Pre-proposal VAT System
The VAT is the main form of indirect tax in Kazakhstan. It was introduced in Kazakhstan as a part of a new national-level tax system in December 1991, shortly after the country got its independence from the Soviet Union. A standalone law of fewer than ten pages over time evolved into a sophisticated part of the Tax Code, which currently consists of 93 articles and has a dedicated chapter on the VAT peculiarities within the EAEU conditions.
The VAT in Kazakhstan is sometimes referred to as the ‘European style', as the VAT system there generally follows the same principles that are adopted by the EU countries. The VAT is applied on practically all goods and services that are deemed to be supplied in Kazakhstan The country employs the credit-invoice method of computing the VAT due. Kazakhstan also imposes a VAT invoice requirement. As a general rule, input VAT is creditable provided the VAT payer has sufficient evidence that the VAT was paid, for instance, a VAT invoice from the supplier. If acquired goods and (or) services are used in the VAT exempt activities, input VAT on such goods and services cannot be credited.
Kazakhstan has a single standard VAT rate. Standard VAT rate has changed through the years and gradually decreased from 20 per cent in the mid-90s to current 12 per cent. It should be noted that Kazakhstan and Kyrgyzstan, another Central Asian EAEU partner country, have the lowest standard VAT rate of 12 per cent in the EAEU countries: compare with Armenia and Belarus – 20 per cent, and Russia – 18 per cent (as of July 2018).
The VAT reporting period in Kazakhstan is a calendar quarter.
International Trade and VAT
The Kazakhstan VAT model in respect of cross-border trade can be categorized as a destination-based system, as the qualifying export is subject to zero per cent VAT rate, and the VAT on import is payable by the importer. Although now it is nowhere near the impressive 74 per cent mark hit in the early 90s, export has been steadily accounting for around 30 or more per cent of Kazakhstan's GDP during the past decade and it is only fair to say that export still plays an inevitable role in the national economy. Thus, use of a system that favours the exporters from an international competition standpoint is well justified.
The exporters are permitted to the full credit of input VAT related to the zero-rated export supplies. The excessive VAT related to export can be carried forward towards future VAT obligations. It also can be refunded if certain conditions are met simultaneously:
· the VAT payer shall make the zero-rated supplies of goods and services on a continuous basis
· the zero-rated supplies shall constitute no less than 70 per cent of total VATable turnover for the period in which the zero-rated supplies take place.
The practicalities of VAT refunds for the zero-rated supplies and their impact on the indirect reform proposal will be discussed in more detail further on in this Chapter (Part Three ‘Indirect Tax Reform Proposal').
VAT Payers and Registration Threshold
Kazakhstan legislation envisages VAT registration that is separate from tax registration. The categories of business which can register as VAT payers are e individual entrepreneurs, resident legal entities (except for the government agencies) and non-residents conducting their activities in Kazakhstan through a registered branch or representative office. Individuals (who are not registered with SRC as individual entrepreneurs), government agencies and non-established foreign businesses cannot register for VAT purposes and recover VAT.
VAT registration can be either on the voluntary basis or obligatory upon exceeding a set threshold of annual turnover. The threshold is normally set in MCI, which is an index established for each year and used to calculate social and administrative payments in Kazakhstan. In 2017 the threshold was at 30,000 times MCI equivalent to approximately 208,804 US dollars. Further detailed discussion of the VAT registration threshold, including its planned change and related debate, can be found in Chapter Three.
The legislation sets fines for late VAT registration. Kazakhstan is particularly notorious for its high tax-related fines and penalties size. Prior to 2018, late VAT registration could be penalized at up to 30 per cent of turnover for the period for which the registration was required, with no upper limit. From 2018 the penalty has been changed to a capped amount of 50 MCI, which is approximately 365 US dollars in 2018.
Some types of transactions fall under the VAT exemption in Kazakhstan. This includes certain financial services and operations with land plots and residential buildings, where it is traditionally difficult to assess the value added component. Certain socially important activities are also exempted from the VAT, including services in the field of culture, science and education, goods and services related to healthcare etc. Some imports are VAT exempt, for instance, drugs, medical goods and equipment from a special list approved by the Kazakhstan government and investment gold.
Services which are deemed to be supplied outside of Kazakhstan under the ‘place of supply' rules are also exempt from the Kazakhstan VAT.
Having said that, from the author's perspective, the Kazakhstan VAT tax base can be characterized as rather broad, as it effectively incorporates all sectors of Kazakhstan's economy with few exceptions. There will be more discussions on VAT exemptions in Kazakhstan in Chapter Three, including the agricultural sector and overall governmental view on VAT incentives.
Place of Supply Rules
‘Place of supply' rules for goods are relatively simple. Where goods are transported by the supplier, the buyer or a third party, the place of supply is where the goods transportation begins. In all other instances, a supply is made for VAT purposes where the goods are transferred to the buyer.
VAT application on services may differ depending on their nature. The guiding principle is that the place of supply for services shall be the country where the party performing the services has a place of business (which equates to a country of a legal registration), or put simply, the supplier's location is used as a proxy. Some exceptions to this usual rule include the following:
· services associated with the immovable property, which are deemed to be supplied in the place where the property is located
· services associated with the movable property are deemed to be supplied in the location where they take place
· leasing (rent) of movable property, except for transport vehicles; provision of personnel (secondment); consulting, audit, advertising, legal, accounting, engineering, marketing, information processing services, the transfer of rights to intellectual property. These services are deemed to be supplied at the place of business of the buyer.
Reverse Charge VAT on Services
As mentioned above, foreign businesses that do not have a registered branch or representative office in Kazakhstan cannot register for VAT and account for it. If foreign businesses perform services which are deemed to be supplied in Kazakhstan, VAT-registered Kazakhstan buyer must charge VAT on such services itself and pay it directly to SRC. This reverse charge VAT is generally creditable for the Kazakhstan buyer unless it is attributed to the exempt supplies.
Import VAT on Goods
Import VAT on goods shall be paid by the importer of records to SRC on the date stipulated by the customs legislation for customs payments, which are generally payable prior to or during the goods customs clearance. The Kazakhstan importer who is the registered VAT payer can reclaim this import VAT unless it is associated with the exempt supplies.
Regarding the terminology, ‘reverse charge VAT' is associated with purchases of services, while VAT on goods is called ‘VAT on import'. This is perhaps because SRC is a relatively new structure of Kazakhstan tax authority: it was established by merging two functionally discrete departments of the Ministry of Finance – the Tax Committee and the Customs Committee. Prior to their merger in August 2014, reverse charge VAT was payable to the Tax Committee and import VAT was enforced by the Customs Committee.
 Law of the Republic of Kazakhstan No 1072-XII ‘On the Tax System in the Republic of Kazakhstan' dated 25 December 1991 [Закон Республики Казахстан от 25 декабря 1991 года № 1072-XII «О налоговой системе в Республике Казахстан»] <www.online.zakon.kz/Document/?doc_id=1000875> accessed 27 July 2018
 Law on VAT
 As of July 2018
 Code of the Republic of Kazakhstan No 120-VI ‘On Taxes and Other Obligatory Payments to the Budget' dated 25 December 2017 [Кодекс Республики Казахстан от 25 декабря 2017 года № 120-VI «О налогах и других обязательных платежах в бюджет»] <www.online.zakon.kz/Document/?doc_id=36148637> accessed 27 July 2018 (Tax Code 2018)
 Tax Code 2018, ch 50
 For the purposes of this Chapter, tax legislation that was in force prior to 2018 is examined, mainly basing on the Code of the Republic of Kazakhstan No 99-IV ‘On Taxes and Other Obligatory Payments to the Budget' dated 10 December 2008 [Кодекс Республики Казахстан от 10 декабря 2008 года № 99-IV «О налогах и других обязательных платежах в бюджет»] <www.online.zakon.kz/Document/?doc_id=30366217> accessed 27 July 2018 (Tax Code 2009)
 Tax Code 2009, arts 230-231
 ibid art 263
 ibid art 256
 ibid art 257
 ibid art 268.1
 PwC World Wide Tax Summaries, ‘Value-Added Tax (VAT) rates' (Worldwide Tax Summaries, 2018) <www.taxsummaries.pwc.com/ID/Value-added-tax-(VAT)-rates> accessed 27 July 2018
 Tax Code 2009, art 269
 ibid arts 242-243
 ibid art 228.1(2)
 World Bank, ‘World Development Indicators', Exports of goods and services (% of GDP) Kazakhstan <https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?end=2017&locations=KZ&start=1960&view=chart> accessed 27 July 2018
 Tax Code 2009, art 272.3
 ibid art 228
 ibid arts 568-569
 Average 2017 rate is 326.00 KZT to 1 USD. Source: National Bank of Kazakhstan, ‘Statistics. Exchange Rates', Official Foreign Exchange Rates on Average for the Period, 2017 [Национальный Банк Казахстана, Статистика, Курсы валют «Официальные обменные курсы иностранных валют в 2017 году» 2017 год] <www.nationalbank.kz/cont/2017%20%D1%80%D1%83%D1%8111.pdf> accessed 27 July 2018
 Code of the Republic of Kazakhstan No 235-V ‘On Administrative Violations' dated 5 July 2014 (version prior to the amendments introduced on 28 December 2017) [Кодекс Республики Казахстан об административных правонарушениях от 5 июля 2014 года № 235-V (в редакции, действовавшей до внесения изменений от 28 декабря 2017 года)], art 269.3 <www.online.zakon.kz/Document/?doc_id=38966867> accessed 27 July 2018
 Law of the Republic of Kazakhstan No 127-VI ‘On Introduction of Amendments and Additions to Code of the Republic of Kazakhstan ‘On Administrative Violations' dated 28 December 2017 [Закон Республики Казахстан от 28 декабря 2017 года № 127-VI «О внесении изменений и дополнений в Кодекс Республики Казахстан об административных правонарушениях»], art 1(86) <www.online.zakon.kz/Document/?doc_id=39879527> accessed 27 July 2018
 Average rate for Q2 2018 is 1 USD = 329.76 KZT. Source: National Bank of Kazakhstan, ‘Statistics. Exchange Rates', Official Foreign Exchange Rates on Average for the Period, Q2 2018 [Национальный Банк Казахстана, Статистика, Курсы валют «Официальные обменные курсы иностранных валют в 2018 году» 2 квартал 2018 года] <www.nationalbank.kz/cont/2018%20%D1%80%D1%83%D1%816.pdf> accessed 27 July 2018
 Tax Code 2009, art 253
 ibid art 254
 ibid art 255.1(7)
 ibid art 255.1(11)
 ibid art 232(2)
 ibid art 236.1
 ibid art 236.2
 ibid art 241
 ibid art 271.2
 Decree of the Government of the Republic of Kazakhstan No 933 ‘On Institutions of Central Executive Bodies of the Republic of Kazakhstan' dated 14 August 2014 [Постановление Правительства Республики Казахстан от 14 августа 2014 года № 933 «О ведомствах центральных исполнительных органов Республики Казахстан»], art 2(1) <www.online.zakon.kz/Document/?doc_id=31594020> accessed 27 July 2018
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