GENERAL

Inwards Investors into Kazakstan may be interested in the recently published draft tax legislation relating to the exploitation of mineral resources.

The draft legislation prepared by the Central Tax Inspectorate of the Ministry of Finance was presented to Investors and their advisors on 21 March 1996 who were invited under the auspices of the International Tax and Investment Centre to comment on the proposed reforms.

This appears to be the first time that the Tax Inspectorate have offered Investors and their advisors the opportunity to discuss proposed changes to the Tax Code. Whilst it is too early to suggest that this heralds a trend in open government in the Republic of Kazakstan the opportunity was extremely welcome.

DRAFT LEGISLATION

The new draft legislation seeks to replace Part IV of the Presidential Decree of the Republic of Kazakstan on Taxes and other obligatory payments to the budget NO. 2235 issued on 24 April 1995. That section deals with special taxes and payments imposed upon mineral users.

The draft legislation in its present form seeks to standardise the method of computing the Special Payments and additional Taxes payable by Mineral Resource Users (i.e. these include bonuses: subscription, commercial discovery, and extraction; royalty; and excess profit tax).

The draft standardised bases of these payments/taxes are currently the subject of much discussion between foreign investors and the Government of Kazakstan, particularly as these could impact on the required rates of returns on investments to enable investment programs to go ahead.

IMPLEMENTATION

It was originally intended to introduce the new legislation by July 1996. Whilst that implementation date has slipped the Government has indicated that it is looking to introduce the new legislation at the earliest opportunity.

CURRENT LEGISLATION

Under the current legislation the terms of all such payments defer to the individual contracts/agreements reached with the Government.

CONCLUSION

The importance of considering the implications of both the current and new draft legislation cannot be over emphasised. Particularly so in connection with negotiating new contracts both by companies already in Kazakstan and companies embarking on maiden investment programs in the Kazak mineral extraction sector.

The objective of this report is to alert investors to an important development in this sector. Investors should seek specialist advice relating to their particular circumstances.

For further information contact Jonathon Wale or Zaid Sethi on +7 3272 62 21 01; or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.