In the framework of the Government of Mongolia’s measures to align the tax system with country competitiveness by reducing the tax rates and burden on businesses to enable job creation and induce a reduction of the informal economy, in June, 2006 the Parliament of Mongolia passed the new editions of Corporate Income Tax, Personal Income Tax, Value Added Tax and Excise Tax laws, which will be in force beginning from January 1, 2007. The new set of laws removes discriminatory provisions against domestic investors and gets rid of a large number of distortion VAT exemptions and provisions.
The new Corporate Income Tax Law reduces the lower tax rate from 15% to 10%, and the higher rate from 30% to 25% raises the threshold for the higher rate from 100 million MNT to 3 billion MNT; thus, 99% of corporate taxpayers will effectively operate in a “flat tax environment”. Besides, the new Corporate Income Tax law permits business entities to deduct more of their legitimate business expenditures provides for an investment tax credit, encouraging business investment, provides for loss carry-forward, supporting new and temporarily troubled business entities, eliminates most discriminatory tax exemptions and holidays, leveling the playing field for foreign and domestic investors and brings the law closer to international best practices.
The new Personal Income Tax Law unifies the tax rate on taxable personal income at 10 percent, replacing the existing three-tiered rate of 10, 20, and 30 percent; raises the tax credit on taxable personal income from MNT 48,000 a year to MNT 84,000, statutorily exempting from taxes those below the poverty line, around 30 percent of the population, as well as at least an additional one-third of low-income citizens; reduces the number of tax rates from 8 to 4, reducing the administrative burden on taxpayers; permits sole proprietorship operators to deduct more business expenses; defines fringe benefits and includes them in taxable income, reducing the opportunity for tax evasion; provides for restatement of related party transactions, reducing the opportunity for tax evasion; brings the law closer to international best practices.
Value Added Tax (VAT)
The new Value Added Tax Law reduces the VAT rate from 15% to 10% and eliminates the majority of the exemptions, removing distortions. VAT exemption remains on imported technique, equipment, materials, raw materials, spare parts, and gasoline and diesel fuel in order to encourage petroleum activity which made under production sharing contract with Government. VAT exemption applies also on gas fuel, its container, special purposes equipment, machinery and accessories. The list of these goods will be approved by the Government.
The New Excise Tax Law imposes a monthly tax on gaming devices, changes the methodology for tax imposed on imported vehicles and increases the tax amount, discouraging importation of older, more-polluting vehicles and increases the rates on most alcohol products.
Import Customs Duty
Mongolia applies a flat rate of 5% import duty. Purebred live animals, some information technology and medical and veterinary equipments, their spare parts are duty free. Wheat flour, vegetables have seasonal tariff rates.
Mongolia applies a limited number of export duties on selected raw materials such as cashmere, camel wool, goat skin, timber, ferrous and aluminum waste and scrap.
Windfall Profit Tax Law
Recently Parliament of Mongolia ratified Windfall Profit Tax Law. The purpose of this law is to regulate imposition of tax on the excess-profits made by price increase of some minerals /product/ and collection the tax fees to the special fund.
The following minerals /products/ are taxable for the excess-profits tax imposed on price increase:
* copper ore and concentrate
Tax payer shall be an individual, legal entity selling minerals /product/ as gold and copper ore and concentrate upon conducting mining in Mongolian territory.
Amount of taxable profit income of gold shall be determined upon calculation of subtracting charge and price as “base price” /means total amount of mining and production cost of copper ore and concentrate and amount calculated upon 100 percentage of profit/ from the copper price at London Metals exchange.
Amount of taxable profit income of copper shall be determined upon calculation of subtracting 500 USD from the price of one ounce of gold at London Metals Exchange. And amount of base price which shall be used for determination of taxable profit income of copper shall be 2600 USD per one ton of copper.
Tax rate on income as defined in gold and copper of this law shall be 68 percent.
Entry filed under: Taxation.