Pursuant to paragraphs 1, 2 of Article 263 of the Tax code[1], an invoice shall be an obligatory document for all VAT payers, unless otherwise established by this Article. Unless otherwise established by this Article, payers of VAT shall be obliged, when carrying out turnovers of selling goods, work, services, to formulate invoices for the recipients of said goods, work, services.

According to the Civil code of the RoK[2], damages (fine, penalty) shall be recognised as a monetary amount defined by the RoK law or agreement, which must be paid by a debtor to the creditor in the case of failure to execute, or improper execution of an obligation, in particular, in the case of a delay in execution. Upon the claim to pay the damages, the creditor shall not be obliged to prove losses caused to him. In the event of failure to effect payment for goods supplied, work performed or services rendered  within deadlines set by the contract, the supplier shall calculate penalty and issue additional bills for payment of the assessed penalties for improper fulfilment of contractual obligations.

The penalty amount is qualified as revenue and, pursuant to sub-paragraph 14 of paragraph 1 of Article 85 of the Tax code, it shall be included in the aggregate annual income when the taxpayer submits to the tax authorities a Corporate income tax declaration for the reporting year. In the meantime, this is not deemed as a service, goods or work, but a claimed amount without any confirmation of damages caused (Article 293 of the RoK Civil Code). This amount cannot be qualified as taxable turnover or import which are items subject to VAT.

Factually, VAT represents a deduction of a part of the value of taxable sales turnovers that was added in the process of production and turnover of goods (work, services).  In this situation we deal with a net amount of claimed income, rather than the price of work and services. Therefore, claimed amounts of forfeits (net) are not deemed to be items subject to VAT.

Articles 230 and 231 of the Tax code regulate the procedure for determining the sales turnover of goods, work, services for the purposes of levying VAT. Fines are not deemed to be a sale of goods, work or services and do not have to be presented in the VAT return.

This is confirmed by IFRS 2 ‘Inventories’, according to which, in the maintenance of  accounts of inventories for tax purposes (Article 57, paragraph 5 of the Tax Code), awarded or recognized fines, penalties,

[1]Code of the Republic of Kazakhstan “On Taxes and Other Obligatory Payments to the Budget”(Tax Code) No.209-II dated 12 June 2001.

[2] Republic of Kazakhstan.