Subsurface Taxation in Kazakhstan

Bauyrzhanova Zhanargul

ID 20080354

SUBSURFACE TAXATION IN KAZAKHSTAN

Tax Regime

With the introduction of the New Tax Code in December 2008 that became effective from 1 January 2009, Kazakhstan subsurface use taxation has undergone significant changes. In comparison to the previous tax regime, the new tax legislation envisages just one model of tax regime that requires a subsurface user to pay taxes (and other mandatory payments). The second model of a ‘Production Sharing’ system is no longer available.

Special Taxes

All subsurface users carrying out activities in Kazakhstan are required to pay special taxes and other obligatory payments. These include: signature and commercial discovery bonuses, payment for historical costs, mineral production tax (MPT), excess profit tax, rent tax on exported crude oil, and excise taxes. Although the list of special payments and taxes applicable to subsurface users is the same, the economics of a project generally determine amounts of applicable bonuses. Payment for historical costs is designed to recover historical costs previously incurred by the Government for exploration and development of reserves of mineral resources.

Mineral Production Tax

Mineral production tax has replaced royalties. Though rates of MPT are similar to royalties in that they are based on a sliding scale depending on annual production, MPT is more aggressive. In particular, MPT rates are significantly higher than royalties. For 2009, rates are established in the range from 5% to 18%. It is important to note that there is phase in period for tax rates, for instance, for 2010 – 6% – 19%, for 2011 – 7%- 20%. Previously, royalties’ rates ranged from 2% to 6%. MPT rates apply to the value of produced mineral, while value is based on world price of minerals. For hydrocarbons, rates can be reduced by 50% if they are supplied to...