Gaukhar Narbekova, MinTax Group Partner, Certified Auditor of RoK, I category Tax Consultant, CIPA, DipFR (ACCA)
In practice, companies providing services in the sphere of construction or subsurface use, often use the shift method of work in their business. In the meantime, some companies periodically pay compensations for housing and meals to their employees working under shift method, rather than provide them with living conditions at the job site. This often gives rise to a question: how such employee income in the form of compensations paid under shift work method should be levied by PIT, OPC, ST and SA.
This article contains an analysis of regulatory legal acts of the Republic of Kazakhstan, which answers the above question.
In accordance with Article 135 of Labour Code, a shift team method is a specific form of implementing a work process outside the place of a permanent residence of employees, when it is not possible to ensure their daily return to a permanent place of residence. At that, an employer is obliged to arrange for shift-team workers during their stay at a remote job site: housing facilities, meals to ensure normal living conditions, transportation to a job site and back, as well as conditions for the performance of work and rest between shifts.
The employer is obliged to ensure the conditions of the employee’s stay at the work site, as well as the procedure for applying the shift method in accordance with the employment, collective agreements and (or) the regulations concerning the shift work method approved by the employer.
Pursuant to sub-paragraph 10) of paragraph 3 of Article 155 of Tax code, items that shall not be recognized as income of individuals include the employer’s expenditures connected with ensuring subsistence of persons working on a rotational basis, during the period of being at the production facility with provision of conditions for performance of works and rest period between shifts: for rent of housing and for meals to the extent of per diem allowance not exceeding the 6-fold amount of the Monthly reference index established by the Law on the Republic’s Budget and having effect as at 1 January of the appropriate financial year, for each calendar day.
According to paragraph 3 of the Rules for the assessment and transfer of social assessments (charges) approved by the Decree #683 of Kazakhstan’s Government dated 21 June 2004, for the employer the item subject to SA shall be his expenses paid to the employee in the form of income due for work performed, services provided. In the meantime, according to paragraph 5 of the Rules, SA to the Fund shall not be paid from income, stipulated by sub-paragraphs 1), 2), 3), 4), 7), 9), 10), 11), 12), 31) of paragraph 3 of Article 155, sub-paragraphs 12), 18), 24), 30), 32) of paragraph 1 of Article 156 and sub-paragraphs 4), 5), 6) of paragraph 2 of Article 357 of Tax code.
According to paragraph 2 of Article 357 of Tax code, for legal entities the taxable items shall be expenses of the employer paid to the resident employees in the form of income defined by paragraph 2 of Article 163 of the Tax code. In the meantime, according to sub-paragraph 1) of paragraph 2 of Article 357 of Tax code, employee’s taxable income assessed by the employer shall be employee’s income including that recognized in the employer’s accounting as expenses (costs) complying with the legislation of the Republic of Kazakhstan concerning accounting and financial reporting, cash funds which are to be transferred by the employer to the employee’s ownership in connection with the existence of employment relations.
Further, pursuant to paragraph 2 of Article 357 of Tax code, income specified in sub-paragraphs 8), 10), 12), 17), 18), 24), 26), 26-1), 27), 29) – 32), 34), 41) of paragraph 1 of Article 156 and sub-paragraph 13) of paragraph 1 of Article 200-1 of Tax code is not subject to Social Tax (ST).
According to paragraph 5, for legal entities, the item subject to OPC is the monthly income of the employee taken for the assessment of obligatory pension charges not exceeding seventy five times the minimum wage amount established for the appropriate financial year by the Law concerning the Republic’s budget.
Therefore, “employer’s expenditures connected with ensuring subsistence of persons working on a rotational basis, during the period of being at the production facility with provision of conditions for performance of works and rest period between shifts: for rent of housing and for meals to the extent of per diem allowance not exceeding the 6-fold amount of the Monthly reference index established by the Law on the Republic’s Budget and having effect as at 1 January of the appropriate financial year, for each calendar day” shall mean exactly that THE EMPLOYER PROVIDES the employee with meals and housing, (that is, expenses are incurred by the employer himself, not by the employee) and this is actually not the compensation of costs of employees being at the work site. The difference between providing housing and meals during the shift time and compensating business trip expenses is that the employer himself incurs those expenses being obliged to do so, rather than compensate such costs to the employee. Therefore, payments made to employees to compensate their expenditures related to housing and meals during the work shift shall be included in the employee’s income which is subject to PIT, OPC, ST and SA.
In practice, in the course of services provision, some cases were identified when companies did not include the employer’s expenses in the form of compensations for housing and meals paid to employees working by shift method in employees’ income subject to PIT, OPC, ST and SA.
In other words, the company must clearly distinguish the term “compensation for employee’s expenses for housing and meals” from the term “providing and arranging the employees’ housing and meals by the employer. ”
This material is subject to copyright. Reprinting and other use is prohibited by the copyright holder. This material expresses the author’s opinion and is a recommendation. This material is based on regulatory acts in force at the time of publication.
Personal Income Tax
Obligatory Pension Charges
Code of the Republic of Kazakhstan No.99-IV dated 10 December 2008 “On Taxes and Other Obligatory Payments to the Budget” (Tax Code).