Source: https://inbusiness.kz
Its increase occurred without sufficient discussion with the mining industry, according to the Kazakhstan office of a foreign mining and metallurgical company.
The Kazakh office of the Anglo-Australian mining and metals corporation Rio Tinto is unhappy that the mineral extraction tax (MET) for such exchange-traded metals as copper and gold will be increased to 50% next year as part of the updated Tax Code, as well as previously approved. Such a conclusion can be drawn from the speech of the CEO of Rio Tinto Exploration Kazakhstan Harry Wright during the webinar “Kazakhstan – investment climate and recent government policy”, organized by the British-Kazakh society, reports inbusiness.kz.
“Rio Tinto has been operating in Kazakhstan for about 20 years. Initially, the company was attracted by the good geological genealogy and the clear belief that there would be many more discoveries to be made in the country… In Kazakhstan, Rio Tinto is currently operating in the early stages of the mining process – at Exploration stage We do not have any existing mining or processing processes, and thus the most significant changes from recent amendments to the Tax Code, such as an increase in the MET or the removal of exemptions from taxation of dividends received from processing, do not affect us yet. However, we have every intention of making a geological discovery that will one day become a successful mining operation in the country. And because of this goal, we are concerned about the recent tax amendments, as well as mainly the increase in the MET, “said the top manager .
Recall that since 2015, for several years, Rio Tinto has been conducting geological exploration for the presence of significant copper reserves in the Korgantas and Balkhash-Saryshagan areas in the Karaganda region. The geological study of Korgantas did not give tangible results to the Anglo-Australian company, so the contract for its subsoil use was terminated. In 2020, Rio Tinto Exploration Kazakhstan decided to start searching for porphyry copper ore deposits in the Kostanay region. By the way, in recent years, the corporation has been subjected to public criticism more than once for the allegedly negative consequences of its activities in such countries of presence as Mongolia and Australia.
“Over the past five years, we have witnessed the entry into force of new Tax, Environmental and Mining Codes, which, to varying degrees, implemented aspects of international best practices and OECD standards in their principles. But the development of these codes was carried out transparently, where versions of the bills were presented to the public and many forums have been set up to provide feedback.The subsequent process to develop these new codes showed a best practice approach to implementing changes.So this begs the question: why, in the case of recent MET changes, there was no or very little consultation with the industry before how to accept amendments? asked a representative of a foreign company.
According to him, Rio Tinto understands that the unfortunate events of January provided the impetus for several reform initiatives to address the imbalance of socio-economic and corporate interests in Kazakhstan through increased tax revenues.
“Most of us in the mining industry could understand and accept this. However, significant changes to key legislation that affect the foundations of commercial success should at least involve discussions between stakeholders in an attempt to reach a mutually acceptable solution. In the case of these amendments, we seem to have taken a step back from the previous good precedents that were mentioned.Increasing Kazakhstan’s MET rate to 50% for key minerals such as copper and gold makes it not only the highest in the CIS, but also one of the highest among countries in terms of Companies are conducting economic modeling to determine the investment viability of new projects and entry into a new country What could be economically viable for a project with an entry into the country at the 5.7% MET rate in the case of pre-change copper may cease to be justified at the level of 8.55% after the new amendments,” Wright stated.
He recalled that recently in the Democratic Republic of the Congo and Zambia, mining projects under development were abruptly suspended and it was recommended not to develop them due to the increase in the MET and the instability of the tax regime.
“The implementation of changes to the MET this time also seems illogical due to the fact that the country’s reserves of recoverable solid minerals are declining. There have not been any significant discoveries in 30 years, and the Ministry of Ecology, Geology and Natural Resources predicted that many existing deposits will be depleted in the near future with no clear replacement options on the horizon… In the mining industry, high-grade discoveries will need to be made to cover the increase in the MET,” the top manager stressed.
EY partner Roman Yurtaev, who spoke next, drew the attention of the webinar listeners to changes in the Tax Code, where, with amendments, deductions for intangible services purchased by Kazakhstani companies from related parties from abroad were limited to 3% of taxable income. Limits will apply to costs for services such as, inter alia, management, consulting, legal support, marketing, accounting, engineering and transfer of intellectual property rights. Restrictions from 2023 will affect industries such as the banking sector, oilfield services companies, telecommunications, IT, as well as the sale of consumer goods, which may affect the cost of their products and services for the population, the tax consultant warned.