On approval of the Methodology for assessing the non-observed economy

Order of the Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan dated August 7, 2019 No. 4. Registered with the Ministry of Justice of the Republic of Kazakhstan on August 8, 2019 No. 19215

      Unofficial translation

      In accordance with subparagraph 5) of Article 12 of the Law of the Republic of Kazakhstan dated March 19, 2010 "On State Statistics" and subparagraph 258) of paragraph 17 of the Regulations on the Ministry of National Economy of the Republic of Kazakhstan, approved by the Decree of the Government of the Republic of Kazakhstan dated September 24, 2014 No. 1011, I HEREBY ORDER: 

      1. To approve the attached Methodology for assessing the non-observed economy.

      2. The Department of National Accounts jointly with the Legal Department of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan in the manner prescribed by the legislation shall ensure:

      1) state registration of this order with the Ministry of Justice of the Republic of Kazakhstan;

      2) sending it to the Republican state enterprise on the right of economic management "Institute of Legislation and Legal Information of the Republic of Kazakhstan" of the Ministry of Justice of the Republic of Kazakhstan for official publication and inclusion in the Standard control bank of regulatory legal acts of the Republic of Kazakhstan within ten calendar days from the date of state registration of this order;

      3) placement of this order on the Internet resource of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan.

      3. Control over the execution of this order shall be assigned to the Deputy Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan (G.M.Kerimkhanova).

      4. This order shall enter into force upon expiry of ten calendar days after the day of its first official publication.

      Chairman       N. Aidapkelov

      "AGREED"

      Ministry of Finance

      of the Republic of Kazakhstan

  Approved by the order
of the acting Chairman
of the Committee on Statistics
of the Ministry of National
Economy of the Republic Kazakhstan
dated August 7, 2019 No. 4

Methodology for assessing the non-observed economy

Chapter 1. General provisions

      1. The Methodology for assessing the non-observed economy (hereinafter-the Methodology) refers to a statistical methodology formed in accordance with international standards and approved in accordance with the Law of the Republic of Kazakhstan dated March 19, 2010 "On State Statistics" (hereinafter - the Law).

      2. This Methodology shall be applied by the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan (hereinafter -the Committee) when assessing the non-observed economy in accordance with international standards and for the purposes of the System of National Accounts (hereinafter - SNA).

      3. The purpose of this Methodology shall be to assess the impact of the non-observed economy by types of economic activity on the country's economy.

      4. This Methodology uses concepts in the meanings defined in the Law, and the following definitions:

      1) the non-observed economy - types of production activities not covered when collecting information from the main sources used to compile national accounts (hereinafter - NOE);

      2) gross value added - the value of gross output minus the value of intermediate consumption, which serves as an indicator of contribution to the Gross Domestic Product (hereinafter - GDP) made by individual producers, industries or sectors of the economy (hereinafter - GVA);

      3) an employed person – an individual, carrying out activities for payment or by deriving income through the use of property, production and sale of goods, the performance of works, the provision of services;

      4) gross output - the output of goods and services, representing the total value of goods and services that are the result of production activities of resident units of the national economy in the reporting period;

      5) illegal production of goods and provision of services - production of goods and provision of services, the sale, distribution and possession of which is prohibited by the current legislation of the Republic of Kazakhstan;

      6) shadow production (hidden) - a type of activity that is legal, meets certain standards and regulations, but the production activity of which is deliberately hidden from state bodies;

      7) unincorporated enterprises - production units that do not have the status of a legal entity and are not independent of their owner;

      8) shadow economy (shadow turnover) - an activity in which producers prefer not to declare part or all of their income in order to evade taxes, and also violate labour laws or immigration procedures by carrying out unrecorded hiring of labour or decide to operate without official permission for avoiding lengthy and costly bureaucratic procedures;

      9) a resident - an institutional unit which predominant centre of economic interests is located in the economic territory of a given country, that is, it is engaged in economic activity in this territory for a relatively long period (a year or more);

      10) unregistered enterprises - enterprises that have not registered their activities in accordance with the current legislation of the Republic of Kazakhstan, in order to evade taxes;

      11) informal sector enterprises - household enterprises that carry out market production of goods and services, and do not have the status of a legal entity, while the informal sector does not include persons employed in households and persons engaged in the production of agricultural products only for own consumption;

      12) informal sector production – production defined as a type of production activity carried out by unincorporated enterprises in the household sector that are not registered, the size of the number of employees is less than a certain threshold value and has some kind of market production.

      5. To assess the non-observed economy, the data of the Committee, the Ministry of Finance of the Republic of Kazakhstan, as well as of administrative sources shall be used, which allow to directly or indirectly assess the non-observed economy and serve as the basis for reliable calculations.

Chapter 2. Methodological aspects of the non-observed economy

Paragraph 1. Types of non-observed economy

      6. For the correct identification and measurement of non-observed types of economic activities, the following seven types of non-observed economy are defined: N1, N2, N3, N4, N5, N6 and N7.

      A standard set of types of non-observed economic activities is described in Eurostat's Tabular approach on the non-observed economy, given in Annex 1 to this Methodology, and represents a comprehensive and systematic assessment of the non-observed economy to ensure full coverage of national accounts, facilitates international comparisons of data.

      Types of the non-observed economy include:

      1) N1 – producers deliberately not registering;

      2) N2 - producers deliberately not registering, carrying out illegal activities;

      3) N3 - producers who, in accordance with the current legislation of the Republic of Kazakhstan, are not registered;

      4) N4 - legal entities not covered by supervision;

      5) N5 - registered entrepreneurs not covered by supervision;

      6) N6 – producers, knowingly providing inaccurate data;

      7) N7 - other statistical calculations. Type N7 is subdivided into N7a and N7b.

      This classification of non-observed economy types simplifies the process of assessing the non-observed economy.

      7. Operations with economic assets (money, property) in the course of which no new goods are produced and services are not provided, and only a redistribution of economic assets occurs, when assessing the non-observed economy, the following are not covered: bribery, theft, fraud (including in the banking sector or in transactions with securities, racketeering, illegal transfer of money abroad) and other illegal actions leading to the redistribution of already created national wealth.

Paragraph 2. Methods for assessing the non-observed economy

      8. Methods for assessing the non-observed economy are divided into three groups: direct, indirect and combined.

      9. Direct methods of assessing the non-observed economy involve conducting sample observations or using administrative data from administrative sources in order to clarify the participation of households, individual individuals and enterprises in the formation of the non-observed economy.

      Direct methods include the following works:

      1) additional statistical observations of production volumes in the household sector;

      2) additional statistical observations of the activities of enterprises in order to identify and determine the true scale of the shadow economy;

      3) additional observations at points of unorganized trade;

      4) statistical observations on the use of working time in enterprises;

      5) study of the results of tax, financial and other audits for compliance with the law in the implementation of economic activities.

      Among the direct methods, the most preferred is a household survey aimed at studying the level of well-being, employment, the structure of expenditures and incomes of the population.

      10. The indirect method includes additional assessments and calculations based on the use of indirect data established by in-depth study of the available information base on all aspects of the economic phenomenon under study.

      The indirect methods include the following works:

      1) assessment of the size of the shadow market based on discrepancies in national accounts statistics using the income and expenditure method;

      2) assessment of the shadow turnover based on the data of the tax authorities, taking into account the different propensity for tax evasion among enterprises;

      3) assessment of the growth of the shadow market depending on the fall in the activity of the working population in the official economy, taking into account the cost of working time;

      4) use of monetary aggregates (demand for cash money supply).

      11. The combined method contains both direct and indirect assessment methods, as well as expert assessments.

      12. The choice of method for determining the parameters of non-observed activities of economic entities (hidden, illegal activities) in specific industries depends on the specifics of this industry, the availability of information sources, and the possibility of additional surveys.

Chapter 3. Assessing the non-observed economy

      13. For assessing the non-observed economy in the Republic of Kazakhstan, calculations shall be made for the types of non-observed economy N1, N2, N3, N6 and N7 (subtype N7a).

      Calculations by the types of non-observed economy N1, N3, N6 and N7 (subtype N7a) are given in paragraphs 1, 2, 3 and 4 of Chapter 3 of this Methodology.

      The calculation by type of non-observed economy N2 is given in the Methodology for assessing the volumes of illegal activities, approved by the order of the Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan dated September 8, 2017 No. 125, registered in the Register of state registration of regulatory legal acts No. 15848.

      Calculations based on the type of non-observed economy N4 and N5 shall not be applied by the Committee, since the statistical business register and data collection and processing processes are automated and updated in a timely manner.

Paragraph 1. Calculation by type N1 - the volume of output produced by unregistered enterprises

      14. Periodicity of type N1 is annual;

      The sources of information for the calculation are:

      1) GVA (ВДС) by types of economic activity, calculated on the basis of national statistical observations and data from administrative sources;

      2) data from the Questionnaire for a sample survey of employment of the population (hereinafter - the Questionnaire), approved by order of the Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan dated December 12, 2018 No. 4, registered in the Register of state registration of regulatory legal acts dated December 14, 2018 No. 17952.

      15. Description of the algorithm and method of calculation:

      1) the coefficient of time worked for a full working week is calculated by dividing the hours worked per week on average per employee by the normal duration of working time, according to the labour legislation of the Republic of Kazakhstan (40 hours).



      where:

      koтр – the coefficient of time worked for a full working week;

      tотр – worked per week on average per employee, hours;

      40 is the normal duration of working time.

      2) the number of full-time employees is determined:



      where:

      qполн - the number of employees working full-time (persons);

      qвсег– the number of people employed in the main job, total, persons;

      kотр - the coefficient of time worked for a full working week.

      3) GVA is calculated per one employed person working full time:



      where:

      GVAзан – GVA (ВДС) per one employed person working full-time by type of economic activity (thousand tenge);

      GVAвсег – total GVA (national accounts data), million tenge;

      qполн - the number of employees working full time, persons.

      Based on the data of the Questionnaire, the number of people employed in the main and additional jobs, working at unregistered enterprises, is determined. Questions characterizing the signs of labour activity in violation of the labour legislation of the Republic of Kazakhstan are given in Annex 2 to this Methodology.

      4) the coefficient of hours worked per 40 hours per week is calculated for the employed population in the main job, at unregistered enterprises:



      где:

      where:

      kотр.о.н. - the coefficient of time worked for a full working week for the employed population in their main job, working at unregistered enterprises;

      tотр.о.н. – worked out per week on average per one employed in the main job, working at an unregistered enterprise (hours).

      5) the number of employed in the main job, working full-time at unregistered enterprises is calculated:



      where:

      qполн.о.н.- the number of people employed in the main job, working full time at unregistered enterprises (persons);

      qвсег.о.н.- the number of people employed in the main job, working at unregistered enterprises, total (persons);

      kотр.о.н. - the coefficient of time worked for a full working week for the employed population in the main job, working at unregistered enterprises.

      6) the coefficient of time worked per 40 hours per week is calculated for the employed population in additional work, working at unregistered enterprises:



      where:

      kотр.д.н. - the coefficient of time worked for a full working week for the employed population in additional work, working at unregistered enterprises;

      tотр.д.н. – worked out per week on average per one employed in an additional job working at an unregistered enterprise (hours).

      7) the number of people employed in additional work, working full-time at unregistered enterprises is calculated:



      where:

      qполн.д.н.- the number of people employed in additional work, working full week at unregistered enterprises (persons);

      qвсег.д.н. - the number of people employed in additional work, working at unregistered enterprises (persons);

      kотр.д.н. - the coefficient of time worked for a full working week for the employed population in additional work, working at unregistered enterprises.

      8) the GVA produced by those employed in the main and additional work, working at unregistered enterprises is calculated:



      where:

      GVAN1 - GVA produced by employees at unregistered enterprises (million tenge);

      GVAзан - GVA per employee, by types of economic activity (thousand tenge);

      qполн.о.н. - the number of people employed in the main job, working full week at unregistered enterprises (persons);

      qполн.д.н. - the number of people employed in additional work, working full week at unregistered enterprises (persons).

      9) intermediate consumption at unregistered enterprises is taken as 25% of GVA (or 20% of gross output):



      where:

      ППN1 - intermediate consumption in the production of goods and the provision of services by unregistered enterprises (million tenge);

      GVAN1 – GVA produced by employees at unregistered enterprises (million tenge).

      10) gross output produced by employees at unregistered enterprises is calculated by summing GVA and intermediate consumption:



      where:

      BBN1 - gross output produced by employees at unregistered enterprises (million tenge);

      GVAN1 – GVA produced by employees at unregistered enterprises (million tenge);

      ППN1 - intermediate consumption in the production of goods and the provision of services by unregistered enterprises.

Paragraph 2. Calculation by type N3 - the volume of output of enterprises in the informal sector

      16. Periodicity of type N3is annual;

      The sources of information for the calculation are the following data on informal sector enterprises (households) provided by the Committee:

      1) in agriculture, forestry and fisheries - households that produce agricultural products for sale or exchange, but are not registered, since their production volumes do not reach the level when the enterprise is required to be registered;

      2) in the manufacturing industry - the volume of products produced by households;

      3) in construction - the volume of works performed on the construction of country houses and other outbuildings in summer cottages and garden plots, garages and other objects by individuals who do not submit data to state statistics bodies and on the activities of unincorporated enterprises engaged in the construction and repair of objects;

      4) in wholesale and retail trade, repair of cars and motorcycles - the volume of sales of goods and services by households; a trade margin is applied as output for this industry;

      17. Additional calculations are made for individual services:

      1) for real estate transactions (renting out housing, as well as non-residential premises), with the exception of conditional residence in one's own dwelling;

      2) for the provision of other individual types of services;

      3) in education - recalculations for tutors and other educational services related to this industry.

      4) in healthcare - recalculations for medical personnel providing medical services;

      18. Intermediate consumption corresponds to the assumed share of intermediate consumption of the respective economic activities of the national accounts in the reporting period.

Paragraph 3. Calculation by type N6 - the output of producers who knowingly provide inaccurate data

      19. Periodicity of type N6 is annual;

      The sources of information for the calculation are:

      1) data on total annual income and taxes paid by taxpayers in de-identified form;

      2) customs statistics data;

      3) data on the use of payment instruments;

      4) data on intermediate consumption by types of economic activity, accepted for the calculation of national accounts in the reporting period.

      20. The data specified in subparagraphs 1) and 2) of paragraph 20 of this Methodology shall be provided by the State Revenues Committee of the Ministry of Finance of the Republic of Kazakhstan (hereinafter - the SRC) to the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan annually until June 10 of the year following the reporting year.

      21. Shadow economy (shadow turnover) is calculated as the sum of the following components:

      1) the difference in income, calculated on the basis of deviation of the level of tax payment from the industry average (by region);

      2) discrepancies in the statistical data of the SRC on foreign trade with the data of the customs statistics of the country of the counterparty, taking into account the adjustment for the volume of transit and methodological features.

      22. Description of the algorithm and the method of calculation:

      The difference in income calculated based on the deviation of the level of tax payment from the industry average:

      1) the level of tax payment for each taxpayer is calculated:



      where:

      УН - the level of payment of taxes of the enterprise;

      Н and OП - the amount of taxes paid and other obligatory payments to the budget;

      СГД - the total annual income of a legal entity and an individual entrepreneur, taking into account adjustments;

      2) the industry average level of tax payment is calculated by types of economic activity and size of enterprises (large, medium, small, micro):



      where:

      УНср - industry average value of the level of tax payment;

      УН1,УН2,...УНn are the levels of tax payment by taxpayers of the corresponding type of economic activity, except for the levels of tax payment with a negative value and exceeding 50 percent;

      n - the number of taxpayers of the corresponding type of economic activity;

      3) the industry average total annual income is calculated by types of economic activity and size of enterprises (large, medium, small, micro) taken as gross output:



      where:

      СГДср - industry average value of the total annual income per an enterprise;

      СГД1, СГД2,...СГДn - the total annual income of taxpayers of the corresponding type of economic activity;

      n - the number of taxpayers of the corresponding type of economic activity by the size of enterprises.

      For enterprises with a level of tax payment below the industry average, the TAI is recalculated. For enterprises with TAI below the industry average, this indicator is equal to the industry average for TAI. Recalculation of the TAI is the difference between the actual and assessed TAI.

      4) to the volume of discrepancies in the statistical data of the SRC on foreign trade with the data of the customs statistics of the country of the counterparty, taking into account the adjustment for the volume of transit and methodological features, we apply the average trade margin.

      23. Intermediate consumption corresponds to the accepted share of intermediate consumption of the corresponding types of economic activities of the national accounts in the reporting period. The share of intermediate consumption of the type of economic activity "Wholesale and retail trade, repair of cars and motorcycles" is applied to the volume of discrepancies in customs data.

      24. GVA is calculated as the difference between output and intermediate consumption.

      The resulting calculations are adjusted taking into account the coefficient of non-cash turnover, which reflects the degree of spread of non-cash turnover, as a key criterion for formal production.

      Calculation of the coefficient of non-cash turnover:



      where:

      Кбезнал - coefficient of non-cash turnover;

      ОБП - the volume of non-cash payments (million tenge).

      25. The calculations for the non-observed economy described in this paragraph are made by calculating annual GDP based on reported data.

      Paragraph 4. Calculation by subtype N7a

      26. The periodicity of the subtype is annual.

      The source of information for the calculation is the gross output of enterprises, formed by the Committee on types of economic activity.

      27. N7a refers to producers' output that is incomplete, not collected, or collected directly from primary sources.

      28. Recalculations for the non-observed economy for subtype N7a are made at the micro level for gross output for each type of activity according to the following formula:



      where:


– gross output for the corresponding type of activity (i), hidden for statistical reasons (million tenge);

- the average value of the gross output attributable to one enterprise of the corresponding type of activity (i) and dimension (j) (million tenge);

– the number of enterprises of the corresponding type of activity (i) and dimension (j) that did not submit reports.

  Annex 1
  to the Methodology for assessing
the non-observed economy

Eurostat's tabular approach on the non-observed economy


I Unregistered

II Not covered by the survey

III Incomp
lete reporting

IV Statistical recalculations

Types

N1

N2

N3

N4

N5

N6

N7a

N7b

Description

Producers deliberately do not register - clandestine activities

Producers deliberately do not register - illegal activities

Producers who, in accordance with the legislation, should not be register
red

Legal entities not covered by the survey

Registered entrepreneurs not covered by the survey

Производители, сознательно предоставляющие неточные данные Produ
cers knowin
gly provid
ing inaccu
rate data

Data that is incomplete, not collec
ted or not collec
ted directly from primary sources

Data that has been incorrectly recorded, processed and reported by statisti
cians

Causes of occurrence

Producers deliberately do not regis
ter in order to evade taxes and social secure
ty obligations. These inclu
de small produ
cers with an inco
me level for which they report to the tax authorities.

Production activities in the course of which goods are produced and services are provided that are prohibited by the current legislation of the Republic of Kazakh
stan, or are illegal if carried out by the producers without obtaining an appropria
te permit.

Producers are house
holds that have a small market output, but it is below the set level at which they are registered as an entrepreneur.

Legal entities not covered by surveys due to the irrelevance of the business register, incorrect classification criteria

Registered entrepre
neurs may not be included in the business register and/or excluded from statistical surveys

Producers deliberately underassessing output and/or oversta
ting interme
diate consump
tion in order to evade taxes.

An enterprise was included in the survey, but the completed data in the survey questionnaire were not received from it, or the questionnaire was sent to the wrong address, or the enterprise did not report within the time frame specified by the survey.

Data that was incorrectly accounted for was processed and presented by statisticians.

Application of the Eurostat tabular approach on the non-observed economy by the state statistics bodies of the Republic of Kazakhstan


Methods of assessment

The calculation is described in paragraph 1 of Chap
ter 3 of this Methodology.

Calculations for N2 are described in the Methodology for assessing the volume of illegal activities approved by the order of the Chairman of the Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan dated September 8, 2017 No. 125, registered in the Register of state registration of regula
tory legal acts dated October 5, 2017 No. 15848
 

The calculation is described in paragraph 2 of chapter 3 of this Methodology.

Not applicableThe business register is updated daily online.

Not applicable.
All registered entrepre
neurs are surveyed by statistical sample observations with subsequent extension to the general popula
tion

The calculation is described in paragraph 3 of chapter 3 of this Methodology.

The calculation is descri
bed in paragraph 4 of chapter 3 of this Methodology.

Not applicable.
State statistical bodies use automated data collection and processing processes with format-logical controls.


  Annex 2
  to the Methodology for assessing
the non-observed economy

Questions characterizing the signs of labour activity in violation of the labour legislation of the Republic of Kazakhstan

Main work (activity)

Additional work (occupation)

Self-employed

Employees

Self-employed

Employees

Did you do at least one hour of any work for remuneration last week, or did you have any occupation to receive a natural or monetary income (including the provision of various kinds of services)?
1. Yes



Did you have, in addition to your main job, other additional work, weekend work, night time in order to receive monetary or in-kind income, at least 1hour last week?
1. Yes

Which of the following categories best describes the status of your main activity (job)?
1. Employment in an organization
2. Employment with individual individuals
3. Employment in a peasant or farm enterprise
4. Work under a civil law contract for the provision of services

Which of the following categories best describes the status of your main activity (job)?
5. Independent workers (working at their own expense)
6. Employer
7. Unpaid family business (farm) workers
8. Members of a production cooperative
9. In a personal subsidiary plot

Tell me, your additional work (occupation) was:
1. Employment in an organization
2. Employment with individual individuals
3. Employment in a peasant or farm enterprise
4. Work under a civil law contract for the provision of services

Tell me, your additional work (occupation) was:
5. Independent workers (working at their own expense)
6.Employer
7. Unpaid family business (farm) workers
8. Members of a production cooperative
9. In a personal subsidiary plot


Have you been hired under a contract or by verbal agreement?
2. By verbal agreement


Have you been hired for additional work under a contract or by agreement?
2. By verbal agreement


Does your employer or you yourself transfer deductions and (or) contributions to the pension fund, social insurance fund, social health insurance fund?
2. No
3. I don't know


Does your employer or you yourself, in additional activities, transfer deductions and (or) contributions to the pension fund, social insurance fund, social health insurance fund?
2. No
3. I don't know


2. Нет
3. Не знаю
Does your employer provide you with paid annual leave or compensation for unused leave?
2. No
3. I don't know


Does your employer provide you with additional paid annual leave or compensation for unused vacation?
2. No
3. I don't know


In your opinion, in case of illness or injury, will your employer pay you social benefits for temporary disability (based on sick leave)?
2. No
3. I don't know


In your opinion, in the additional activity, in case of illness or injury, will the employer pay you social allowance for temporary disability (on the basis of a sick leave)?
2. No
3. I don't know

You did your main work:
1. In an organization (legal entity)
2. On the basis of individual entrepreneurship (with the hiring of employees)
3. In a peasant or farm
4. On the basis of individual entrepreneurship (without hiring employees)

You did your additional work:
1. In an organization (legal entity)
2. On the basis of individual entrepreneurship (with the hiring of employees)
3. In a peasant or farm
4. On the basis of individual entrepreneurship (without hiring employees)

Is the organization, entrepreneurial activity, where you work at your main job, registered with the tax authorities?
3. I don't know
4. No

Is the organization, entrepreneurial activity, where you worked additionally, registered with the tax authorities?
3. I don't know
4. No

Please name the predominant type of activity of the organization, individual entrepreneurship, your main job, where you worked last week. (Interviewer, please provide a detailed verbal description and code for the type of economic activity).

What position did you hold or what profession did you work in your additional job (what was your additional activity)?
(Interviewer, please provide a detailed verbal description and code according to the occupation classifier).