Practical Aspects of Taxpayer Risk Categorization and Recent Case Law

Authors: Ravil Kassilgov, Partner; Dias Turkenov, Associate

As of January 1, 2019, Kazakhstan has implemented a taxpayer risk categorization system, classifying taxpayers into low, medium, and high-risk categories. This system is governed by Articles 136 and 137 of the Tax Code of the Republic of Kazakhstan and the Order of the Minister of Finance of the Republic of Kazakhstan dated February 20, 2018 No. 252 (the “Rules”).¹

Pursuant to paragraph 11 of the Rules, risk categorization is conducted quarterly based on both open and closed risk criteria. Open criteria are publicly available, whereas closed criteria are confidential and classified as “for official use only”.

The following sources of information are used in determining a taxpayer’s risk level:

The assigned risk category affects not only the tax administration approach toward the taxpayer but also their everyday business operations.

Under the Tax Code, taxpayers categorized as low-risk are entitled to the following benefits:

Conversely, classification as a high-risk taxpayer results in the loss of these benefits and subjects the taxpayer to expedited enforcement measures.

Key consequences of high-risk classification include:

Additionally, high-risk classification bars taxpayers from participating in procurement tenders related to solid mineral extraction operations. According to procurement rules, bids from high-risk suppliers are automatically rejected.²

This restriction is often enforced by major industrial and mining corporations, including Eurasian Resources Group (ERG), JSC Kazchrome, Kazakhmys Corporation LLP, Kazzinc LLP, Temirtau Electrometallurgical Plant LLP, Taraz Metallurgical Plant LLP, KSPSteel LLP, JSC Zhairem Mining and Processing Plant, JSC Sokolov-Sarbai Mining Production Association, JSC KazakhAltyn GMMC, and KAZ Minerals PLC, among others.

High-risk categorization also prevents participation in state-supported industrial development contracts aimed at promoting domestic manufacturing.³

According to paragraph 10 of the Rules, a taxpayer’s risk category may be adjusted by the tax authority based on substantiated explanations, with mandatory notification via the taxpayer’s online account.

However, the law does not provide for the review or appeal of risk classification based on closed criteria.

A review of recent case law indicates that legal challenges to high-risk categorization based on closed criteria are generally unsuccessful. Courts typically dismiss such claims on two grounds:

Below are excerpts from relevant court decisions:

• Case No. 7119-19-00-2/11013

“The taxpayer was classified as high-risk based on closed criteria, with a calculated risk probability exceeding 51%. The categorization was performed automatically using data from various government databases. The court concluded that the Committee acted within its lawful powers.”⁴

• Case No. 7194-22-00-4/3077

“The court reviewed the closed, confidential criteria and confirmed the taxpayer’s high-risk categorization. The court found that the inclusion in the audit schedule was lawful and in line with regulations.”⁵

• Case No. 7194-22-00-4/2553

“The claim to annul the high-risk classification was deemed inadmissible under administrative proceedings, as it did not constitute a burdensome administrative act.”⁶

• Case No. 5594-22-00-4/504

“The taxpayer’s risk category was determined using a risk management system and confidential criteria. The court found the categorization lawful and emphasized that such assessments are tools, not findings of legal violations.”⁷

• Case No. 7194-22-00-4/2282

“The court reaffirmed that a high-risk classification is not an administrative act that imposes legal obligations and is thus not subject to administrative judicial review.”⁸

However, a Supreme Court ruling dated November 14, 2023, offers some potential for change.⁹ The Court overturned an appellate decision and remanded the case for reconsideration, allowing the taxpayer to access documents substantiating the high-risk classification based on closed criteria.

While the appellate court ultimately reaffirmed the initial decision,¹⁰ the Supreme Court established that taxpayers have the right under Article 28 of the Administrative Procedure Code to access the full administrative case file, including documents labeled “for official use only.”

This precedent may encourage courts to adopt a more transparent approach when reviewing similar disputes in the future.

Given the legal limitations on appealing closed-criteria categorizations through the courts, taxpayers may consider alternative routes to seek reclassification or address adverse consequences.

Support can be sought from the following institutions:

1.National Chamber of Entrepreneurs “Atameken”
This organization advocates for and defends the rights of businesses, including in disputes with tax authorities. It maintains a Legal Protection Department to support entrepreneurs.
2.Business Ombudsman of the Republic of Kazakhstan
This office investigates complaints and advocates for business interests. Each complaint is reviewed and monitored by the Ombudsman’s staff.
3.Chairman of the State Revenue Committee of the Ministry of Finance
The Committee reviews taxpayer inquiries and complaints as part of its regulatory and enforcement mandate.
4.KAZAKH INVEST National Company
This state agency advises investors on tax incentives, supports investment projects, and facilitates engagement with public authorities. Its involvement can help preempt or resolve tax-related disputes.

As the risk categorization system incorporates closed criteria beyond the taxpayer’s control, it creates administrative barriers and lacks transparency. We hope that future tax code reforms will address these shortcomings and improve the accountability and predictability of Kazakhstan’s tax administration.

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