Ravil Kassilgov, Partner
Aigerim Mamaeva, Junior Associate
For the past six months, there has been active discussion regarding the repeal of a Ministry of National Economy order that impacted the application of the input VAT payment method to imported goods.
As is known, certain types of goods not produced in Kazakhstan may be imported with VAT paid through the input method. Under Articles 427 and 428 of the Tax Code of the Republic of Kazakhstan, such goods include, among others: machinery and equipment; agricultural machinery; commercial motor vehicles; helicopters and airplanes; railway locomotives and wagons; and marine vessels.
The specific list of such goods, including their foreign economic activity commodity classification codes (FEACN), was established by Order No. 67 of the Acting Minister of National Economy dated 21 February 2018 (“Order No. 67”)[1].
On 31 March 2022, the Minister of National Economy adopted Order No. 31[2] (“Order No. 31”), which removed many FEACN codes from the list. For example, elevators, escalators, conveyors, and certain types of internal combustion engines were excluded.
Order No. 31 was particularly problematic because it had retroactive effect—coming into force on 1 January 2022. As a result, a number of significant issues arose. Businesses had continued operations under the previously valid list, importing goods with VAT paid via the input method and facing no objections from the tax authorities. However, following the retroactive reduction of the list, companies began receiving notifications from tax authorities requiring payment of VAT and penalties on goods imported before Order No. 31 was adopted.
In our view, Order No. 31 violated paragraph 4 of Article 43 of the Law of the Republic of Kazakhstan "On Legal Acts," which provides that legal acts imposing new obligations or worsening the position of citizens shall not have retroactive effect.
Furthermore, the retroactive application of Order No. 31 to previously filed customs declarations contravened paragraph 3 of Article 3 of the Tax Code, which states that tax laws worsening the position of the taxpayer shall not apply retroactively.
With Order No. 31 remaining formally in force, adverse trends began to appear in the outcomes of customs audit appeals[3]. Unsurprisingly, the situation sparked widespread concern among the business community. The Business Ombudsman, Rustam Zhursunov, sent a formal letter to the Prime Minister of Kazakhstan proposing amendments to Order No. 31, including revoking its retroactive application to legal relationships arising from 1 January 2022[5].
As a result, and with the active involvement of the National Chamber of Entrepreneurs "Atameken," a new Order No. 74[4] was signed on 21 October 2022 by the Minister of National Economy Alibek Kuantyrov. This order reinstated the list of imported goods to its status prior to Order No. 31 (with the exception of crypto mining computing machines) and introduced new livestock-related items.
Order No. 74 establishes the following lists of imported goods:
These changes had a positive impact on businesses by restoring tax benefits in sectors of the economy where local production of equipment, machinery, and components is absent.
Sources:
[1] Order No. 67 dated 21 February 2018 – https://online.zakon.kz/Document/?doc_id=37371686
[2] Order No. 31 dated 31 March 2022 – https://online.zakon.kz/Document/?doc_id=37132863
[3] Appellate Commission decision: VAT input method – computing server – https://www.gov.kz/memleket/entities/minfin/press/article/details/96955?lang=ru
[4] Order No. 74 dated 21 October 2022 – https://online.zakon.kz/Document/?doc_id=34921129
[5] Facebook post by Rustam Zhursunov – https://www.facebook.com/100047917087079
Aigerim Mamaeva, Junior Associate
For the past six months, there has been active discussion regarding the repeal of a Ministry of National Economy order that impacted the application of the input VAT payment method to imported goods.
As is known, certain types of goods not produced in Kazakhstan may be imported with VAT paid through the input method. Under Articles 427 and 428 of the Tax Code of the Republic of Kazakhstan, such goods include, among others: machinery and equipment; agricultural machinery; commercial motor vehicles; helicopters and airplanes; railway locomotives and wagons; and marine vessels.
The specific list of such goods, including their foreign economic activity commodity classification codes (FEACN), was established by Order No. 67 of the Acting Minister of National Economy dated 21 February 2018 (“Order No. 67”)[1].
On 31 March 2022, the Minister of National Economy adopted Order No. 31[2] (“Order No. 31”), which removed many FEACN codes from the list. For example, elevators, escalators, conveyors, and certain types of internal combustion engines were excluded.
Order No. 31 was particularly problematic because it had retroactive effect—coming into force on 1 January 2022. As a result, a number of significant issues arose. Businesses had continued operations under the previously valid list, importing goods with VAT paid via the input method and facing no objections from the tax authorities. However, following the retroactive reduction of the list, companies began receiving notifications from tax authorities requiring payment of VAT and penalties on goods imported before Order No. 31 was adopted.
In our view, Order No. 31 violated paragraph 4 of Article 43 of the Law of the Republic of Kazakhstan "On Legal Acts," which provides that legal acts imposing new obligations or worsening the position of citizens shall not have retroactive effect.
Furthermore, the retroactive application of Order No. 31 to previously filed customs declarations contravened paragraph 3 of Article 3 of the Tax Code, which states that tax laws worsening the position of the taxpayer shall not apply retroactively.
With Order No. 31 remaining formally in force, adverse trends began to appear in the outcomes of customs audit appeals[3]. Unsurprisingly, the situation sparked widespread concern among the business community. The Business Ombudsman, Rustam Zhursunov, sent a formal letter to the Prime Minister of Kazakhstan proposing amendments to Order No. 31, including revoking its retroactive application to legal relationships arising from 1 January 2022[5].
As a result, and with the active involvement of the National Chamber of Entrepreneurs "Atameken," a new Order No. 74[4] was signed on 21 October 2022 by the Minister of National Economy Alibek Kuantyrov. This order reinstated the list of imported goods to its status prior to Order No. 31 (with the exception of crypto mining computing machines) and introduced new livestock-related items.
Order No. 74 establishes the following lists of imported goods:
- A list of goods for which VAT is paid using the input method, effective from 1 January 2022 to 1 April 2022;
- A list of goods for which VAT is paid using the input method, effective from 1 April 2022 onward.
These changes had a positive impact on businesses by restoring tax benefits in sectors of the economy where local production of equipment, machinery, and components is absent.
Sources:
[1] Order No. 67 dated 21 February 2018 – https://online.zakon.kz/Document/?doc_id=37371686
[2] Order No. 31 dated 31 March 2022 – https://online.zakon.kz/Document/?doc_id=37132863
[3] Appellate Commission decision: VAT input method – computing server – https://www.gov.kz/memleket/entities/minfin/press/article/details/96955?lang=ru
[4] Order No. 74 dated 21 October 2022 – https://online.zakon.kz/Document/?doc_id=34921129
[5] Facebook post by Rustam Zhursunov – https://www.facebook.com/100047917087079