1. Tax Laws
On 25 December 2017, as a part of the tax system reform, President Nursultan Nazarbaev signed the following acts:
- The Code of the Republic of Kazakhstan No. 120-VI 'On Taxes and Other Mandatory Payments to the Budget (the Tax Code)';
- The Law of the Republic of Kazakhstan No. 121-VI 'On the Enactment of the Tax Code' ('the Law on the Enactment of the Tax Code'), which introduces the new Tax Code; and
- The Law of the Republic of Kazakhstan No. 122-VI 'On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Taxation' ('the Law on Amendments to Other Acts'), which impacts 40 legislative acts related to taxation.
The Tax Code
The new Tax Code has been elaborated in order to eliminate inefficient tax benefits, optimize tax regimes, bring fiscal policy in line with the new economic realis, encourage businesses to come out of the closets, expand the tax base in the commodity sector, and improve VAT management.
The conceptual changes introduced by the new Tax Code include the introduction of the taxpayers' good faith principle, which assigns the task of proving the taxpayer's fault to the tax authorities.
Along with the new Tax Code, the concept of horizontal monitoring is introduced, which implies the exchange of information and documents between the competent body and the taxpayer, and is based on the principles of cooperation, legitimate trust, lawfulness, transparency and enhanced information interaction.
Moreover, the Tax Code sets out a procedure for preliminary clarification of the tax laws by the competent body for the emergence of tax obligation in respect of contemplated transactions at the request of taxpayers under horizontal monitoring, or organizations implementing an investment priority project. The main feature of the preliminary clarification is that in the event a taxpayer follows tax authority's clarification, which was subsequently changed or canceled, the taxpayer will not be charged with fines or penalties.
In order to reduce the financial burden on the business, the social tax rate for the period from 1 January 2018 to 1 January 2025 will be 9.5 percent.
Hence, one can note a positive trend aimed at improving relations between tax authorities and taxpayers.
The Law on the Enactment of the Tax Code
Despite the general provision on the enactment of the Tax Code on 1 January 2018, some changes are expected to be introduced gradually.
One of the main changes anticipated by taxpayers is the reduction of the general statute of limitation from five to three years. Said provision will come into force on 1 January 2020 and will not affect those taxpayers subject to tax monitoring and subsoil users.
From 1 January 2019, tax authorities will be liable for violating the terms for the return of value added tax amounts confirmed for return.
Also, starting from 1 January 2019, the application of the risk management system will be optimized, including minimization of tax control for taxpayers, engaged in a low risk activity.
From 1 January 2019, all invoices must be issued electronically.
The sphere of subsoil use taxation also sees positive innovations, such as the cancellation of both the excess profit tax on subsoil use contracts for the exploration and (or) extraction of solid minerals from 1 January 2018 and commercial discovery bonus from 1 January 2019. At the same time, the rent tax rate for coal exports is increased from 2.1 percent to 4.7 percent.
Furthermore, a section of the new Tax Code regulating the individual income tax is introduced from 1 January 2020, and the provisions set forth in the Law of the RK No. 121-VI 'On the Enactment of the Tax Code' dated 25 December 2017 will temporarily come into effect.
Gradual increase in excise rates for certain types of alcohol and tobacco products is further stipulated from 1 January 2018 to 1 January 2022.
The Law on Amendments to Other Acts
The Law on Amendments, amongst other things, introduces a significant change to submit a three-tier transfer pricing documentation under the Law of the Republic of Kazakhstan 'On Transfer Pricing' dated 5 July 2008.
Said changes impose on the organizations-participants in international groups of companies (with total revenue of at least 750 million euros in the previous financial year) the obligation to submit to the tax authorities a three-tier reporting comprised of local, primary and interstate reporting, as well as group membership notifications.
The law will come into effect on 1 January 2018, and the provisions thereof will apply for the fiscal years as of 1 January 2016 (with the exception of local and primary reporting).
Our team will present more detailed reviews on selected issues starting from 2018.
2. Customs Laws
On 26 December 2017, the President of the Republic of Kazakhstan signed:
- The Code of the Republic of Kazakhstan №123-VI 'On Customs Regulation in the Republic of Kazakhstan' 1;
- The Law of the Republic of Kazakhstan No. 124-VI 'On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Customs Regulation', which covers approx. 35 legislative acts.
Changes in the customs laws have been necessitated by the need to bring the customs laws in line with the new rules set by the Customs Code of the Eurasian Economic Community.
3. Subsoil Use
In order to improve the subsoil use regulation system, on 27 December 2017, the President of the Republic of Kazakhstan signed:
- The Code of the Republic of Kazakhstan 'On Subsoil and Subsoil Use';
- The Law 'On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Subsoil Use Issues', which covers 16 legislative acts.
This reform has been elaborated for some time, taking into account the best world practices in the sphere of subsoil use. We have previously covered it in our reviews dated 3 November 20172.
We will cover each reform separately and in more detail in our reviews early in 2018.
1 Published in 'Kazakhstanskaya Pravda' No. 248 (28627) dated 27 December 2017 No. 248 (28627)
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.