Laura Satybaldina, Senior Manager of MinTax LLP, in her article considers the issue of the correctness of application by taxpayers of the “0” correction factor which was introduced as a measure to ensure socio-economic stability for the period of the crisis situation in 2020 due to the COVID-19 pandemic.
As you may remember, in March 2020, after a state of emergency was declared in the RoK in connection with the announcement by the World Health Organization of the new coronavirus COVID-19 a pandemic, based on the Edicts of the RoK President, the RoK Government issued the Decree No.126 dated 20 March 2020 “Concerning measures on the implementation of the Edict of RoK President No. 287 dated 16 March 2020 “On further measures for stabilizing the economy”” (hereinafter – the Decree No.126), which has introduced, for the period until December 31, 2020 inclusive, the “0” correction factor to the rates of:
1) Property tax of legal entities and IEs in large trade facilities, shopping and entertainment centres, cinemas, theatres, exhibitions, sports and fitness facilities;
2) Land tax on agricultural lands of agricultural producers;
3) Personal income tax for IEs working under the generally established tax regime.
In the same Decree No. 126, the RoK Government, on the basis of the Edict of RoK President No. 287 dated March 16, 2020 “On further measures for stabilizing the economy,” has prescribed that, if the 0 correction coefficient is applied to the rates of taxes specified in it, then the tax base, taxable items, tax period and the fulfilment of tax obligations will be determined in accordance with the procedure established by the RoK Code No. 120-VI ZRK dated December 25, 2017 “On taxes and other obligatory payments to the budget (Tax Code)”.
Since no other explanations were given at the same time regarding the length of tax period and the procedure for preparing additional and regular tax reporting for the application of the correction coefficient, as well as based on the norms of Articles 524, 515, 699 and 361 of the Tax Code, according to which the tax period for assessing the taxes specified in the Decree No. 126 is a calendar year from January 1 to December 31, a number of taxpayers to whom the specified Property tax relief is applicable, automatically considered that they are exempt from Property tax for the entire calendar year and submitted an additional calculation of current payments of Property tax (Form 701.01) with zero amounts of related current payments for the entire year 2020.
In connection with questions related to the correctness of fulfilment of Property tax obligations for 2020 in accordance with the Decree No. 126, a clarification was published in the blog of the Chairman of the SRC MF RK with the following conclusion:
“…a legal entity and IE, with respect to items specified in sub-paragraph 1) of paragraph 2 of Decree No. 126 dated 20 March 2020 shall have the right to apply the 0 coefficient when calculating Property tax for 9 months of the current year.
If the specified requirements are met, the taxpayer shall present an additional calculation of current payments for Property tax using the “0” coefficient when calculating Property tax.
The final declaration based on 2020 results shall be submitted by legal entities and IEs taking into account actual liabilities for 3 months of the current year.”
In connection with the foregoing, we would like to further clarify the following.
The approach specified in the SRC MF RK clarification concerning the application of the “0” correction coefficient to 9 months is based on the provisions of sub-paragraph 1) of paragraph 1 of the RoK President Edict No. 286 dated March 16, 2020, sub-paragraph 1) of paragraph 1 of the RoK President Edict No. 287 dated March 16, 2020, which presented to the RoK Government, in agreement with the RoK President, only for the period of crisis situations, a different regulatory procedure in the socio-economic sphere on taxation issues and from the date of signing the RoK President Edicts No. 285, 286, 287, that is, not earlier than March 16, 2020, on the provisions of paragraphs 2 and 3 of the Decree No. 126, which was enacted on March 20, 2020, and paragraph 9 of Article 522 of the Tax Code.
In particular, according to paragraph 3 of Decree No. 126, if the “0” correction coefficient specified in paragraph 2 of Decree No. 126 is applied to the tax rates, the tax base, taxable items, tax period and fulfilment of tax obligations will be determined in accordance with the procedure established by the Tax Code.
Despite the fact that the tax period for Property tax is a calendar year and taxpayers assess the tax independently by applying the appropriate tax rate to the tax base, it is necessary to take into account the procedure for fulfilling Property tax obligations established by the Tax Code.
In the meantime, the procedure for the assessment and payment of Property tax established by Article 522 of the Tax code prescribes that:
1) the tax payers are obliged to pay within the tax period the current payments of Property tax, which are determined by applying an appropriate tax rate to the book value of taxable items that is determined according to the accounting data at the beginning of tax period (paragraph 4);
2) the amount of current payments is determined by applying the appropriate tax rates to the book value of taxable items, determined according to accounting data at the beginning of tax period (paragraph 6);
3) when Property tax liabilities change during the tax period, current payments are adjusted for the amount of the change in tax liabilities in equal shares on the upcoming tax payment dates in such tax period, unless otherwise established by paragraph 8 of Article 522 of the Tax Code.
That is, it is impossible to reduce the current payments of Property tax for the first three months of 2020, the calculation for which was to be submitted by February 15, 2020 for items subject to Property tax at the beginning of the tax period and which were payable no later than February 25, 2020.
Accordingly, the tax rate with “0” correction coefficient should be applied on the basis of an additional calculation (statement) of current payments of Property tax (Form 701.01) with amounts of such payments being adjusted to 0 for the forthcoming due dates May 25, August 25 and November 25 of the 2020 tax period.
The current payments of Property tax for the first three months of 2020 due on February 25 remain unchanged.
At the same time, the final calculation of Property tax based on 2020 results is presented in the Property tax declaration (Form 700.00) based on actual data regarding the ownership of Property tax objects during the entire tax period of 2020 and their book value according to accounting data.
According to paragraph 2 of Article 525 of the Tax Code, the taxpayer shall submit, no later than ten calendar days before the next (within 2020) deadline for the payment of current payments, that is, by May 15, 2020, an additional calculation of current payments with the amounts of such payments being properly adjusted and distributed in equal shares for the upcoming payment dates – in case the tax liabilities change during the tax period in respect of items for which tax liabilities have arisen or changed as of the first day of the month in which the next deadline for current payments occurs – as of May 1, 2020.
If the foregoing calculation was not submitted within the specified deadlines, one can submit it at the present time, since Article 211 of the Tax Code does not prohibit the submission of such additional calculations of current payments after the end of tax period; furthermore, Article 272 of the RoK Code “On Administrative Offences” No. 235-V ZRK dated July 5, 2014 does not provide for the application of administrative liability, unless an administrative penalty has been imposed for failure to submit tax reporting to the state revenue authority within the time period established by the legislative acts of the RoK committed repeatedly within a year.
Thus, the “0” correction coefficient is applied only for 9 months of 2020 to the tax rates on property of legal entities and IEs for large trade facilities, shopping and entertainment centres, cinemas, theatres, exhibitions, health and fitness and sports facilities.
A similar approach, based on Articles 515, 699 and 512 of the Tax Code, applies to the Land tax on agricultural land of agricultural producers who are legal entities and IEs, with the exception of those IEs applying a special tax regime for small businesses in accordance with Chapter 78 of the Tax Code.
It should be noted that for the Land tax on agricultural land of agricultural producers who are individual entrepreneurs applying a special tax regime for small businesses in accordance with Chapter 78 of the Tax Code, as well as for the Personal income tax of individual entrepreneurs working under the generally established taxation regime, the “0” correction factor is applied in the same manner, but without adjusting the current payments, as they are not prescribed for the specified categories of taxpayers; instead, they apply it directly when assessing the Land tax and Personal income tax based on the results of year 2020.
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 Republic of Kazakhstan.
 Individual entrepreneur.
 State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan.