- A new Tax Code may come into force in Kyrgyzstan from 2022
A new Tax Code may come into force in Kyrgyzstan from 2022
A new Tax Code may come into force in Kyrgyzstan from 2022. The document was approved by the parliament in the first reading. In the history of the country, this will be the third code adopted in the new edition.
In this regard, different opinions are expressed among the business community, parliament and ordinary residents. The new code found both supporters and opponents. The project was discussed in the program «Eldik Economy».
What will be the new types of taxes in the new code?
To understand the essence of the issue, let’s consider the types of taxes. And find out how each of them will be affected by the new bylaws.
There are currently eight general and local taxes in Kyrgyzstan. These are personal income tax, income tax, value added tax (VAT), excise tax, subsoil use tax, sales tax, land tax and property tax. Seven taxes will remain in the new code.
The head of the tax policy department of the Ministry of Economy and Commerce Kubanychbek Ysabekov gave clarifications on the new document:
“Compared to taxes in the world, or rather to Central Asia, our taxes are not high, even low. But in the new code, we focus not on increasing them, but on simplifying the process of fees, procedures, administration and other issues. The main goal is to create comfortable conditions for business. Therefore, the structure of the tax system has not changed in the new code. If earlier there were six state and two local taxes, then they remained as before. Only in local taxes the land tax is now included in the property tax. Because the land is also real estate. But real estate and land are also taxed differently. In addition, we intend to introduce two tax regimes,” the official says.
We will return to tax regimes later. In the meantime, let’s consider the types of taxes. Because there will be changes anyways, although they claim that the rates have remained the same.
The first on the list is personal income tax, which is paid by all working people — citizens of the country, foreigners. The tax rate is 10%. For each 1000 soms earned, 100 soms are paid to the treasury. The same principle will remain in the new code.
Next comes the income tax, which is paid by private entrepreneurs and enterprises. Costs are deducted from their earnings and 10% is paid to the budget from the remaining funds, which are called net profit. This is also remained unchanged.
Now entrepreneurs, whose turnover exceeds 8 million soms, pay 12% of this amount, or the so-called value added tax. The new document proposes to raise this threshold. Now companies, whose turnover reaches 30 million soms, will be obliged to pay this tax.
President of the Association of Suppliers, Manufacturers and Distributors Gulnara Uskenbaeva:
— Of course, the State believes that this is a very good code. But business has a different opinion on some processes. The Tax Code may not be to everyone’s liking. Because everyone is obliged to pay taxes, but no one will openly say that he «likes to pay taxes.» Yes, there were active discussions, opinions were expressed against it. Some of our comments were taken into account, others were not. In general, I can say that this code, compared to the current one, will be better for small entrepreneurs. Here is one example — domestic producers were equated with trading companies. We have demanded this for ten years. Because local entrepreneurs paid more taxes than distributors. We also support an increase in the VAT threshold from 8 million soms to 30 million. We even held a press conference and told reporters and deputies about our demand. We asked this not because we didn’t want to pay VAT, but because of the complexity in administration. The requirements were complex and difficult to execute correctly. Now, conditions will be created for small businesses to pay taxes in good faith.
The fourth tax — excise — is intended for fuels, alcoholic and tobacco products. There are no changes in two points. For example, the tax rate for one liter of vodka is 300 soms, and about 10 soms per ton of gasoline.
Starting from the new year, the excise tax on 1000 packs of cigarettes will be increased from 2000 soms to 2250 soms.
However, experts note that these are not the achievements of the new code, but the results of previous measures. Since Kyrgyzstan became a member of the EAEU, since 2018 excise taxes have been increased by 250 soms annually.
At the same time, the proposed code equates electronic cigarettes with conventional ones. If earlier the excise tax was 800 soms, now 2250 soms will be paid for it.
According to the tax for the use of subsoil, mining companies, upon acquiring a license, pay a one-time bonus to the respective region and pay a portion of the proceeds earned as royalties on a monthly basis. The volumes of deposits, the amounts of licenses and royalties are different, so we will not detail their volumes.
The amount of the increase was not considered in the Tax Code, but the rates for licenses in this industry were increased tenfold by the decision of the Cabinet of Ministers.
The sixth tax — sales tax — is paid by enterprises and private entrepreneurs. The amount was 0-2% for non-cash payments, and for cash — 2-4%.
Now it is proposed, depending on the type of enterprise, to establish 3-4% for non-cash payments, and if paid in cash, the tax will be 4-6%. However, the initiators took into account the fact that the banking sector took this negatively and decided to leave the tax rates on sales by bank transfer unchanged.
In the current code, the seventh and eighth taxes on land and property are separate. As mentioned above, they intend to combine them. Because a house, land, apartment or car in other laws are included in the category of property.
But the tax rates for them will remain the same. Slightly increase the coefficients for passenger cars produced less than five years ago. And taxes on other types of property are compiled taking into account area, volume, location and other categories, which taxpayers are well aware of.
The State Tax Service under the Ministry of Finance has not yet specified how many taxpayers there are in each category. The department named only the total number of those who pay taxes — this is 746 thousand 26 taxpayers.
Two Tax modes.
Now let’s look at tax collection regimes.
In general, all the listed taxes, both state and local, are called the «General Tax Regime».
Now the Tax Code will include «Special Tax Regimes». In these regimes, special procedures will be applied for calculating taxes and their elements, as a result, the entrepreneur will not be levied general regime taxes or will be exempted from them.
There were nine taxes in the «special tax regimes» of the current code, but one has expired. As a result, there are eight of them left. Six regimes are left in the new code.
The tax on the basis of a compulsory patent was used by about ten types of enterprises — saunas, baths, billiard rooms, bus stations, car washes, currency exchange offices, beauty salons and others. According to the latest information, 4-5 thousand patents are issued per month; over the past nine months, about 45 thousand mandatory patents have been issued.
The enterprises of this group paid the amount of this patent instead of taxes on profits, sales and VAT. The base tariff was 20 thousand soms, the amount decreased or increased depending on the region. Regardless of high or low turnover or income, they paid the same amount every month. The new Tax Code proposes to move away from this method.
The initiative was explained by the representative of the Ministry of Economy and Commerce Kubanychbek Isabekov:
“We want the new edition of the Tax Code to be fair. In other words, the principle is introduced — if you have earned more, you pay more, and if the profit is lower, then you pay accordingly. And there was a fixed amount in mandatory patents. For example, a patent of a currency exchange office in Bishkek costs 15 thousand soms. Suppose one point earns 500 thousand soms, and another 150 thousand soms. But the payments are the same, in our opinion, there is no justice. Entrepreneurs are required to pay according to the profits earned, deducted at a set percentage. For the same reason, we intend to cancel the tax treaty. Because they raised the issue that income was reduced during the pandemic and asked to be allowed to pay less. But according to the agreement signed at the beginning of the year, they had to pay the indicated amount, even if they did not earn a single tyyn. This is wrong, if there is no profit, then taxes should be appropriate. If these regimes are abolished, enterprises should switch to the «General tax regime» or «Single tax regime». Here the question may arise: «How to control the size of their income, what if they hide them?» Cash register machines (KKM) and electronic invoices are now being introduced. Thus, we will bring a lot out of the shadows. »
The number of those who monthly use voluntary patents reaches 80-100 thousand people. There are 80 types of patents. The minimum tariff starts from 500 soms, the maximum — 50 thousand soms. This mode will be saved.
But when the new version of the Tax Code is adopted, the types and rates of voluntary patents will be determined by a special resolution of the Cabinet of Ministers. Then a lot can change.
The third regime in the current code — the simplified taxation system — for the single tax will remain in the new edition. It will be abbreviated as the «Unified Tax Regime» and will be the main one after the «General Tax Regime».
Enterprises with a turnover of up to 30 million soms, working on a contract basis or with a mandatory patent, will proceed to work in this manner.
In the «Single Tax Regime» VAT, income taxes and sales taxes will be calculated together. Everyone will pay in one payment. Tax rates for sales by non-cash payments will be 2%, and in cash — 4%. For manufacturing enterprises or providing services, tax rates on profits from non-cash payments will be 3%, for cash payments — 6%.
In the new code for the spheres of trade, production and processing, tax rates will be as follows: 2% for non-cash payments, for cash — 4%. Entrepreneurs from other sectors (including the service sector) pay 4% in the first case, and 6% in the second.
Sewing and textile workshops will pay 1%, public catering points, saunas, baths and billiard rooms — 8%, for service providers and suppliers of goods in the first year, a zero rate will be applied and 1-2-3% in subsequent years.
The tax regime on the basis of the contract is used by catering points, construction companies, resort and recreational zones. In 2020, such an agreement was concluded 1550 times, this year — only 969 agreements. As noted above, this regime will be eliminated.
The tax regime of free economic zones was used by enterprises created for business development. There are five such zones in Kyrgyzstan. These are Bishkek, Naryn, Karakol, Maimak and Leilek SEZs. Basically, the subjects are located in Bishkek, in the rest there are few of them.
These zones are export-oriented. According to the law, enterprises registered in the FEZ pay 2% of the total turnover of the directorate of this zone. They are exempt from other taxes. But they are obliged to pay VAT if the goods are sold on the territory of Kyrgyzstan. There will be no changes in the tax regimes for the FEZ in the new code.
IT companies operate in a different zone — they have a special tax regime in the Bishkek High-Tech Park. They also wanted to change the rules for them.
Head of the Methodology Department of the State Tax Service Nurlan Umtulov:
“Companies that are members of a high-tech park, according to the tax regime, paid 5% of profits. They are exempt from other taxes. At the beginning, we proposed raising this amount to 10% in the new code. But during negotiations with business representatives, they asked to be left in the same state. They gave three reasons for this. Therefore, we did not change the tax rules for the high-tech park, we left it as before.”
In tax regimes, it is assumed that the simplified tax system for the retail trade will be excluded. Taxes for cryptocurrency production or mining will remain the same. Miners will pay a 15% tax for the electricity they use. In Kyrgyzstan, it is allowed to mine cryptocurrency, tariffs are set, but due to a lack of electricity, miners do not work.
The initiators also propose to introduce a tax regime for e-commerce into the Tax Code. It will include the trade of online stores, sales and purchases in social networks.
However, these sites must register in the name of individuals or legal entities in Kyrgyzstan, buy a KG domain and the IP address must be located in the country. A 2% tax will be imposed on them. This tax will include sales taxes, income taxes and VAT.
As part of the proposed Tax Code in Kyrgyzstan, the issue of taxing such IT giants as Google, Facebook, Yandex is being discussed. If they pay taxes on e-commerce, they will have to open offices in Kyrgyzstan.
Otherwise, for sites that earn from users from Kyrgyzstan, a special law must be developed. According to the initiators, such a document is considered in a single package with the Tax Code. The code includes articles allowing the implementation of such laws.
Major changes and innovations.
It is known that the new code includes a number of simplifications on tax collections, reporting, digitalization, declaration, fiscalization and labeling of goods. These include export tax refunds, Islamic finance and fines write-offs.
Deputy Minister of Economy and Commerce Bekbolot Aliyev spoke about the changes in the code, which are being introduced for the first time in Kyrgyzstan, but are already being used in world practice:
“For the development of the state and the fulfillment of our obligations, we must have a sufficient budget. Therefore, we massively use cash registers. For successful implementation, we are introducing a cashback system into the new Tax Code. In other words, each customer will have the right to get back a certain percentage of the money spent on the purchase. To do this, you must require receipts with each purchase. With their help, through a special portal, it will be possible to return part of the money spent. This mechanism is being implemented to strengthen public scrutiny and force outlets to fully utilize cash registers. This works in many countries. »
Note that the new regulatory legal acts update a number of aspects in the interaction of tax officials with taxpayers. For example, officials will be able to conduct remote checks.
Legal issues will also be handled by the Tax Service, rather than the Ministry of Justice. Also, the tax authorities are given the right to conduct an inquiry in cases of any problem. If there are disputes between the two parties, they will be resolved by special tax courts.
In this regard, the group, which includes 23 associations and unions, appealed to President Sadyr Japarov and expressed its concern about some changes in the new code. This is what the Executive Director of the International Business Council Askar Sydykov says about it:
“This code does not meet our expectations. It is raw as it is now. Its adoption raises risks. It should be sent back for revision, the Ministry of Economy should invite other interested parties, discuss it for two or three months and then make a decision. Although it is argued that the «Flat Tax» is good, but this is in theory. There were no real calculations, which can, on the contrary, strengthen the shadow economy. This is the first thing. Secondly, they want to give the Tax Service the status of law enforcement agencies. They want to give them the right to conduct an investigation. This causes risks in the balance of the bodies; it is a corruption component. We talked about unnecessary tax penalties. They want to send 3% of taxes to the Tax Service, which is also wrong. This is not in line with international standards. »
By the way, the business community is concerned that the authorities intend to use 3% of taxes to support the activities of the State Tax Service. Entrepreneurs are confident that if the tax authorities have such advantages, they will put pressure on taxpayers and will maximize tax collections.
These questions were answered by the head of the tax policy department of the Ministry of Economy and Commerce Kubanychbek Isabekov.
“At meetings with business, we have resolved some disagreements. Three to four issues have been corrected. But we believe that they should still be included. The current regulations also have a provision on the transfer of 3% taxes to ensure the payment of salaries to employees of the Tax Service, on technical equipment and other issues. It was in the law «On the Tax Service», but loses its force during the inventory of laws. Therefore, we include this in the Tax Code. These funds are allocated to support the service. Yes, it is true that the function of conducting the investigation is transferred to the Tax Service. Because the Financial Police was disbanded, the functions of the investigation were transferred to the General Prosecutor’s Office. Now it is proposed to transfer the functions of the preliminary investigation to the tax authorities. But they will investigate if there are only tax disputes. If this function is not transferred to the Internal Revenue Service, another authority should have it. This function should still be in the state, ”Ysabekov said.
In 1991, Kyrgyzstan declared its independence, in 1992, a law «On the State Customs Service» was adopted. In 1994, the law “On the Basics of the Tax System of the Kyrgyz Republic” came into force. In fact, these documents defined the basic concepts of taxes and the tax system of the country.
In 1996, Kyrgyzstan was one of the first in the post-Soviet space to adopt the Tax Code. The current chairman of the Cabinet of Ministers, Akylbek Zhaparov, in 2008, when he was Minister of Economic Development and Trade, proposed a new version of the Tax Code and began work on the document. Since then, the code has undergone over 130 changes.
On May 5, during the signing of the new Constitution, President Sadyr Japarov announced that Kyrgyzstan would adopt the third edition of the Tax Code. The head of state noted that the document will be proposed before October 1.
As promised, the new code was brought up for public discussion and published on the website of the Cabinet of Ministers. On October 27, the document was submitted to the Jogorku Kenesh (Parliament) for consideration, it was presented by Akylbek Zhaparov himself. More extensive information was provided by the Minister of Economy and Commerce Daniyar Amangeldiev. Following the meeting, the document was adopted in the first reading.
The current Tax Code consists of 403 articles; the new edition will have 449 articles. Some articles will be supplemented, others are proposed without changes.
After the discussion of the code on November 11, the document will be submitted for the second reading. It is expected that with the support of the deputies, the president will immediately sign the document. Because according to the plan, the document should start working as early as January 1, 2022.
- Author: Nargiz Mammadova
Public Relations Manager
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