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Mongolia: Upcoming reforms to the tax system

15 July 2014   (0 Comments)
Posted by: Author: Rentsenkhand Davagjantsan
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Author :Rentsenkhand Davagjantsan 

BACKGROUND Mongolia adopted a new tax system 21 years ago. During these 21 years 101 laws have  been approved, of which 46 have been cancelled and 55 are still effective.

After the implementation of the new tax system the first reform of the tax legislation was carried out in 2007. The main aim of that reform was to create a positive environment for businesses. Now Mongolia is planning to make its second reform to the tax legislation. In recent years a wide range of inefficient tax exemptions and reliefs were leading to tax avoidance, to the detriment of equality and a fair principle of taxation in general. Within the existing tax legislation, there are 40 different tax reliefs and more than 180 tax exemptions, which annually amount to MNT 1 trillion, 30% of the total annual taxation income of Mongolia.

Proposed changes

The second tax reform is to be implemented in 2014, which will involve amending 17 tax laws.

Mongolia has 23 types of tax, of which four were never applied in practice. These are taxes on inheritances, presents and gifts, a capital city tax, a tax on dogs and a land surface usage tax. The dog tax was considered unnecessary, and draft laws in relation to the others will be discussed on the spring 2014 session of the parliament.

As a result of the reform, the number of tax guidelines for implementation of tax laws will be reduced from the current 24 to 13. The aim of this is to provide clarification and understanding in relation to disputes that have arisen in recent years with regard to tax laws and regulations.

The reform is guided by a policy of making the tax legislation simple and understandable for taxpayers, with no ambiguities. Furthermore, it aims to have a common policy on tax reliefs and exemptions, reflecting and following internationally accepted principles.

The reform is guided by a policy of making the tax legislation simple and understandable for taxpayers, with no ambiguities. Furthermore, it aims to have a common policy on tax reliefs and exemptions, reflecting and following internationally accepted principles.

One of the particular matters covered in the reform is an increase in the number of years tax losses can be carried forward, in order to assist business investment. The current legislation allows losses to be carried forward two to five years, which was considered short compared to other countries.

For corporate income taxation there will be some positive changes towards supporting businesses:

  1. To give 1 to 1.5 years of tax exemption to new companies.
  2. To extend tax loss carry forward to five years, to support businesses with high technology and innovative developments.
  3. There will no increase in the tax rates within this reform.

From 2014, tax office services are moved online, and individual and business taxpayers will report on their applicable taxes online. Mongolia has already saved MNT 6.4 billion by replacing paper based reporting.

By moving the tax office services online, Mongolia has built the basis for a common and integrated database for tax, customs and state registration offices. This will make it possible to register and control cash and non-cash transactions. VAT invoices will also be moved to an online regime, replacing paper invoices.

The revenue limit for VAT payer registration will be increased to a certain level (MNT 50 million as per the draft amendment) in light of the current economic situation, with the aim of supporting investment and employment.

A new land surface usage tax has been drafted as part of the reform. Until now Mongolia has imposed tax on products extracted from underground, but not for using the surface of the land. Under the new legislation construction companies who are using the land surface will also be liable to pay tax.

The amendments will be effective when they are approved by the Parliament of Mongolia, and they are subject to change during the parliamentary discussion and approval

This article first appeared bdointernational.com


 




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