Horizontal Monitoring

With the enactment of the new Tax Code of the Republic of Kazakhstan (TC), the legislature has significantly revised the approach to regulating horizontal monitoring, strengthening it as a tool for preventive tax control and partnership-based cooperation between businesses and the state.

Legal regulation of horizontal monitoring is enshrined in paragraph 2 of Chapter 14 of the TC as well as in subordinate legislation:

• Order of the Acting Minister of Finance of the Republic of Kazakhstan dated 1 July 2020 No. 648 "On Approval of the Rules for Implementing a Pilot Project on Horizontal Monitoring";
• Order of the Minister of Finance of the Republic of Kazakhstan dated 22 September 2025 No. 520 "On Certain Issues of Horizontal Monitoring."

I. Transformation of the institution: from information exchange to the cooperative compliance model

Previously, horizontal monitoring was perceived primarily as a form of enhanced information exchange between taxpayers and tax authorities. Its regulation was framework-based and it was implemented as a pilot project, with key procedural issues essentially determined by the State Revenue Committee (SRC).

The new TC systematically transforms this institution, giving it coherence and functional completeness. Horizontal monitoring is now:

• a preventive tax control tool,
• a mechanism for minimizing tax risks,
• a form of digital transparency and manageability of tax liabilities.

In essence, it now aligns with the international concept of “Cooperative Compliance" applied in OECD countries, where partnership, transparency, and early risk identification are key elements.

Participation remains voluntary and is effected on the basis of an agreement between the taxpayer and the SRC, subject to compliance with specified criteria.

II. Expanded functionality: recommendations and data mart

A new feature of the TC is the formalization of specific monitoring results – recommendations for fulfilling tax obligations and improving internal control systems. This signals a shift in focus from a predominantly control-based model to a preventive and advisory one, which in turn helps reduce the risk of subsequent additional tax assessments.

At the same time, the TC radically changes the format of information exchange: instead of general access to accounting systems, a mandatory digital data mart is introduced, ensuring transparency of accounting down to the level of source documents and control procedures.

In essence, horizontal monitoring is becoming an IT-integrated regime of continuous tax compliance, which requires:

• significant investments in IT infrastructure;
• a formalized tax risk management system;
• end-to-end traceability of data from tax returns to underlying transactions.

Therefore, participation in this regime is now available primarily to large and technologically advanced taxpayers.

III. Taxes covered by monitoring

Taxpayers may structure risk management and controls for specific taxes (with an option to expand coverage in the agreement), including:

• corporate income tax (CIT);
• value added tax (VAT);
• personal income tax (PIT);
• social tax;
• property tax;
• special payments and subsoil user taxes;
• excise taxes.

However, horizontal monitoring does not replace other forms of control over taxes not included in the agreement.

IV. Internal control system: a new level of formalization

Requirements for the internal control system have been strengthened. It must now include a description of tax risks, control procedures, and the interrelation between them.

This signifies a shift from the declarative nature of such a system to the need for its structured, documented, and demonstrable operation, which objectively raises the requirements for the level of comprehensive readiness of participants for horizontal monitoring.

V. New rules for joining the regime

Previously, participation in horizontal monitoring was possible only as part of a pilot project, open to a limited group of entities that met certain criteria (e.g., value of fixed assets at the end of the tax period, amount of taxes paid, etc.).

Now, the TC sets out the following:

• clear requirements for participants, including the operation of a data mart and an internal control system;
• mandatory application for participation;
• conclusion of an agreement as part of the procedure expressly regulated by the TC;
• an exhaustive list of grounds for refusing participation in horizontal monitoring.

This ensures effective digital synchronization of data, reducing the potential for discrepancies between the data mart and state-run databases.

VI. Monitoring duration and renewal mechanism

The agreement is concluded for at least three years, effective from 1 January of the year following the year in which it was concluded (with an option to renew or terminate).  The TC establishes specific deadlines for monitoring – until 30 June of the second year following the reporting period, with an option to extend or renew. 

Renewal is permitted only upon:

• submission of additional reports,
• receipt of responses to inquiries previously submitted to the SRC, and
• receipt of documented information on alleged violations.

The scope of monitoring is limited to issues reflected in the relevant documents and information, and a maximum renewal period is 120 days. These provisions significantly increase the predictability of law enforcement.

VII. Monitoring results and dispute resolution

Based on the monitoring results, the SRC issues recommendations.  The taxpayer has the right to express its position before a reasoned decision is made and to provide explanations regarding the recommendations.

An Advisory Council has been established, comprising representatives of the tax authority and the taxpayer. 

Based on the monitoring results, the Advisory Council issues a reasoned decision. If the taxpayer disagrees with the reasoned decision, there is a provision for moving directly to a tax audit.

VIII. Practical aspects and current gaps

Currently, in Kazakhstan:

• there is no publicly available list of companies participating in horizontal monitoring;
• there are no official statistics on the number of companies participating in horizontal monitoring;
• as opposed to tax monitoring of large taxpayers, which is currently actively used by the SRC, there is no established judicial practice for challenging the results of thematic audits ordered following horizontal monitoring.

These circumstances create regulatory and law enforcement uncertainty regarding the functioning of this institution, which objectively reduces the predictability of its practical application and calls into question its actual effectiveness.

IX. Potential risks

Despite its significant advantages, participation in horizontal monitoring is associated with a number of legal, organizational, and technological risks.

    1. Lack of digital transparency and data inconsistency

The introduction of a data mart requires continuous synchronization with state information systems. Major risks include:

• inconsistencies between data in the data mart and accounting systems due to imperfect integration, accounting errors, or delays in data updates;
• discrepancies between the data mart and state databases (ESF IS, Astana-1 IS), which may be perceived as a potential risk of violation;
• technical failures and data corruption may be interpreted by the SRC as deficiencies in internal control.

In an environment of complete digital transparency, such inconsistencies may serve as grounds for renewing monitoring, requesting additional explanations, or initiating a thematic audit.

    2. Increased scope of disclosures

Horizontal monitoring requires the submission of source documents, internal regulations, IT logs, internal analytics, and other materials. Businesses may be exposed to:

• disclosure of sensitive commercial information,
• disclosure of excessive data,
• tax authority’s access to materials not subject to disclosure under monitoring.

Without proper structuring, the process can escalate into virtually continuous state audits.

    3. Consequences of disagreeing with a reasoned decision

If a taxpayer disagrees with a reasoned decision issued by the Advisory Council, this automatically leads to the initiation of a thematic tax audit.

This may place a financial burden on the business and result in significant additional tax assessments, potential penalties, and, consequently, litigation.

X. Practical recommendations

In view of the above, business is recommended to do the following:

    1. Hold preliminary tax and technological diagnostics of the company’s readiness, including assessment of IT infrastructure, accounting and tax accounting systems and internal controls.

    2. Document internal controls in accordance with the TC, in particular, develop the tax risks register, set up the control procedure, indicating responsible persons, and implement regular control testing;

    3. Streamline the data and document preparation processes. Implement the data provision regulations and determine the persons responsible for data quality, where possible. It is important to set up the walk-through reconciliation procedures (from source documents through to tax returns) and make sure that automated report generation process is in place for data marts. It will allow reducing the risks of errors and data mismatch;

    4. Provide IT security and access control:

• Implement access rights segregation systems;
• Protect non-monitoring sensitive data;
• Establish a secure channel for data transfer to the data mart.

    5. Get IT and tax functions ready for increased operational pressure:

• Determine the resource requirements;
• Deliver staff training;
• Assign the horizontal monitoring project manager;
• Integrate monitoring processes into the current business processes.

    6. Hold an active dialogue with the State Revenue Committee and document key communications:

• Provide timely and complete data in response to the SRC’s requests;
• Document provided data and clarifications;
• Request and document the minutes of meetings;
• Agree the data formats in advance.

It will allow reducing the risks of differences of opinion with the SRC.

XI. Conclusion

Considering the continuing gaps in practices and special requirements to digital transparency and internal controls, the horizontal monitoring participants should focus on the following:

• Compliance with procedural guarantees,
• Quality of internal IT-training,
• Assessment of potential implications of disagreement with the motivated decision of the SRC.

However, this type of tax administration in the new version of the TC is an advanced mechanism capable of enhancing predictability of tax administration though it requires a high level of business preparedness.

Note:

If you need an expert opinion and support as part of horizontal monitoring, we are willing to help you navigate these matters and are ready to provide all the support you need.