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Memorandum of the Mining Association of Kazakhstan
«12 Most Important and Most Urgent Taxation Issues»
The Memorandum below was delivered by the Mining Association of Kazakhstan (MAK) to the Council of Foreign Investors for the President of the Republic of Kazakhstan on 24th February 2000. These are what MAK feel are the most serious of the many tax and financial issues facing mining and exploration companies trying to do business in Kazakhstan. Non-tax issues such as excessive government bureaucracy are not discussed in this memorandum.
Critical Tax and Financial Issues:
VAT
Double Taxation Treaties
Withholding Tax
Custom Duties
Bonus Payments
Royalty Rate
Reimbursement for Historical Geological Exploration Costs
Fee for Purchase of Geological Data
Ring Fencing
Farm Out
Loss Carried Forward
Interest
Each one of these twelve tax issues will be discussed in the remainder of this memorandum, briefly explaining the current problems and suggested solutions to improve the investment climate of the mining industry in Kazakhstan. MAK feels that it is important to note that if the current law and related instructions on VAT and Double Taxation Treaties (as it involves withholding tax) were enforced by the tax authorities at all levels the first three items on the above list would no longer be a serious concern for those foreign investors in the mining sector who export their product.
1. VAT
(Value Added Tax) Problem
The current Kazakh VAT regime deters exploration projects, because, even with exemptions the exploration company will pay a significant even with exemptions the exploration company will pay a significant amount of VAT that should be refunded, but is not, and the exploration project does not generate income so has limited offset available. The VAT also encourages importing of capital equipment, goods and services instead of purchasing within the Republic. A subsurface user purchasing capital equipment, goods & services from local suppliers has no output tax against which to credit the input tax either because the user makes no taxable supplies or because user is himself making zero-rated supplies. Subsurface user costs have effectively increased by 20% and thus negatively impacting a project's economics (and making fewer projects in the Republic economic).
