Kazakhstan is also a party to more than 35 double tax treaties with various countries. The double tax treaties prevail over the Tax Code, but their application must comply with established procedures




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НазваниеKazakhstan is also a party to more than 35 double tax treaties with various countries. The double tax treaties prevail over the Tax Code, but their application must comply with established procedures
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источникhttps://wikileaks.org/gifiles/attach/178/178851_KAZ CLIENT 090414 PART II B.doc
PART II - B
Changes to Kazakhstan’s tax regulations (especially in the oil industry)…

  • Details of the changes

  • Any motivations behind why they changed the regulations

  • Any politicization behind the changes or who they targeted

Details of the changes THE NEW TAX CODE

Kazakhstan is also a party to more than 35 double tax treaties with various countries. The double tax treaties prevail over the Tax Code, but their application must comply with established procedures.

The new Tax Code introduced a number of changes to the regulation of corporate income tax (CIT) compared to the previous legislation. CIT is payable by resident legal entities (except government institutions) and non-resident legal entities doing business in Kazakhstan through a ‘permanent establishment’ (branch, representative office or other) or otherwise earning income from sources in Kazakhstan. Tax base for CIT is income. Among main innovations introduced to the CIT regulations are: a gradual reduction of the CIT rate from 30% in the previous legislation to 20% in 2009, to 17,5% in 2010, and then to 15% in 2011; reduction of the general rate of withholding tax on income of non-residents doing business without a permanent establishment from 20% to 15%. In the new Tax Code, the list of deductions of the CIT tax base was extended, for example, allowing deducting from the taxable income the value of the buildings, machinery and equipments that are being put into service. The new Tax Code abolished CIT advance payments for small and medium-sized enterprises and extended the term of tax loss carry-forwards up to 10 years instead of 3 years under the previous legislation.

The VAT regulation has also been changed. Apart from reduction of the VAT rate from 13% to 12%, one of the main innovations relates to a gradual introduction of refund from the budget of positive differences between the VAT that is subject to payment to suppliers and VAT that is imposed on consumers (VAT debit balance due). VAT payable by resident legal entities (except government institutions), individual entrepreneurs, non-residents doing business in Kazakhstan through permanent establishments, and individuals and entities importing goods in Kazakhstan. A zero VAT rate applies in some instances (export, international shipments, marketing of goods of own production by taxpayers under subsoil use contracts).

The new Tax Code brings some news to taxes paid from income of individuals – individual income tax and social tax. The flat rate of individual income tax remains at the same level of 10%. The new Tax Code contains a “flat” social tax rate at 11%, which considerably simplifies calculation of social tax as compared to the former regressive scale (previously the rate varied from 13% to 5%). Social tax is payable employers.

The table below shows rates of main Kazakhstani taxes, as established by the new Tax Code.

Tax Rates
Corporate income tax 2009 – 20%
2010 – 17.5%
from 2011– 15%
VAT 12%
Individual income tax 10%
Social tax 11%
Property tax (individuals) The amount of tax depends on the cost of property. The minimal rate is 0.05% of the cost.
Property tax (legal entities) 0,1 – 1,5% of the average annual value of the property
Land tax (to be paid by individuals and legal entities) The amount of tax varies depending on the area of a land plot, its quality and purpose
Excise tax (applies to all types of spirit, alcohol, beer, tobacco products, petrol (except for aviation fuel), diesel fuel, motor vehicles, crude oil and gas condensate Rates are established in percentage to the cost of goods or in a fixed sum per unit of measurement
Vehicle tax (cars) From 2 to 117 MCR depending on engine capacity and type of a vehicle


Under the new Tax Code, subsoil users pay Mineral Extraction Tax (MET), Excess Profit Tax (EPT), signature bonus, commercial discovery bonus and historic costs.

MET is payable in cash by the subsoil user quarterly for each type of minerals extracted. The Kazakhstan Government may decide to change cash payment to payment in-kind. For that purpose, a separate agreement between the Government and the relevant subsoil user has to be entered into. MET rates vary from 03% to 24% depending on the type of extracted minerals.

The new Tax Code contains the following main innovations relating to subsoil users taxation:
• The royalty has been replaced with MET;
• The Production Sharing Agreement (PSA) as a type of subsoil use contract has been abolished. PSAs made before January 1, 2009 shall continue in force;
• EPT will now be assessed using the sliding scale at the rate, established in the Tax Code based on the ratio of the aggregate annual income to the income deductions. The size of the non-taxable net profit has been increased from 20% to 25%;
• Effective January 1, 2009 tax stability provisions in all subsoil use contracts (except for the existing subsoil use contracts and PSAs) have been terminated. Tax stability meant that the tax regime set forth in a subsoil use contract entered into in the established procedure after the mandatory fiscal expertise was valid throughout the contract’s duration
Payment of historic costs is new in the Tax Code and is a fixed amount payable by the subsoil user to the budget as a compensation of the aggregate expenses incurred by the state for exploration and development of a contract area before entering into a subsoil use contract. The amount of such expenses is determined by the authorized government agency

Generally, the new Tax Code aims to achieve the following main targets:
i) reduction of general tax burden on economy sectors not relating to natural resources;
ii) increase of economic returns from natural resources extraction;
iii) optimization of tax privileges;
v) improvement of tax administration system.

Motivations behind changing

Sept 2008: A new oil tax proposed by the Kazakh government will apply to about 60% of the country's crude output next year, Economy Minister Bakhyt Sultanov said today. Sultanov was presenting a reform package designed to shift the tax burden onto the oil, mining and metals sectors - mostly through a new mineral extraction tax - to foster the development of other industries. The minister confirmed that foreign oil players operating in the Central Asian country under production-sharing agreements, including Chevron, Shell and ExxonMobil, will be exempt from the tax.

OIL EXPORT DUTIES:

29.01.2008, 18:24

Kazakh Ministry of Energy and Mineral Resources has come with an offer to impose oil export duties starting from January 1, 2009 on subsoil users, who are not enjoying a stable tax regime under their contracts, Interfax-Kazakhstan reports.

"Subsoil use contracts could be classified into three categories: subsoil use contracts stipulating fixed customs payments; the contracts that could be interpreted as not providing a total stability in terms of export customs duties, this category still enjoys stable tax regulations, but is not liable to stable export customs duties though; and the last category that is not subject to stable customs charges,” Energy Minister Sauat Mynbaev told the government in Astana on Tuesday.

"An attempt to impose export customs duties on all three categories of subsoil users could lead to a wide-scale confrontation with certain repercussions. These are the things that we all could live without. I think, that we could levy export customs duties on the third category of subsoil users only and hold individual negotiations on the matter with the rest, “ Mynbaev said.

According to Mynbaev, some subsoil users might not be subject to export customs duties in the end.

"For instance, the North-Caspian project talks aimed at restoring the balance of Kazakhstan’s economic interests has been already finalized,” he said.

"What possible oil amounts we might expect, if we impose export duties on the third category of subsoil users only? The answer is 27 ml tons of oil. The owners of the assessed oil amount will be facing two options: exports of hydrocarbons but with regard to the imposed customs duties or an oil supply to the domestic market. That volume of oil, if supplied to the domestic market, will ensure competition and create a price gap between the global and domestic markets,” the Minister added.

"Therefore, the action plan is to impose export duties starting from January 1, 2009, but with the emphasis that those subsoil users liable to no such duties by the legislation will be exempt of them,” Mynbaev said. He, however, added that by the indicated date “those subsoil contracts that make it impossible for imposing a customs duty should be singled out.”

Prime Minister Karim Masimov has approved of the proposal and offered his Cabinet to support it as well.

The Russian approach is deemed the most suitable for imposing the exports duty, Mynbaev said. “First, the benchmark oil price is set for the customs duty at zero. "If the oil price raises the export customs duty is calculated as a percentage of the price margin between the global price and the benchmark price,” he said.

"At the equal profitability of domestic and export markets with the forecasted oil price for the next year standing at 60 dollars per barrel, an oil customs duty could make 103.4 dollars per ton,” the Minister said. “If the oil price rises to 88 dollars per barrel, as its stands now, an oil customs duty will total 173.8 dollars per ton," Mynbaev said.

"Budget net revenues will amount to either $1.3 bl dollars or $2.2 bl under the second price scenario,” Mynbaev said.

"The given figures are budget net revenues with regard to a cutback in other taxes,” Masimov said.

According to Masimov, export oil duties should be introduced along with the cutbacks in the corporate income tax and the excess profit tax.

The Energy Minister admitted that the export duties could hold back Kazakhstan’s negotiation efforts to join WTO.

"Irrespective of certain hindrances in WTO talks that would come along with that, we have to do it right now, as there would not be any chance for us to do it later, after we commit to mandatory agreements,” he said.


Export duties on crude oil and oil products Last update/check10/10/2008 SectorOther Industries MeasureOther Tariffs and Duties Third CountryKazakhstan Description

Kazakhstan's government increases constantly export duties on crude oil and oil products. The export duties apply to producers that have Production Sharing Agreements (PSA) and contracts where fixed taxation mechanism was agreed. Most big oil producers in Kazakhstan have a PSA with fixed taxes schemes that technically exempt them from the duty. Additionally, sub-oil contracts in the form of production Sharing Agreements (PSAs) will be abolished, with exception of PSAs signed before 1 January 2009 under new draft Law. 

State of Play

The official Kazakhstan's commentary stated that the export duties were increased to stabilise the prices on the domestic market of oil products.

RK is a Party to Partnership and Cooperation Agreement and Energy Charter Treaty.

Under Article 46 of Partnership and Cooperation Agreement ('PCA') between EC and their Member States and Republic of Kazakhstan, the cooperation shall aim to establish a favourable climate for private investment, both domestic and foreign, especially through better conditions for investment protection. The aims of cooperation shall be in particular the creation of favourable conditions for attracting foreign investments into the Kazakh economy, to establish stable and adequate business law and conditions, and to exchange information on laws, regulations and administrative practices in the field of investment. Under Article 49 of PCA the Parties shall aim at increasing investment and trade in mining and raw materials.

Additionally, under Article 29 of PCA new legislation or regulations introduced in RK may not result in rendering the conditions for operation of subsidiaries and branches of Community companies established in RK more restrictive than the situation existing on the day of signature of the PCA, such legislation or regulations shall not apply during three years following the entry into force of the relevant act to those subsidiaries and branches already established in RK at the time of entry into force of relevant act.

Moreover, RK is a Contracting Party to the Energy Charter Treaty ('ECT') imposing under Article 10 (1) obligation to encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties (i.e. EU) to make Investments in Energy Area, and under Article 10(3) an obligation to give existing Investors no less favourable treatment than national or other foreign Investors.

The constant increase of the levels of export duties oil and oil products creates unstable conditions for further long-term investment made by foreign investors and, therefore it is not in conformity with the to Partnership and Cooperation Agreement and Energy Charter Treaty. Unstable tax regime creates legal and economic uncertainty for foreign investors.

Sources:

http://www.upstreamonline.com/live/article162728.ece

http://www.hg.org/article.asp?id=6046

http://en.portnews.ru/news/8692/


PART II – C
Changes to Kazakhstan’s environmental regulations (especially in the oil industry)…

  • Details of the changes

  • Any motivations behind why they changed the regulations

  • Any politicization behind the changes or who they targeted

Changes:

An amendment pertaining to the right of the authorized environmental body to suspend or withdraw permissions issued by local authorities for emissions into the environment will enter into force on 1 January 2009.1

Emitters must apply for a new permission for emissions into the environment if they undergo a reorganization, change their legal name or in other cases which do not lead to an increase in impact on the environment.2

1. Article 77 of Ecological Code No. 212-III of the Republic of Kazakhstan, dated 9 January 2007 (hereinafter, the “Ecological Code”)

2 Article 78 of the Ecological Code

The Majilis’s (Lower House of the Kazakh Parliament) Ecology and Natural Use Committee introduced amendments to the Ecological Code in the part of import of environmentally unsound technologies and equipment, offering the House to discuss them in the first reading

In accordance with the amendments, the ban for import of environmentally unsound technologies and equipment is set by the Ecological Code and not at the Government’s discretion.

The developer of the bill “On introduction of amendments to the Ecological Code of Kazakhstan on the issues of regulation of import of environmentally unsound technologies and equipment” agreed with all amendments.


http://www.ecotech.kz/en/2009/news_items/ecological_code_int

http://www.kpmg.kz/dbfetch/52616e646f6d49562b88dfefc4dcccd2b9cd78b5bc9dea55/081230_newsflash_eng_special_alert.pdf

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