Over the past month, public and media discussions have continued around the International Technopark of IT Startups “Astana Hub” (hereinafter – the “Technopark”). This was triggered by the withdrawal of 32 companies [1] from the list of Technopark participants following legislative amendments [2] that excluded the provision of infrastructure services to digital miners from the list of priority activities.
Under Clause 7 of the Technopark Rules [3], only companies engaged in one of the priority activities listed by the Technopark [4] are eligible for participant status. Accordingly, if a particular activity is removed from the list, companies engaged in such activities are no longer eligible for Technopark participation or for the tax preferences provided by law.
One of the key tax incentives available to Technopark participants is VAT exemption on imports, which may be applied provided that the company meets all three conditions outlined in Subparagraph 17 of Paragraph 1 of Article 399 of the Tax Code:
Utilizing this exemption, IT startups have been actively importing various types of equipment from foreign jurisdictions to support their priority activities, thereby accelerating the development of Kazakhstan’s IT industry. Given the volume of such imports, the amount of VAT exempted often reached hundreds of millions, and in some cases, billions of tenge.
Naturally, the state revenue authorities could not overlook either the legislative changes or the significant volume of untaxed imports. As a result, inspections were initiated against companies that had previously provided comprehensive computing infrastructure to third parties and exited the Technopark regime in the current year, focusing on the allegedly “unlawful” application of tax preferences.
Typically, the inspection reports issued by the state revenue authorities contain the following generalized conclusions:
We believe that the above conclusions are erroneous for the following material reasons:
In the first case, companies offer data center services to third parties/tenants for computational operations and data processing. In contrast, digital mining entails direct execution of hashing and data processing algorithms to verify the integrity of data blocks within a blockchain infrastructure [6].
In accordance with Paragraph 5 of Article 3 of the Tax Code, laws that worsen the position of a taxpayer shall not have retroactive effect.
Therefore, the actions of the tax authorities aimed at replenishing the state budget at any cost lack legal basis and amount to arbitrary treatment of bona fide taxpayers. In our view, this situation undermines the Technopark’s efforts to attract new participants and negatively impacts Kazakhstan’s overall investment climate.
Dispute resolution practice on this matter is still evolving, and we remain hopeful that the State Revenue Committee and the Appeals Commission will continue to correct the mistakes made by field inspectors. In this regard, we believe that official clarification by the State Revenue Committee is necessary to prevent unjustified involvement of IT companies in lengthy tax disputes.
Under Clause 7 of the Technopark Rules [3], only companies engaged in one of the priority activities listed by the Technopark [4] are eligible for participant status. Accordingly, if a particular activity is removed from the list, companies engaged in such activities are no longer eligible for Technopark participation or for the tax preferences provided by law.
One of the key tax incentives available to Technopark participants is VAT exemption on imports, which may be applied provided that the company meets all three conditions outlined in Subparagraph 17 of Paragraph 1 of Article 399 of the Tax Code:
- The imported goods must be included in the official list of goods eligible for the Technopark regime [5];
- The import must be properly documented in accordance with the customs legislation of the EAEU and/or the Republic of Kazakhstan;
- The goods must be imported solely for use in conducting priority activities listed by the Technopark.
Utilizing this exemption, IT startups have been actively importing various types of equipment from foreign jurisdictions to support their priority activities, thereby accelerating the development of Kazakhstan’s IT industry. Given the volume of such imports, the amount of VAT exempted often reached hundreds of millions, and in some cases, billions of tenge.
Naturally, the state revenue authorities could not overlook either the legislative changes or the significant volume of untaxed imports. As a result, inspections were initiated against companies that had previously provided comprehensive computing infrastructure to third parties and exited the Technopark regime in the current year, focusing on the allegedly “unlawful” application of tax preferences.
Typically, the inspection reports issued by the state revenue authorities contain the following generalized conclusions:
- The provision of infrastructure services to third parties is equated to the direct conduct of digital mining, thus disqualifying such companies from the VAT import exemption;
- The imported equipment is allegedly used exclusively for digital mining and is therefore not eligible for the exemption as it does not serve the Technopark’s priority activities;
- Following the exclusion of infrastructure services for digital miners from the list of priority activities, the VAT previously exempted on import must be retrospectively paid to the state budget.
We believe that the above conclusions are erroneous for the following material reasons:
- Providing comprehensive computing infrastructure and conducting digital mining are fundamentally different business activities.
In the first case, companies offer data center services to third parties/tenants for computational operations and data processing. In contrast, digital mining entails direct execution of hashing and data processing algorithms to verify the integrity of data blocks within a blockchain infrastructure [6].
- The equipment allegedly used exclusively for digital mining often falls under the HS codes included in the Technopark's list of exempted goods, indirectly confirming that such equipment may be used for purposes other than mining.
- The legislative amendments do not affect VAT exemptions already applied prior to the amendments and are only applicable to imports conducted after the changes took legal effect.
In accordance with Paragraph 5 of Article 3 of the Tax Code, laws that worsen the position of a taxpayer shall not have retroactive effect.
Therefore, the actions of the tax authorities aimed at replenishing the state budget at any cost lack legal basis and amount to arbitrary treatment of bona fide taxpayers. In our view, this situation undermines the Technopark’s efforts to attract new participants and negatively impacts Kazakhstan’s overall investment climate.
Dispute resolution practice on this matter is still evolving, and we remain hopeful that the State Revenue Committee and the Appeals Commission will continue to correct the mistakes made by field inspectors. In this regard, we believe that official clarification by the State Revenue Committee is necessary to prevent unjustified involvement of IT companies in lengthy tax disputes.