TAX NEUTRALITY ISSUES AND INSTITUTIONAL CONSTRAINTS OF ISLAMIC FINANCE IN THE REPUBLIC OF KAZAKHSTAN

Abstract

The research analyzes systemic factors limiting the institutional development of the Islamic financial sector in the Republic of Kazakhstan. Amid the global transformation of financial markets, adapting ethical financing models has become a strategic priority for national economic diversification. The study aims to identify structural determinants and regulatory barriers hindering the scaling of Islamic financial instruments. The core idea focuses on the necessity to transition from the AIFC "legal enclave" model towards harmonizing national legislation with international AAOIFI and IFSB standards. The scientific significance lies in the comprehensive deconstruction of the tax neutrality concept within a secular legal framework. The practical value consists of developing applied recommendations to eliminate fiscal anomalies limiting the competitiveness of Islamic banks.

The methodological framework includes a comparative legal analysis of the jurisdictions of Kazakhstan, the UAE (DIFC), and the UK, alongside statistical monitoring of Islamic bank asset dynamics from 2020 to 2025. A systemic approach to studying tax administration and cadastral registration was applied.

It has been established that key barriers include the cumulative VAT effect (reaching 16% in 2026), the risk of reclassifying trade margins, and the absence of "transit ownership" status for assets. The study concludes with the necessity of introducing an "alternative finance return" definition into the Tax Code of the Republic of Kazakhstan. The contribution to the field of Islamic finance lies in substantiating the "legal friction" concept at the intersection of two jurisdictions and proposing mechanisms for the seamless integration of AIFC instruments into the "onshore" economy. The findings can be utilized by the Parliament of Kazakhstan and regulators (ARDFM, National Bank of RK) to reform legislation, ensuring an increase in Islamic assets' share and cost reduction for business entities