Kazakhstan: “De-criminalization” of Some Fiscal Offences

We were very encouraged to see positive movement this week on an issue that has been on ITIC’s agenda in Kazakhstan for some time. A sustained focus by ITIC and other organizations has made high-level action more likely.

Following the Foreign Investors’ Council meeting on 5 June in Astana, Agris Preimani (EBRD Country Director for Kazakhstan) commented on “the possibility of amending the criminal procedural legislation – in terms of exempting the officials (and) organizations which voluntarily paid their taxes, fines, and penalties charged, from criminal liability for tax evasion regardless of whether the violation was committed for the first time or not.” He also stated that “We (the Council) also recommend an alternative definition of ‘large-scale’ and ‘particularly large-scale damage' for the application of Article 24.5 of the Criminal Code and improvement of the processes of administering and investigating tax criminal offences.”

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Moukhit Akhanov is President, ITIC Kazakhstan and Douglas Townsend is a Senior Advisor for ITIC.

Fact-Finding Mission Conducted for Kazakh Officials

On 8-12 March, ITIC Kazakhstan organized a fact-finding mission for officials from the State Revenue Committee of the Kazakh Ministry of Finance. The following Kazakh officials met with officials at the Federal Tax Service of Russia to exchange information and share experiences as Kazakhstan begins implementing best practices and following OECD norms:

• Aisulu Burambayeva (Deputy Head of the Special Department)
• Aliya Alenova (Senior Expert of the Special Department)
• Agera Rakhmetova (Senior Expert of the Special Department)
• Daniyar Khassenov (Expert of the Special Department).

During their visit, the delegation met with Mr. Alexander Yegorychev (Head of the Cross Audit Department), who discussed legal aspects of tax monitoring; Mrs. Y. Khomyakova (Deputy Head of the Tax Monitoring Section of the Cross Audit Department), who discussed the procedure of issue of the motivated opinion and reconciliation process; and Mr. Ruslan Rudzhabov (Head of the Tax Control over Prices Section of the Transfer Pricing Department), who spoke about transfer pricing administration practice.

On 11 March, ITIC organized a roundtable for the Kazakh officials with representatives of Russian and Kazakh companies currently participating in a Horizontal Monitoring pilot program. During the roundtable, Mme. Aisulu Burambaeva reconfirmed her intention to hold another roundtable discussion with ITIC sponsors once the State Revenue Committee’s Special Department’s concept paper on Horizontal Monitoring is ready for discussion.

Astana-Houston Videoconference with Kazakhstan Officials

On 17 February, ITIC chaired a Caspian Mineral Tax Committee (CMTC) videoconference linking senior Kazakhstan tax officials with oil and gas industry representatives gathered in Houston as part of EY’s annual CIS energy tax conference. Below are highlights of the discussion, which focused on BEPS implementation and the tax and customs reform agenda in Kazakhstan. Fiscal legislation regulating these issues will be submitted to the Parliament in early Fall 2016. ITIC will continue to monitor this process and advise sponsors of opportunities for comment and analysis.

Base Erosion and Profit Shifting (BEPS)

Mr. Almas Bazarbayev, Deputy Head of the International Cooperation Division of the Finance Ministry’s State Revenue Committee (SRC), discussed the SRC’s work to analyze the scope of changes arising out of the BEPS Project, including in respect of international treaties (particularly EOI arrangements) as well as with the national legislation. The SRC is working closely with the OECD on draft legislation, to be finalized in June 2016, which would introduce the main BEPS standards in Kazakhstan in January 2017.

Planned Tax Policy Reform Mr. Daryn Abduali, Deputy Head of the Tax and Customs Policy Department at the Ministry of National Economy (MNE---responsible for tax policy), discussed the program of the MNE-led working group, formed pursuant to Presidential Decree, to undertake several major tax and customs reform initiatives, as follows:

• Tax and customs codes’ unification;
• Introduction of sales tax replacing VAT;
• Review of existing tax incentives, exemptions and reliefs in order to evaluate their effectiveness;
• Subsurface use taxation reform;
• Reform of ecological taxation policy and provisions; and
• General improvement of tax and customs administration practice. World Bank and EBRD assistance with these tasks was being sought. ITIC offered to assist officials as possible with these tasks.

 Mr. Abduali also outlined a series of unsettled action items in relation to SSU, as follows:

• Introduction of a sliding scale for mineral resources production tax;
• Abolition of tenfold increase in the ecological tax; and
• Elimination of local authority to increase the ecological tax by as much as 20x; and,
• Revision of regulations regarding compensation (restoration) due to ecological damage.

In this regard, Mr. Abduali noted that the MNE Tax and Customs Policy Department has studied the operations of subsurface user companies across a great range of jurisdictions and were developing their approach on these action items based on this analysis.