Natural resources' management - competent management of taxes
Shafkat Kudabayev:
"Competitive advantages of Kazakhstan in world system are connected with existence of its natural riches. Natural resources are the most important component of national wealth of the country that is why the competent development and effective use of the resource base is the main factor of the growth of its economic potential. In this regard the taxation sphere of subsoil use has strategic importance both in terms of the budget, and on the attractiveness of the industry to potential investors.
The basis of the application of various methods of tax regulation in the mining industry is the competent branch state policy which is formed for both on next and more distant prospect. It should be aimed at ensuring the primary tasks of national security, reasonable use of the mineral resources and environmental protection. The work of the Government in this direction today is becoming more systematic, comprehensive, considering specifics and orientation of the national economy. Obviously, the potential of extracting sector of the Kazakhstan economy, while ensuring the completeness of tax , is sufficient to overcome any events associated with the liquidity crisis in the global financial markets.
For the effective implementation of tax policy in the mining industry the Head of State set the tasks to the tax authorities to improve the effectiveness of fiscal monitoring and to control tax revenues from large taxpayers. It was reflected in the Address e of the President "Strategy of occurrence of Kazakhstan in number of 50 most competitive countries of the world. In pursuance of the instructions in 2007 year was created the Specialized Division of the Tax committee of the Ministry of Finance which is called to work with the largest subsoil users who are carrying out activity in Kazakhstan. Over time functions of this division are expanded regarding control of all subsoil users of the country.
Among the tasks assigned to division are new approaches to relationships with taxpayers, improved monitoring and control principles, involvement of international consultants in the field of taxation , protection by all lawful methods of economic interests of the country. Also, there were changes in the personnel policy that allowed to complete structural division with qualified employees with extensive practical experience in the tax authorities, oil companies and financial institutions with knowledge of foreign languages.
The Head of State in the Address to the People of Kazakhstan designated on February 6, 2008 concrete strategic priorities in a further tax policy of the country. The most important of them - decrease in tax loading for non-oil sectors of economy, and ensuring compensation of expected losses of the budget due to increase of economic return from extracting sector.
In order to restore the economic interests of the state in the subsoil use contracts and ensure the completeness of income tax payments from major subsoil conducted extensive work: improved legislation on taxation of subsoil users, tax audit, cameral control and administration of the earlier contracts .
In the realization of tasks in 2007-2008 years restored uniform tax burden for all subsoil users which basis - cancellation of stability of a tax regime in subsoil use contracts. This was preceded by the systematic work on the analysis of regulations, both national and international legislation in the mining industry, the study of international experience , the negotiations with mining companies and independent international consultants . Experts were involved to this process, such as Gregory Gleeson - professor, the European center of Marshall on studying of problems of safety (USA), Daniel Johnston, the international expert, the founder of an editorial board of the magazine Global Energy Outlook, Gordon Moody, World Energy Group, Inc., Johannes Rath is a member of the Global Association of the negotiations in the oil industry (AIPN), the member of the German coal mining and society and the Society of Petroleum Engineering (SPE), Daniel Yergin is a leading expert in the oil industry and international relations , his book "Production" was awarded the prestigious Pulitzer Prize .
As a result it was succeeded to change the relation of investors and society as a whole to this question and now all understand that establishment of taxes, regulation of tariffs and other questions of public regulation belong to the sovereign right of the state. The results of this work are reflected in the new Tax Code in the form of cancellation of the stability of the tax regime in subsoil use contracts. From 1 January 2009, all mining companies, with the exception of working within the Production Sharing Agreements (PSA ) (13 subsoil users) calculate taxes in accordance with the tax laws in force at the time the obligation to pay them. Cancel tax regime stability allowed to effectively reform taxes and special payments of subsoil users that are applied equally to all.
Thus, taxes and special payments of subsoil users in the consolidated budget grew by more than 3 times with 719.5 mln. tenge in 2008 to 2 347.9 mln. tenge in 2013 year. In particular, only on the reformed rent tax the receipts increased from 0,9 billion tenge to 884,2 billion tenge.
On achieving the load transfer to the resource sector of the economy shows the growth of the share of proceeds of special taxes and charges in the subsoil of GDP in terms of the new Tax Code (share in GDP in 2005-2008 from 3.9% to 4.5%, in 2009 - 2012 years from 5.3% to 8.0%). Thus, reductions in CIT rates from 30% to 20%, including for small and medium sectors of the economy of Kazakhstan offset by the transfer of the tax burden on subsoil.
At the same time, changes in tax law that occurred in connection with the introduction of the new Tax Code should not fundamentally affect the attractiveness of Kazakhstan's mineral sector to foreign investors, as the level of tax burden subsoil users working in Kazakhstan is lower than in other countries. As the analysis of the global tax practice in the field of oil and gas , the total tax burden in a number of states that are considered attractive enough for such operations, significantly higher than the tax burden provided by Kazakhstan. For example, more recently almost total tax burden on the oil and gas operations in Norway reached 93%. According to recent reports, the Special tax rate only for hydrocarbons in this country is 50 %, in addition to the 28 percent tax on corporate income constitutes a very substantial tax burden on mining companies. Even in such circumstances, foreign analysts believed that, in general, the Norwegian oil and gas sector is attractive for investments.
In the UK oil operations also are subject to taxation at a high enough level. Tax on income from hydrocarbons (Petroleum Revenue Tax or PRT) in this country is 50% ( after decrease from 75% ). Therefore, taking into account that the new tax legislation in Kazakhstan has set higher rates for a number of taxes, oil and gas operations in Kazakhstan remain attractive to foreign and domestic investors. In general, according to the conclusion of international experts taxation of subsoil users in Kazakhstan correspond to modern approaches to the taxation of subsoil. (the Ernst & Young Company report within the Project on reforming of the tax administration realized by Tax committee in common with the World bank).
As part of the tax audit , it is important to note that developed and introduced into the process of tax audit unified approach to the calculation of taxes and other obligatory payments subsoil users and large taxpayers. In order to improve the administration of large taxpayers and subsoil users is working out the study and implementation of the "horizontal monitoring " and " e-audit ." These innovations will allow one hand to the tax authorities to exercise control through interaction with taxpayers in real time, on the other hand , taxpayers promptly receive the necessary information and clarification on the taxation of current and planned activities . In the course of such control all ambiguous points in the method of taxation can be discussed with the taxpayer during the tax reporting. Introduction of "Electronic audit" will significantly reduce the time of tax inspection.
It is adjusted the interaction between government bodies on creation of a uniform state system of control subsoil users contracts ( EGSU ) , under which this system operates effectively. Application of EGSU simplified the exchange of information, necessary for administration of subsoil users; there is no need of request of data form subsoil users.
The Special division "monitors" nearly 40% of national economy regarding the taxation. Efficiency of the work of Special division is also confirmed by the fact that the income tax of special payments and the consolidated budget for the years 2007-2013 increased by more than 6 times to 391.5 mln. tenge in 2007 to 347.9 mln. tenge 2 in 2013.
Summing up the results, it would be desirable to note that the Head of state gives to control over development of these branches special value: "Kazakhstan has to become a regional magnet for investments. Our country has to become the most attractive place in Eurasia for investments and for a transfer of technologies. It is essentially important. We have to show to investors of advantages which we possess". (from Strategy – "Kazakhstan 2050")
That is why the taxation of subsoil users most characterizing a condition of investment climate of the country which are priority in the work of the Tax Committee of the Ministry of Finance. In turn, the tax authorities will make all lawful efforts for ensuring protection of economic interests of our state and observance of the constitutional principle of equality everyone before the law."
