector services, increase in taxes); 2) restriction of growth of the salary, directed on compression of a consumer demand; 3) restrictive credit policy, introduction of limits on a currency issue and on the state loans in the Central bank, increase in a rate of bank percent; 4) weakening of control over the prices and over export-import transactions, encouragement of a modulation of resources in export sector of economy; 5) devaluation of national monetary unit for improvement of the balance of payments. But for this purpose performance of the following conditions is necessary: 1) high elasticity of the prices to monetary weight; 2) sufficient elasticity of the internal prices to movement of the world prices; 3) high elasticity of production (offer) of goods to movement of the prices; 277

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4) considerable interchangeability of economic resources (in connection with variability of the offer). For overcoming of stagflation is acceptable actions economy of the offer recommended by supporters. Concept essence – is the redirected impact on the offer at the expense of a package of measures of financial and monetary policy on decrease in costs of production that leads to fall of inflationary expectations of subjects of the market. Measures for stimulation of the offer include: 1) reduction of the taxes included in costs of production; 2) control of labor costs (advancing of growth of labor productivity of growth of its payment); 3) actions of organizational and technical character for increase in scales of production (increase of loading of the equipment, working in shifts of its work, decrease in idle times, achievement of rhythm of production); 4) introduction of innovative programs on technical improvement of production. Increase in production moves the offer line on the balance scheme «demand offer» (the scheme 16.3) to the right and down that means increase in volumes of national production, decrease in price level and inflation. In this direction stabilization and decrease in inflation is reached not at the expense of the unemployment growth as it is defined according to regularities according to Phillips’s curve. 16.4. Influence of taxes on market balance The fiscal policy in the field of taxes considers two directions of their influence: on demand (Keynesian model), for the offer (the offer theory). In the first case at decrease in taxes cumulative demand increases therefore the demand line from an equilibrium condition of AD1 will move to the right up in the situation AD2 (look scheme 16.2.).

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It increases the volume of a national product up to the size Q2 and price level to P2, that is will be accelerated inflation. Scheme 16.2. Price level

Real pure national product

In the second case decrease in taxes will increase the cumulative offer as at the population the income and savings will increase, and businessmen have a production investment. Smaller income tax of workers will increase a salary and strengthens incentives to work that will lead to production expansion. As a result the line of the cumulative offer will move from the situation AS1 to the right down to the situation AS2, a national product meaning growth to the Q3 level, and to reduction of prices from P2 to P3. Besides, the theory of «offer economy» shows that lower rates of taxes won’t surely lead to reduction of the sum of tax revenues, and on the contrary to its growth at the expense of expansion of tax base – growth of national production and the income. The theoretical proof of influence of taxes on investment activity serves developed by the American scientists – representatives of «the housekeeper of the offer» A.Laffer, etc. dependence between progressiveness of the taxation and the budget income. According to this theory growth of tax rates to a certain limit promotes growth of the tax income, then growth is slowed down, and then – there is a sharp falling of the income of the budget. From here 279

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also the general conclusion that the problem of stimulation of economy and first of all investment profitability should be solved on ways of radical relief of tax burden is drawn. The driving force of economy, according to these scientists is an interest of economic agents in the economic activity focused on the market. If this activity is favorable to them, reproduction will be carried out by intensive rates, «If successful functioning of the market faces amplifying discrimination in the form of more heavy and value-added taxes …, economic activity will fall». On Laffer’s plan, in a type of tax it is impossible to withdraw in the budget more than 30% of all sums of the income of businessmen and the population. If 40-45% of the income are withdrawn, it reduces savings, and thereby and investments in the private sector of economy. Scheme 16.3. Laffer’s curve

According to the American scientists if the rate of taxes reaches certain, rather high level, incentives for an enterprise initiative, production expansion are reduced, profits fall and, respectively, tax revenues in the budget decrease also. In relation to given in drawing (see the scheme 16.3.) curve alphabetic symbols mean: B – tax base (market output, taxable part of national production); 280

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Y – budget income; T – progressiveness of the taxation (norm, %) ; Е – elasticity of tax base (output) on a tax rate. Output (the top curve) is reduced rather less, than the norm of taxation increases. On the contrary, beyond this limit the tax system so suppresses economic activity that tax base is narrowed in higher progression, therefore, despite growth of rates, the income of the budget is reduced. Taxes call goods-wise not only process of transfer of part of means of producers and consumers to the state which are used on common goals that are for the good of society. They also attract efficiency losses for the society, parts of production called by not production. This phenomenon is called as excess tax burden that means losses for society in connection with production and consumption falling below their optimum levels. Questions: 1) What purposes it is carried out the state financial regulation? 2) Give definition to the concept «State Financial Regulation of Economy». 3) What bases of implementation of the state financial regulation. 4) Than productivity of the state financial regulation is caused? 5) Than process of state regulation of economy is characterized? 6) What types of state regulation distinguish? 7) What main types of financial regulation? 8) What express forms of state regulation? 9) Give practical examples of methods of state regulation? 10) What main methods in monetary regulation? 11) What purpose of elements of system of financial regulation – types, forms, methods? 12) What major economic parameters characterize a condition of macroeconomic balance? 13) Give definition to the concept «animator». 14) In what the concept of the animator consists? 15) What indicators characterize balance in Keynesian models? Explain. 16) What is understood as discretionary fiscal policy? 17) What does the stimulating fiscal policy provide? Constraining fiscal policy? 18) Give definition to the concept «built-in stabilizers». 19) Open essence of the Laffer’s theory.

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CHAPTER XVII FINANCE IN SYSTEM FOREIGN ECONOMIC RELATIONS 17.1. Characteristic of foreign economic activity and direction of its development Foreign economic relations treat: 1) foreign trade; 2) foreign investment: joint business, including individual share in property of legal entities through actions and other securities; 3) concessions – acquisition of property rights on use of natural resources, objects of state ownership for implementation of economic and other activity in the territory of the republic, property rent; 4) participation of the republic in the international financial and credit organizations; granting the foreign credits and loans is connected with this form of foreign economic activity and contributions to the international financial and other organizations are made; 5) cooperation in the field of science, equipment, cultures, tourism; 6) carrying out calculations for the maintenance of embassies, consulates and other personnel abroad. Also external investment belongs to foreign economic activity in the form of capital investments in foreign assets: securities, building of industrial and other facilities abroad; however this kind of activity in Kazakhstan is poorly developed because of a lack of financial and material resources. Such assets considerably represent «leakage» of the capital abroad. 282

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A peculiar kind of activity represents formation of special (free) economic zones – specially allocated territories with the particular legal and economic regime, created for the purpose of attraction of the foreign capital, progressive foreign technologies and administrative experience for the accelerated social and economic development of the region. Development of the listed foreign economic relations is based on the monetary, settlement and credit relations of the republic with foreign countries. Foreign trade includes export and import. Because of the developed structure of production the considerable share of export of Kazakhstan is the share of mineral products – 44%, metals – 33%. Production of the chemical industry occupies 5%, agro-industrial complex – 8%. The main articles of export of agro-industrial complex there is a cotton-fiber, grain and rawhide. In import by the main articles cars, the equipment, consumer goods, raw materials and materials for the light and food industry are. Specific weight of cars and the equipment makes 4%. According to the macroeconomic theory excess of export over import (pure export) is considered a factor favorable for development of national economy in connection with its multiple (multiplying) effects on volume of a pure national product. Besides, this excess can cause positive balance of the balance of payments of the country (in case of considerable specific weight in it trade balance). Totally at the expense of export receipts of currency means country import is financed. Excess import over export in the short-term plan isn’t an adverse factor as domestic consumers receive more necessary goods, especially at their deficiency in own market. However in the long period this phenomenon can lead to exhaustion of official currency reserves which are used for balancing of a passive of the balance of payments. Steady and long deficiencies of balances of payments demand difficult reorganization of economy, use of trade barriers and other restrictions, 283

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lead to devaluation of national currency, increase in external debt of the country. Important aspect of foreign economic activity – is participation of foreign investors and attraction of the foreign credits for stabilization of economy of the republic. These means have to purposefully and are used effectively for the solution of priority problems of improvement of structure of national economy, market filling by consumer goods and expansion of an export potential. For providing the external credits gold and foreign exchange reserves which serve also as providing national currency are created. As other form of providing the credits the stock of export goods serves. Investments have two types: direct and portfolio. Direct investments represent an investment of the foreign capital in economy of other country for receiving by his owner of profit under own risk. Portfolio investments – is an investment of means in the fictitious capital – the securities issued by legal and physical of another country. Attraction of foreign investments requires providing necessary conditions: 1) simplification of administrative procedures of the foreign investors connected with activity: delivery of permissions to the right of work, movement within the country, passing of customs and border control, issue of visas, etc.; 2) granting tax and other privileges (preferential rates, tax discounts for investments or the credits, the preferential duties, the accelerated depreciation, etc.) in kinds of activity priority for national interests of the country; 3) providing with rights of use with the earth, real estate, granting subsidies for personnel training; 4) granting governmental guarantees on export of profit or preferential terms of its recapitalization. Activation of foreign economic activity is provided in many economic laws. Expansion of this activity demands formation of economy of the open type developing in interrelations and in competitiveness about the world. 284

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The idea of expansion of independence of the enterprises, the organizations and republic regions is put in a basis of improvement of foreign economic activity in a foreign market, privatization and decentralization of foreign economic activity with transfer of commercial operations on level of managing subjects when ensuring their business independence and concentration of functions of government bodies on regulation and stimulation of these operations. Management of the external economic complex is transferred generally to legal and economic levers (the customs duties, taxes, an exchange rate, bank percent). The strategic direction of foreign economic activity – is stable functioning of national currency and development of the currency market. The market rate of currency has to become one of basic elements of stimulation and regulation of foreign economic activity on expansion of export and import rationalization. For expansion of currency independence of the enterprises domestic market of currency with its free purchase and sale at market rates is created. On the basis of the developed exchange rate when tendering at the currency exchange on the basis of the current ratio of supply and demand on currency the exchange rate is established by National bank. For currency and credit transactions there are the commercial banks, managing subjects acquire the right of independent attraction of the foreign credits on the security of property. The system of insurance of the external economic risks of the companies, firms, the organizations, banks is created. According to development programs the external economic policy will go on liberalization of foreign economic activity. For protection of interests of the national market against adverse development of a world environment and the foreign competition the import customs duties according to the purposes of regulation of receipt of import goods are reconsidered. The national legislation on the main questions of the external economic relations in borders of a common 285

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economic space of the countries with common interests is unified. Regarding the external economic relations with CIS countries strategic a course is preservation and streamlining of the economic union, maintenance of the developed cooperation between the enterprises of these countries, integration of efforts on conversion of military production, in the sphere of transport, communication, power, scientific and technical progress, training, the solution of environmental problems, defenses. The developed external economic infrastructure is necessary for normal implementation of foreign economic activity. In these purposes governing body’s external relations in structure of the Government, the Ministry of Finance, and the Ministry of economic development and trade of the Republic of Kazakhstan, National bank of the Republic of Kazakhstan function. The network of the commercial banks, having licenses for commission of currency transactions, specialized commodity exchanges functions; the developed network of the intermediary organizations. The most important function of governing bodies by foreign economic relations is regulation of the currency relations. Currency regulation is a development and the adoption of regulations, collection of information, control of observance of the currency legislation, application of sanctions for its violation. Bodies of currency regulation in the Republic of Kazakhstan are the Government, National bank, the Ministry of Finance within the competence. The same bodies exercise currency control. Such function is carried out also by agents of currency control – authorized banks and authorized non-bank financial institutions to which the duty of control of observance of the currency legislation when carrying out operations by them according to the obtained licenses is assigned.

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17.2. Forms and methods of regulation of foreign economic activity State regulation of foreign economic activity includes various ways – both direct, and indirect. Administrative forms of regulation belong to straight lines: licenses and quotas; the state monopoly of foreign economic activity (on foreign trade, currency transactions, etc.) can be established also. Licensing and quoting of export and import are used as temporary measures for stabilization and saturation of domestic market in the conditions of limitation of raw material resources and commodity funds. The state monopoly represents the most irrational way of regulation of foreign economic activity, but in adverse conditions of state of the economy can be applied to a solution of the problem of reduction in balance of the balance of payments at the expense of import and export control. This way can be applied in the form of granting exclusive rights of the state company (or with state participation) on commission of certain external economic operations or on service of foreign economic relations (for example, obligatory insurance of import by the state insurance companies). As a whole such measures belong to methods of non-tariff regulation. Cost regulation of import and export can be carried out by granting import and export subsidies to participants of commercial transactions. As direct export subsidies are forbidden by the international legislation, the hidden subsidies (preferential crediting, understating of the prices for initial raw materials, materials, energy resources, freight subsidizing) can be provided. The license – is permission which is given out by competent government bodies on export or import of production, goods, information. Quota – part, a share in the total production, intended for the foreign trade activity. Indirect or economic methods of regulation are more effective and 287

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corresponding to the developed external economic relations. Taxes, including the customs duties, exchange rate, the world prices, interest rates for the external credits, bond rate concern to them, other securities and means of payment. The exchange rate or the price of national monetary unit expressed in monetary units of currency of other country connects all internal prices with the prices of other country. Fluctuations of an exchange rate changes prices for goods of other country for domestic consumers and vice versa, the prices of domestic goods – for consumers of other country. The system of exchange rates of the state can be organized in the form of flexible (floating»), or the fixed exchange rates. At system of flexible courses the exchange is carried out on the basis of supply and demand of currencies, at system of fixed rates a certain ratio of currency to gold or other hard currency is established; in the second case the state regulates this ratio and, thereby, interferes with functioning of the market of currencies for achievement of balance of the balance of payments of the country. Thus understating of a rate of foreign exchange relative the causes cost losses when exporting which are compensated when importing and vice versa, at overestimate of this course of loss arise when importing that has to be covered with additional export. Flexible exchange rates automatically correct assets and deficiencies of balances of payments. In system of flexible courses export at fall of a rate of foreign exchange (or increase of a course of own currency to foreign) becomes difficult as national goods becomes more expensive to foreign buyers, and, on the contrary, at increase of a rate of foreign exchange (or falls own) export extends as national goods become more preferable in the foreign market owing to their cheapening for foreigners (to it less own currency for acquisition of our goods) is required. Development of national economy is stimulated in the second case; high employment and economic growth are supported. 288

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When importing (for the foreign importer) fall of a rate of foreign exchange of rather local means expansion of opportunities in the local market, and, on the contrary, increase of this course conducts to market folding in connection with a rise in prices for imported goods. For domestic importers of rate fluctuation mean change of opportunities for purchase of foreign goods (in the presence of the identical sum of means in own currency). Thus, the exchange rate influences volumes of export and import which, in turn, through financial instruments – taxes on export and import, the customs duties – influence the size of the received and distributed financial resources and a financial position as the states, and producers export consumers of import production, goods and services. At crisis situations: considerable decline in production, the inflation, caused unsatisfied demand, breaks and distorted macroeconomic proportions and the principles defining the external economic balance. It is accompanied by general orientation of consumers to import, insufficiency of export currency revenue for a covering of increasing import, sharp depreciation of national currency in relation to hard currencies. Central bank is compelled to carry out currency interventions for maintenance of a rate of own monetary unit, losing currency reserves or addressing for support to the international financial organizations. Further development of crisis compels the state to limit and the import which is extremely necessary for life support of the country as it couldn’t be paid. At the countries with raw orientation of economy long crises lead to exhaustion of the natural resources becoming the only source of export, possible loss economic and even political independence. Taxes are the important regulator of the external economic relations; here means both usual taxes, and special – on the income (profit) of joint ventures, the customs duties (taxes on export and import). In many states customs and tariff regulation of export and import is carried out. 289

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The customs code establishes the principles of customs affairs (that is a movement order through border of goods and other subjects, customs taxation, registration, control and other means of carrying out in life of customs policy) on the basis of unity of the customs territory, the customs duties and customs duties. The customs tariff is urged to regulate the foreign competition in domestic market. Customs tariff – the systematized arch of rates of the customs duties with which the republics imported on the customs territory and imported out of limits of these territory goods and other subjects are assessed. The customs duties – the taxes raised by the state about taken through national border of goods on rates, the provided customs tariff. The ad valor, specific and combined rates of duty gained distribution in domestic practice; the ad valor are charged as a percentage to the customs cost of the assessed goods, specific – in an established size on unit of assessed goods or subjects, and the combined rates – by a combination of both types of taxation. Distinguish the import, export, transit, seasonal, special, antidumping, countervailing, protectionist, preferential customs duties. In Kazakhstan import (import), seasonal, special, anti-dumping, countervailing duties are applied. Till 1996 export duties acted on the territory of the republic. The export customs duties assess separate types of goods according to the list determined by the government. Collection export duties are made from legal entities, irrespective of forms of ownership and a place of registration, and also the individuals delivering goods for export. Export duties are paid by exporters in foreign currency and estimated to the customs cost of goods and services. When exporting goods on barter (goods exchange) operations the rate of duty remains. The export customs duties are applied in many states and are the effective regulator of a foreign trade turnover, the prices of goods in the world markets, their competitiveness and as a whole influence an environment of these markets. 290

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Economic essence of the export customs duties – is an absolute rent. It is paid by the foreign buyer. During the understating or cancellation of export duties the absolute rent regarding understating or cancellation is paid by the owner – the producer of production at the expense of the income of internal consumers through growth of the internal prices. The underestimated level of the export customs duties leads to wasteful realization of natural resources in the world market, and overestimated – to decrease in production because of difficulties in realization of resources in this market. In Kazakhstan the import customs tariff for the purpose of improvement of system of state regulation of foreign trade, effective realization of import policy of the republic, state regulation of foreign trade, effective realization of import policy of the republic, increase in the income of the state budget from foreign economic activity is entered. The customs duties provided by an import customs tariff are established percentage of the customs cost of import goods and are paid to tenge (with recalculation of customs cost at the rate of the tenge, established by National bank) or in hard to currency at the choice of the importer. The customs cost of goods – actually paid price of the moment of crossing of customs border. It joins the goods price according to the invoice, and also the following actual expenses if they aren’t included in the invoice: on transportation, loading, unloading, an overload and insurance to point of crossing of customs border; commission, broker and some other expenses. The differentiated approach at purpose of rates of a tariff for different types of goods is provided: the low – for essentials and higher – for minor goods. The seasonal customs duties are applied to expeditious regulation of import and export of goods; period of validity of these duties doesn’t exceed four months. The special customs duties are applied in cases of prevention of 291

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damage to domestic producers, at violation of interests of this country, the discrimination and other actions infringing interests of the country from other states. Anti-dumping duties are applied in case of import to the territory of the country of goods, at the prices, significantly lower, than competitive price in the country of export and if such import causes or threatens to cause damage to domestic producers of such or similar goods. Countervailing duties are applied in the following cases: 1) when importing goods, by production or which export subsidies and if such import causes were used or threatens to cause damage to domestic producers of similar or competing goods; 2) when exporting out of limits of the customs territory of the country of goods by which production subsidies were directly or indirectly used and if such export causes or threatens to cause damage to interests of this country. In the Republic of Kazakhstan charge for customs registration, that is, customs procedures for the main and additional sheets of the cargo customs declaration irrespective of character of the transaction and declaration type is raised. Besides, such customs payments are paid: customs duty for storage of goods; customs duty for customs escort of goods; payment for informing and consultation; charge for issue of licenses by customs authorities; payment for participation in customs auctions; payment for adoption of the preliminary decision; charge for issue of licenses and other special documents customs authorities. The customs duties or taxes applied instead of them on import are components of the free wholesale (holiday) price of goods (except them the price includes the impressive cost of goods, expenses on purchase and delivery of goods to border, remuneration to the external economic and other organizations. 292

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Thus imported goods are assessed with a value added tax and excises. With inclusion of trade extra charges on these goods free retail prices are formed. The system of the import customs duties serves as protection of national production against expansion of foreign production: the raised import taxes assess goods competing domestic, with low duties – goods and the products absent or made in insufficient volumes within the country. This principle at the same time provides fiscal interests of the state on filling of revenues of the state budget.

17.3. Formation and use of currency resources Currency resources of the state, non-state sector are formed and used at commission of currency transactions. Currency transactions are the transactions connected with transition of the property right to currency, securities, and payment tools in foreign currency, transactions between nonresidents and residents in national currency and with its use as means of payment, import and export, transfer of currency values through country borders. They are subdivided into the current operations and the operations connected with movement of the capital. The current treat: calculations for goods and services (without a delay of payments)); calculations for crediting of export-import transactions for the term of no more than 120 days; granting and receiving credits for term no more than 120 days; transfer and receipt of dividends, percent and other income on deposits, investments, loan and other operations; transfers of no trading character: grants, sums of inheritance, salary, pensions, alimony, etc. To the operations connected with movement of the capital, belong: investments; 293

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payment of property and other rights on real estate; calculations for crediting of export-import transactions for the term of more than 120 days; representation and receiving credits for term more than 120 days. Currency transactions are made at all types of foreign economic activity: export, import, rendering services, capital investment, international state and commercial credit, rendering the economic help, movement of gold and foreign exchange reserves of the country, maintenance of diplomatic and other bodies, foreign business trips, tourism, population shift, interstate transfers, cultural, scientific, technical cooperation, etc. The majority of the mentioned types of foreign economic activity is reproduced by currency resources, also as well as is financed from them as all used currency resources in the country have to have a source of their receipts. Currency resources are a component of financial resources and are subdivided similarly: on centralized (state) and decentralized (resources of the enterprises, the organizations, establishments). Currency resources of the state are formed for account: proceeds from export of production, goods and services public sector of economy – the enterprises, the organization, the companies, firms, societies, etc.; 1) the customs duties, other customs payments paid in foreign currency, at registration of operations after movement of goods and freights through customs border; 2) receipts from taxes, bonuses, a royalty of agreements paid by foreign participants, transactions, contracts and other operations of the external economic character; 3) penalties and a fine for violation of the currency legislation at their payment in foreign currency; 4) receipts from placement of deposits in foreign banks and other financial organizations, and also the income from use of property and assets abroad; 5) credits and loans of the foreign states, banks and international and interstate financial organizations; 294

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6) receipts of grants and free aid in currency. Currency resources are considerably centralized at the disposal of the government. By local authority the part of nation-wide resources can be transferred in the established share for performance of priority tasks or performance of part nation-wide programs. Besides, the local authority allowed to raise currency funds in the form of the foreign credits, and also to buy currency at the currency exchange. Authorized bodies of the state and its financial agents also can be buyers of currency at the exchange. Currency resources of the state are used as follows: 1) National bank for implementation of «currency interventions» – currency sales for maintenance of a rate of national currency at the adjustable level determined by strategic plans of the government on ensuring steady monetary circulation in the country, for calculations for loans and other obligations of National bank; 2) The Ministry of Finance for: coverings of external debt according to the schedule of its repayment in establishment by agreements on loans terms, payments of membership fees in the international organizations,financings of work of embassies, consulates, representations and similar bodies in other countries, governmental bodies for satisfaction of the state needs – the centralized purchases on import of goods and necessities: raw materials, fuel, energy carriers, the equipment, some types of the food, etc., necessary for providing a normal course of reproduction processes in national economy of the country; 3) to local governing bodies for ensuring requirements of municipal services, the non-productive sphere, development of the local infrastructure, different pressing needs of the population of regions. The main source of currency resources of the companies, firms and the organizations of all forms of ownership are the currency proceeds from exported production. Earlier part of currency revenue after payment of taxes in the customs duties of the enterprise were obliged to sell to National bank at a course established to them, and to sell part through authorized banks in the domestic 295

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currency market, according to the order established by National bank. Now the currency which has remained after payment of taxes established legislatively and duties, remains at the disposal of legal entities and is spent at the discretion of the owner or the founder. The managing subjects who aren’t making export production and needing currency get it in the currency markets by an exchange of national currency. In the same way can increase currency funds economic bodies all organizational and legal types. The following source of formation of currency resources of managing subjects the currency credits of banks. For the companies, the firms occupied with output or rendering services, having priority character, important from the point of view of development of branch, the region, national economy as a whole, or participating and implementation of appropriate programs of development, the credits obtained at foreign banks can be guaranteed by the country government; in Kazakhstan similar practice is gradually limited due to the need of execution of the principle of commercial calculation and transferring of responsibility for effective use of borrowed funds on their users. For financing of the similar directions of production currency means to the companies, firms can be allocated according to the government decision from the centralized currency resources. For the managing subjects acting on share bases (joint-stock, joint, cooperative) replenishment of currency resources can be reached at the expense of additional deposits in currency of participants of these economic structures. Possible source of receipts of currency means is compensations for non-performance of contracts, agreements, obligations under the contracts, appointed by arbitration bodies, insurance compensations in currency from insurance companies of other countries. Currency means, as redistribution can be allocated to local managing units from a higher control link – at creation of currency funds at this level of management. 296

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In aggregate, means form the currency funds of managing subjects used on the various purposes of production and social development of their collectives of the listed sources of currency resources. The possible directions of their use are: 1) building of an export potential of the companies, the firms operating in the world markets; 2) the organization of production of import-substituting production or expansion of operating production of such production; for realization of these purposes at the expense of currency resources the equipment, tools, materials, technologies, licenses, is bought by a know-how, operations on leasing of fixed assets are made, foreign experts are invited, shots are trained; 3) repayment of the currency credits and percent for their use; 4) payment of commissions to the specialized external economic organizations for services in assistance in commission of operations in foreign markets; 5) investments in acquisitions of securities of the foreign companies, firms, financial and credit institutions as participation in the capital; 6) payment of penalties, fines, compensations for violation of conditions of contracts, contracts according to the external economic obligations; 7) purchase of national currency for ensuring internal requirements; 8) acquisition of import goods of consumer and cultural and community appointment, medicines, the medical equipment and tools for satisfaction of requirements of staff of the organizations (according to the established standards). Are possible also other use of currency resources at the discretion of the owner or founders. Legal entities have the right to unite currency funds belonging to them for performance of the general problems of development: production infrastructure, building of objects of joint using, carrying out scientific researches and introduction of results of scientific development in production, financing of perspective projects, information systems, market researches, etc.

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17.4. Country balance of payments The balance of payments represents system of the indicators generally reflecting economic operations of this country with other countries of the world for a certain interval of time. It includes the following sections: current account (trade balance); account of operations with the capital and finance (the capital account); reserve assets; mistakes and admissions. The current account reflects operations with goods – export and import; services – transportation of goods, passengers, communication services, tourism; technical assistance, income from loans, credits; transfers; humanitarian assistance; technical assistance; grants. The account of operations with the capital and finance reflects attraction of direct foreign investments or outflow of the capitals abroad, portfolio investments, transfers of migrants (outflow and inflow), the commercial credits, loans, other investments (deposits, currency, etc.). The account of the current operations and the account of operations with the capital are interconnected in such a way that deficiency of the first becomes covered at the expense of inflow of the capitals from the outside; in case of the active account of the current operations there is an outflow of the capital and the credits. The position of reserve assets includes gold, special drawing right, requirements in foreign currency; minus obligations concerning other countries pure currency reserves are formed. This position balances both accounts – the current operations and the account of operations with the capital. Mistakes and admissions characterize officially unaccounted operations with nonresidents, including «shadow business». 298

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Feature of the balance of payments is that in it streams of means, their change for the period, instead of stocks and accumulation are reflected. Thus in the account of the current operations the positive balance (excess of credit records) means export of goods and services, receipt of the income and transfers; negative (excess of debit records) – import of goods and services, payment of the income and transfers. In the capital account positive size characterizes growth of obligations of this country before nonresidents and reduction of requirements to nonresidents from residents; negative size means reduction of obligations of the country before nonresidents and growth of requirements to nonresidents from residents. In the Republic of Kazakhstan predicted parameters of the balance of payments are compatible to parameters of a monetary policy and parameters of macroeconomic development of the country for the medium-term period. The rate of inflation for the end of the period will gradually decrease and in 2013 will make 5,5-7,5%.

Picture 10 – Forecast of the Balance of Payments for 2009 – 2013.

Carrying out policy of balanced economic growth as priorities assumes steady improvement of quality and social standards of life of the population. 299

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The condition of the balance of payments is defined, first of all, by a condition of trade balance. Therefore the paramount purpose of actions of the state in foreign economic activity is improvement of the balance of payments at the expense of expansion of export of goods and providing factorial and not factorial services. The solution of such task demands considerable efforts on reorientation of national economy to the economy course of «making type» instead of consuming, building of an export potential not only get raw materials sector, but also on production of branches of the subsequent technological repartitions of production. Due to the advancing growth of import of goods and services the increase in deficiency of a current account which in 2013 will make 4, 1% from gross domestic product is expected. In 2009-2013 deficiency of a current account of the balance of payments which by 2013 will make 10, 5 billion dollars of the USA is predicted. Questions: 1. What directions of foreign economic activity characterize the state? 2. Than a peculiar kind of activity - formation of special (free) economic zones is characterized? 3. What main directions of export and import of Kazakhstan? 4. What essence of direct and portfolio investments? 5. Characterize the most important function of governing bodies by foreign economic relations - regulation of the currency relations. 6. What methods of state regulation of foreign economic activity belong to straight lines? To the indirect? 7. Prove why the state monopoly represents the most irrational way of regulation of foreign economic activity? 8. What methods of state regulation belong to methods of non-tariff regulation? 9. Than cost regulation of import and export is characterized? 10. Why indirect or economic methods of regulation are more effective? Prove. Give definition to the concept «Exchange rate». 11. What represent systems flexible (floating») and the fixed exchange rates? 12. Why taxes are the important regulator of the external economic relations? Prove. 13. What represents customs and tariff regulation of export and import? 14. What represents the Customs code?

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Chapter XVII. Finance in system foreign economic relations 15. What purpose of customs tariffs and customs duties? 16. What essence introduction of import customs tariffs? 17. Characterize differentiation of approach at purpose of customs rates of a tariff. 18. Give definition to the concept «Currency transactions». 19. Than the current currency transactions and the operations connected with movement of the capital are characterized? 20. What sources of currency resources of the state? 21. What purposes of use of currency resources of the state? 22. What represents the country balance of payments? 23. Give the main components of the balance of payments. 24. What feature of the balance of payments? 25. Than the condition of the balance of payments of the country is defined? 26. Give expected indicators of the balance of payments of the Republic of Kazakhstan for 2009-2013.

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CHAPTER XVIII FINANCE AND INFLATION 18.1. Nature of inflation and its interrelation with finance

A

ction of inflation needs to be connected with problems of functioning of finance as the phenomenon of inflation depends on financial factors: applications of certain tax forms and methods; the amounts of financing through the state budget of actions of pro-inflationary character; ways of a covering of deficiency of the state budget; sizes of the state debt. And as a whole efficiency of functioning of a financial system, coordination of work of its institutes can influence the speed of a monetary turn, a condition of monetary circulation. Specifics of the financial relations in the sphere of the public finances, not assuming the passer of a material equivalent, initially put possibility of generating of inflation. Crisis of finance, need of increase in the public expenditures, especially unproductive, turns this opportunity into reality. Finance and inflation are interdependent. As finance can be the accelerator of inflationary processes, and inflation has impact on the financial relations. Depreciation of money and rise in prices leads to increase in expenses of the budget, decrease in the real income of the state, need of strengthening of tax burden, growth of the public debt caused by deficiency of the state budget. High rates of inflation 302

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depreciate financial resources of the state as the tax income and loans arrive through certain intervals of time therefore depreciate. Similarly the problem of the state debt as for attraction of loans the state is compelled to lift profitability of the securities above level of loan percent becomes aggravated, than causes the nominal growth of a public debt. Unidirectional, negative character of the financial relations and inflationary processes being complemented leads to negative results in economic system. Similarly, the positive orientation of the financial relations reduces a rate of inflation, as well as low inflation or its absence improves financial performance of different levels of national economy. In Kazakhstan a price index on consumer goods and tariffs for services as the inflation measuring instrument, grew as follows to previous year (time): Conventional in world practice it is considered that if within half a year and more rates of inflation make 50% a month (or 11, 5% a week), such level corresponds to a hyperinflation. Thus, in Kazakhstan this level of the essential was exceeded during 1992-1994 years. Types of inflation by the following criteria differ: on growth rates of the prices: moderate when the prices grow to 10% a year; the galloping – the prices grow in limits of 100%; hyperinflation – the prices grow on hundreds percent; on degree of balance of a rise in prices: the balanced inflation when the prices of different goods grow approximately to the same extent and relatively are each other invariable; the unbalanced – when the prices of different goods and services grow unevenly; in an origin or emergence place – imported and exported; on predictability degree: expected and not expected inflation; distinguish also step inflation characterized by unevenness of 303

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inflationary process, suppressed (hidden) when the prices grow slightly or are invariable, but deficiency of goods amplifies. In practice allocate two types of inflation: demand inflation (inflation of consumers) and inflation of expenses (inflation of producers). In the first case it is a consequence of increase of demand for production, goods and services in connection with the increasing monetary weight at legal entities and individuals at invariable or decreasing output. In the second case inflation is caused by growth of expenses of managing subjects on compensation, on increase in interest rates for the credits, increase in the prices at consumed raw materials, a material, tariffs for services (transportations, the electric power, information, etc.). In real economic life these types and consequences accompanying them closely intertwine, complement itself, causing a so-called inflationary spiral when increase of expenses as a result of a rise in prices for consumed components of production and compensation conducts to increase of cost of the products which consumption demands the additional growth of a salary and material expenses in adjacent sectors of economy, and so indefinitely. Inflation develops when are insufficiently created, and in separate branches of production are absent, mechanisms of market economy – the competition and bankruptcy of the inefficient enterprises. In the conditions of free competition, at the decrease in demand, caused by actions for reduction of the public expenditures or the credits, the enterprise is compelled either to reduce output, or to reduce its expenses. At macroeconomic level thus will occur either business recession, or reduction of prices, or both processes at the same time? However, firms, the companies will try to keep in the market in hope of improvement of an environment and are compelled to reduce the prices and costs of production. Process action in mass scale promotes decrease in inflation. In the monopolized economy this mechanism doesn’t operate as the manufacturing enterprise has no choice of suppliers of raw materials, 304

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materials, semi-finished products, and components, the equipment, tools. It is compelled to agree with quoted prices from suppliers, and shifts inflated prices of the consumers, which, in turn, further – on technological repartitions to the end user – the population. In such conditions of a measure on restriction of the budgetary expenses and the credits lead to decline in production. As a whole, the reasons of inflation consist in contradictions of the basic relations, disproportions and economy crisis, in its inability to self-development, low efficiency of all social production. Form of manifestation of inflation – depreciation of money and the corresponding falling of their consumer ability, expressed prices for products, goods and services. The nature of inflation consists in ability of money to carry out rather isolated movement from the commodity masses expressed by them. This property of money being a basis of their functioning, allows them to carry out effectively the appointment – serving a commodity, payment turn, to serve as means of accumulation and cost savings. But this quality of money is shown in case of compliance of their quantity and natural and material components of cost resisting to them according to the established measure which is appointed the state. In a general view such dependence is expressed through the exchange equation: P x Q = M x V, where the left part represents the cost of a public product (P – the price, Q – quantity), and right – quantity of money taking into account the speed of their address (M – the monetary weight, V – address speed). In case of increase in national production the quantity of money for normal service of a turn of material streams has to increase in reproduction processes and vice versa, at decrease in production the excessive quantity of money needs to be withdrawn from circulation in proportion. In practice, however, the last condition isn’t 305

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always satisfied for a number of reasons which, respectively and are the reasons of existence of inflation. The modern state carries out the various functions demanding considerable volume of financial means, but in the main part not connected with a commodity turn. These are expenses on social support of the low-well-to-do of the population, expenses on health care, on cultural and information purposes, on education, management, and defense. In the conditions of healthy economy the increase in similar expenses can promote its self-development as causes additional solvent demand for the corresponding production, services, goods, stimulating increase in their production and growth of national production. In stagnating economy the lack of tax revenues for financing of similar actions, as well as free money at managing subjects and the population which could be mobilized by loans is felt. In this case the only source of a covering of these expenses is the additional currency issue. Besides duties of financing of the non-productive sphere the state supports life-supporting branches of the production sphere which in the conditions of crisis are unprofitable because of need of maintenance of rather low prices for goods of prime necessity. This support is expressed or in direct allocations to the managing subject, or in grants for indemnification, or in compensation of the lowered interest rates of banks at preferential crediting of such subjects; probably also guaranteeing credits by it economy bodies. In all cases there are additional monetary injections in economy, as a rule, not bringing necessary return in the form of adequately received volume of financial resources. Inflation makes adverse effect on the production sphere, on financial position of the majority of segments of the population, on investment activity. Falling of purchasing power of the money, expressed in rise in prices for goods and services, change of structure of the prices financial position of the population, especially those its layers which gain low and also fixed income undermine. As a result of lag of growth 306

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of the nominal income of the population from rise in prices there is a reduction of the real income. Continuous inflationary depreciation of the income leaves below the poverty line all new and new masses of the population. Reduction in production aggravates process of social trouble at the expense of increase in number of the unemployed: their contents are shifted to the state, in turn, experiencing difficulties in connection with depreciation of state revenues and increase in expenses, including to social needs. Hard blow strike inflation to investments: long-term investments of means become impracticable because of depreciation of sources of financing. Happens difficult to estimate the real cost of the project at uncertainty of future expenses for its implementation. Promptly raising prices of investment goods don’t fit into funds of accumulation located by customers or savings at individuals. Investment activity weakens that threatens future production as operating fixed assets wear out, morally and physically become outdated. The increase in wear of fixed assets leads to falling of productivity and the reduction of output reducing the offer. Parallel to this process scientific and technical improvement of production is blocked. This sphere experiences destructive action of inflation owing to specifics: carrying out and introduction of scientific and technical and technological development isn’t accompanied by immediate return of invested funds and their financing becomes unprofitable. It dooms society to scientific, technical and technological stagnation and lag and deprives of prospects of social and economic development. The classical source of inflation – deficiency of the state budget – is characteristic as well for Kazakhstan though the budgetary deficiency is a secondary factor of inflation as is caused by inflation of expenses and, in this regard, depreciation of state revenues. The deficiency covering a currency issue is led to their inflationary depreciation and in these processes by inflation and the budgetary deficiency synergistic, forming the closed cause and effect regularity. Development of inflation is promoted by hasty carrying out such financial and social actions, as introduction of the new taxes 307

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causing inflationary effect – a value added tax, excises, the export and import customs duties, assignments of the means included in product cost. Additional factor of development of inflation was the order of reference of percent on the utilized credits for costs of production; in the conditions of growth of a payment for the credit it led to sharp increase in product cost, and after it and the prices. The listed factors belong to inspiring inflation of costs of production – inflation of producers. It is possible to consider as a factor of a whipping of inflation growth of social claims of the population in the conditions of the rise in prices, especially separate professional and social groups. Inflationary processes in Kazakhstan in 2009 were a little slowed down and were synchronous with a universal tendency in the conditions of the reduced consumer demand and global delay of business activity. After the carried-out one-stage devaluation of tenge in February, 2009 slight increase of the prices of imported goods the first three months which in the subsequent were stabilized was observed. As a result the rate of inflation in annual expression grew from 8,7% in January to 8,9% in March, 2009. Following the results of 2009 in annual expression (December, 2009 by December, 2008) made a rate of inflation of 6, 2%, having developed at the smallest level since 2000. Inflation in 2010 didn’t exceed the limit of the target range planned by the RK National Bank in 6-8%, by April, 2011 its level raised approximately to 8,5%, and the average annual indicator of inflation allegedly made in 2011 to 9,3%. 18.2. Actions of an anti-inflationary policy There are two options of actions of the state at inflation: 1) carrying out adaptation policy or the adaptation to inflation when measures for indexation of the income, a salary, interest 308

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rates, investments are applied; the companies and firms realize short-term projects, individuals look for additional sources of the income, etc.; 2) carrying out complexes of anti-inflationary measures for decrease or inflation suppression. Complex of actions for overcoming of inflation include impact on the different parties of productive and economic, social, legal, institutional, moral spheres of functioning of society though solving from them is basic, productive and economic. Overcoming of inflation of demand is reached by rather ordinary macroeconomic methods of use of monetary and fiscal policy. The anti-inflationary policy includes various methods of restriction of the monetary offer: 1. Reduction of volume of monetary weight in the address through reduction of cash and monetary issue by the Central bank. 2. Increase in discount rates (refinancing) for the centralized credits for rise in price of credit. 3. Increase in reserve requirements of the Central bank to commercial banks for achievement of compression of the credit animator and restriction of credit expansion of commercial banks. 4. Direct reduction of the credits of the Central bank in the same purposes. The anti-inflationary fiscal policy is pursued by increase in taxes, reduction of the public expenditures and, on the basis of it, decreases in deficiencies of the state budget. The tax policy in the conditions of inflation is urged to solve two interconnected, but contradicting tasks: first, to raise level of the income of the state budget for achievement of its balancing and deficiency elimination; secondly, to recover economic activity of primary links of economy – in the production and exchange sphere. The tax anti-inflationary policy consists in reduction of the indirect taxation. Indirect taxes have inflationary character as increase the prices, reduce demand. The second aspect of action of heavy taxes is their pressure upon production that limits the offer. Thirdly, the considerable tax burden, as a rule, contacts action 309

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of a set of the taxes complicating tax system that leads to evasion from taxes. Therefore at inflation the simple and reliable tax system which hasn’t been burdened by conditions of an allowance with emphasis on taxation of consumption is more preferable. Most the tax on the income and a property tax with high extent of differentiation of rates depending on property cost conforms to these requirements. Reduction of the public expenditures assumes distribution of this process both on the budgetary sphere, and on the sphere of production of goods concerning the state managing subjects. Here it must be kept in mind that in the latter case anti-inflationary measures concern the second component of inflation – inflation of expenses, or producers therefore their influence will be considered further. The interrelation of the reasons of two types of inflation and ways of counteraction of complex character is in this regard observed. Regarding the budgetary expenses of nation-wide and local levels the general direction is their maximum reduction under all possible articles. Certainly, the vital social requirements on protection of pensioners, pupils, workers with the fixed income have to be provided. Restriction of the budgetary expenses is reached: a) direct methods – deflation, that is by their compulsory decrease against the reached level on the basis of acts or orders of authorized government bodies; b) sequestering method – proportional decrease in all expenses according to the set total value of decrease determined by different factors: c) control of level of the located income; d) restriction of a shortage level of the state budget. In any case reduction of expenses affects action of many national programs of development, refusal of various prestigious projects, the actions which aren’t giving immediate return, etc. More difficult the solution of problems of overcoming of 310

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the second type of inflation – the inflation caused by growth of costs of production (inflation of producers), as a result is submitted: 1) increases in a salary; 2) labor productivity falling, in connection with violations of an economic mechanism for the reasons of organizational character; 3) inflationary expectations of owners of raw material and energy resources owing to which they raise the prices of initial products of production. Overcoming of the inflation connected with costs of production demands the solution of several difficult blocks of the interconnected problems. The first block of problems of decrease in inflation consists in decline in production overcoming, as central link of all system of economic stabilization. In turn it breaks up to the following interdependent problems. At the first, the solution of questions of strengthening of motivational incentives of labor productivity, interest in its effective results, restoration of production labor activity as the priority. It is reached on the basis of development of private production sector, where communication between labor efforts and results the direct. It is necessary to provide priority of the production sphere in relation to trade and intermediary. Encouragement of development of the production sphere is reached by preferential system of taxes, a free access to the credits and the lowered interest rates for the credits, establishment of economic standards favorable for development, contributions to funds of reproduction, compensation, etc., in necessary cases direct support by financing of investments of priority kinds of activity of production sector is carried out. Necessary element in system of measures for overcoming of inflation is creation of the mechanism of the market competition and the mechanism of economic responsibility of managing subjects of all forms of ownership and is reduced to the scheme: «decrease in expenses – reduction of prices – preservation of weight of net income at the expense of increase in production – increase in the offer – satisfaction of demand». 311

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Creation of the mechanism of the competition is connected with carrying out antimonopoly actions, development of different forms of ownership, legislative ensuring their equality in economic and financial activity. The most drastic remedy of impact on inflation is establishment of control of the prices and a salary within state regulation of economy. The choice of scales of price control and salary is defined in programs of short-term policy and varies over a wide range depending on a rate of inflation, rates of production, and requirements of social protection of the population. It is essential to carry out important price control in basic technological repartition – production of raw materials, fuel, other initial products. Their cost is put in the basis of all pyramids of the prices of production of the subsequent technological repartitions. Regulation of a salary is carried out from the initial (reached) level in rigid dependence on real increase in labor productivity as run-ups rates of the nominal salary, equal to growth rates of labor productivity are in character no inflationary. From the balance of payments reflecting foreign economic activity, actions of decrease in inflation consist in improvement of its structure. First of all it belongs to achievement of balance on the current operations connected with movement of goods and services that is export-import transactions. Reduction of the current deficiency of the balance of payments has to be reached as a whole at the expense of switching of internal demand from imported goods and services on domestic, also at the expense of increase of elasticity of export production in relation to external demand. It is reached by carrying out policy of establishment of an exchange rate at realistic level, a rational combination of trade and currency restrictions during the periods of inflationary splash and liberalization of the external economic relations at decrease in rates of inflation. Questions: 1. What nature of inflation and its interrelation with finance? 2. How financial factors influence inflation? 3. What types of inflation distinguish? 312

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4. What types of inflation allocate in practice? 5. Explain action of an inflationary spiral. 6. Why in the monopolized economy economic methods of fight against inflation don’t work? 7. What reasons of inflation? 8. In what forms inflation is shown? 9. What weight of inflation on an investment? 10. Why a classical source of inflation – deficiency of the state budget? 11. How inflationary processes influence introduction of new taxes? 12. What inflationary processes in modern Kazakhstan? 13. What options of actions of the state exists at inflation? 14. What methods are included by an anti-inflationary policy? 15. How the anti-inflationary fiscal policy is pursued? 16. In what the tax anti-inflationary policy consists? 17. How can affect inflationary processes reduction of the public expenditures? 18. How reduction of the current deficiency of the balance of payments can affect inflation?

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Учебное издание

Ly Vyktor Doikovich Hamzaeva Assel Valithanovna

GENERAL COURSE OF FINANCE Еducational manual Тranslation in English: A.V. Hamzaeva Выпускающий редактор Г. Бекбердиева Компьютерная верстка Г. Калиева Дизайн обложки Р. Скаков ИБ № 7024 Подписано в печать 23.01.14. Формат 60х84 1/16. Бумага офсетная. Печать цифровая. Объем 19,62 п.л. Тираж 50 экз. Заказ № 9. Издательство «Қазақ университетi» Казахского национального университета им. аль-Фараби. 050040, г. Алматы, пр. аль-Фараби, 71. КазНУ. Отпечатано в типографии издательства «Қазақ университетi».

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