Business community of Kyrgyzstan took with regret the possible adoption of an initiative to increase the tax on income of gold mining enterprises. The International Business Council (IBC) reports.
The day before, the Parliament of Kyrgyzstan adopted in the second reading a bill aimed at increasing the tax on income of gold mining enterprises by 7 percent for each position of the tax rate.
This norm sets a tax rate from 8 to 27 percent of revenue depending on the price of gold.
«At the current price of gold at $ 1,727 per troy ounce, the rate will be 18 percent of revenue. At the same time, production costs, other taxes and payments are not taken into account. In addition, it is planned to set a single royalty rate (5 percent) for both large and small gold deposits,» the IBC said.
Business notes: mining is a technologically complex and costly industry that requires a specialized professional approach. Even with the current tax regime and metal prices, the largest companies will need from 10 to 20 years or more to just pay back the hundreds of millions of dollars invested in the country’s economy, not to mention making a profit. And this is without taking into account inflation, fluctuations in the raw materials market, political and social risks.
According to a study by the international company Ernst & Young (2018), gold mining companies in Kyrgyzstan pay at least 20 types of taxes, non-tax and other mandatory payments. The total tax burden on the industry in the Kyrgyz Republic, according to various estimates, ranges from 20 to 30 percent of revenue.
This is the highest burden compared to other industries and similar indicators of other countries.
«Any significant increase in the tax burden in the industry will inevitably lead to a reduction in investment in development, jobs, labor costs and voluntary payments. It also leads to changes in production technology and inefficient use of the mineral resource base. Production may become completely unprofitable in some projects that may lead to suspension or termination of production activity in the most remote mountainous regions of the country,» the International Business Council believes.
But most importantly, it will scare away main part of potential investors in the industry. But it can really become an engine of growth in other priority sectors of the economy of our country — power industry, agriculture and many others.
In pursuit of millions of soms of additional payments to the budget this year, the country may lose billions of dollars in the form of reduced investment projects and not received investments in future years.
International Business Council
«It is especially regrettable that the departments responsible for long-term economic development — the Ministry of Economy and the State Committee for Industry, Energy and Subsoil Use showed a superficial approach to the mining industry, the lack of a principled position (government’s position on the tax rate has changed from 3 to 7 percent) and long-term vision of the development of the economy and the real sector of the country,» the report said.
Such a focus of economic ministries on replenishing the budget by any means leaves the business almost defenseless before the government machine, and further long-term investments in the country — doubtful.
In the midst of the most severe economic crisis of the 21st century caused by the global pandemic, countries around the world are trying to minimize the tax burden and help businesses and people survive.
The large business of Kyrgyzstan feels an unprecedented increase in the tax burden, multimillion additional tax assessments and uncertain prospects for the future.
The business notes that the initiators of the bill call the need to stimulate the processing of precious metal concentrates within the country one of the main reasons for the tax increase. But, according to experts and research, construction of such factories in the country is unprofitable for the fields being developed now. In addition, it creates significant risks for the ecology of mountain regions (heavy metallurgy), which are not comparable with added value benefit.
Indicators of production costs at some gold mining enterprises, given by the State Committee for Industry, Energy and Subsoil Use at the hearings in the Parliament, are based on outdated feasibility studies submitted at the very initial stages of the enterprises.
«The practice of the developed countries of the world shows that for successful development it is necessary to ensure non-interference by the state in the economy, competitively low taxes and effective state institutions. The business community does not lose hope of seeing real changes in these key areas. We hope that the Government and Parliament of the country will nevertheless take as a basis a long-term approach to the development of Kyrgyzstan and support the business community and thousands of its employees,» the IBC says.
