Kazakhstan: Legislation Alert - June 2016

Last Updated: 27 July 2016
Article by Grant Thornton

Main amendments to the legislation

1. Ratification of the Convention for the avoidance of double taxation between the Republic of Kazakhstan (further – the "RoK") and Saudi Arabia

On June 16, 2016 Senate of the Parliament of the RoK at the plenary session approved the Law "On the Ratification of the Convention between the Government of the RoK and the Government of the Kingdom of Saudi Arabia for the Avoidance of Double Taxation and Prevention of Fiscal Evasion and the Protocol to the Convention" (further – the "Convention").

As it was mentioned in previous tax alerts, the Convention and Protocol to Convention was signed in Astana on June 7, 2011.

The Convention provides, among others, the reduced withholding taxes on interest, dividends, royalty.

2. Deduction of export customs duty

On March 28, 2016 the Revenue Committee of the Ministry of Finance published letter № NK-24/2470-I, with an outline of frequent tax violations made by oil and gas companies (further – the "Letter").

In paragraph 4 and 5 of the Letter the Revenue Committee discusses the deduction of export customs duty amount (further – the "ECD") charged during the inspection and export of crude oil when the temporary customs declaring procedure was applied.

In Letter №525-04/16, dated April 29, 2016, the Association of Taxpayers of RoK (further – the "ATK") requested from the Revenue Committee a clarification in respect of paragraph 4 and 5 of the Letter.

The Revenue Committee responded to the above letter as follows:

  • paragraph 4 of the Letter refers to a case where ECD was not paid (for any reasons), and, consequently, was not reflected in the customs declaration, but later was charged as a result of a customs inspection (audit).

    In this case, the ECD is deductible in the period when goods have been transferred rather than in the period when the results of the customs inspection (audit) were approved.
  • paragraph 5 of the Letter refers to the case where the taxpayer paid applicable ECD and reported the ECD amount on the customs declarations.

    In this case, the ECD is deductible in the period when the customs declaration was arranged. Further, the Revenue Committee asserts that the ECD amount does not form part of the cost of sales, so it is deductible as a period expense in accordance with the accruals principle of accounting.

3. Draft rules for an indirect calculation of taxable income of individuals

The Ministry of the Finance of the RoK approved a draft of Rules for an indirect calculation of taxable income of individuals (further – the "Draft Rules").

The Draft Rules were developed in accordance with paragraph 6 of article 643-1 of the Tax Code of the RoK.

The methods described in the Draft Rules are as follows:

  • Capital gain method would be used if the acquisition cost of property is known and transaction with that property is subject to registration.
  • Cost accounting method would be used if an individual has expenses other than those mentioned in the previous method.

    This method is applied by comparing these expenses of an individual (for example, an expensive vacation, repayment of credits) with the individual's income reported on income tax return.
  • Movement of cash on bank accounts would be analyzed if cash is transferred into/from these accounts.

The revenue authorities of the RoK can apply these methods in combination.

The Draft Rules become effective from January 1, 2017 and is subject to official publication.

4. Barrelization ratio to calculate rent tax

In its letter №708-06/16, dated June 19, 2016, ATK asked the Ministry of Finance to clarify which of the quality certificates can be considered as a document confirming the barrelization ratio to calculate the rent tax on exports.

Revenue Committee in its letter № SRC-09-YLE-133 SRC-15481 explains that in accordance with paragraph 2 of Article 302 of the Tax Code, the basis for the calculation of the rent tax on exports is the cost of oil. The cost of oil is calculated on the basis of the actual volume of exported oil and the world price determined in accordance with paragraph 3 of article 334 of the Tax Code.

Further, under paragraph 3 of article 334 of the Tax Code, the conversion from barrels to tones should be made in accordance with the national standard.

Thus, in order to calculate the rent tax on exported oil, taxpayers must refer to oil quality passport used to determine the gross exported volume of oil indicated in line 35 of the customs declaration.

It is worth noting that the Tax Code in the version effective until 2016 does not provide a procedure for the application of the weighted average barrelization ratio.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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