Dear Taxpayers of the RoK[1],

In connection with the incoming questions regarding the assessment of Social tax after applying the “0” coefficient when calculating the amounts of social charges payable, we would like to make the following clarifications.

The Decree of the RoK Government No. 721 dated October 30, 2020, introduced amendments to the Decree of the RoK Government No. 224 dated April 20, 2020 “On further measures for implementing the Decree of the RoK President No.287 dated March 16, 2020 “On further measures to stabilize the economy ” in respect of taxation issues” (hereinafter – Decree No. 224 “).

In particular, paragraph 1 is set out as follows:

“1. The ‘0’ correction coefficient shall be established to be applied to the rates of the following taxes and social payments:

–  PIT[2] withheld at the source of payment;

– PIT paid independently by a person engaged in private practice;

– Social tax, OPC[3], OPPC[4], Social charges, OSMI[5] charges and contributions, with the exception of those paid by IEs[6] for themselves.

The provisions of this paragraph shall apply to the following taxpayers and their employees:

– private practitioners and micro, small or medium-sized business entities carrying out activities specified in the list of activities in accordance with Appendix 1 to this Decree, with respect to obligations for which the payment (transfer) deadline occurs within the period from 1 April to 1 October 2020,

and with respect to obligations related to the assessment (accrual) of OPPC, social charges, OSMI contributions and charges, with the exception of those paid by IEs for themselves, – until January 1, 2021;

As it can be seen from the amendments made to the Decree No. 224, the “0” coefficient shall be applied from October 1, 2020 to social charges, and shall not apply to Social tax.

In accordance with paragraph 3 of Article 486 of the Tax Code[7], the amount of Social tax payable to the budget shall be defined as the difference between the assessed Social tax and the amount of social charges calculated in accordance with the RoK Law “On Obligatory Social Insurance”. Thus, the actual amount of Social tax payable is 6% of the taxable item (9.5% Social tax rate minus 3.5% social charges rate).

However, in connection with the entry into force of these changes to the Decree No. 224 dated April 20, 2020, in fact, applying the 0 coefficient to social charges does not reduce the general taxable base for taxes and payments from the wage fund. Reducing the amount of social charges automatically increases the amount of Social tax. Since, in the assessment of Social tax, the tax rate will be equal to 9.5% (9.5% Social tax rate – 0% social charges rate).

In this regard, the State Revenue Committee of the Ministry of Finance of the RoK, in its Letter No. KGD-07-2-KG/ZT-B-4829 dated November 19, 2020 , explains that the Draft Law of the RoK “On Amendments and Additions to the RoK Code “On taxes and other obligatory payments to the budget” and the RoK Law “On the enactment of the RoK Code “On taxes and other obligatory payments to the budget”, provides for amendments to be made to paragraph 3 of Article 486 of the Tax Code, according to which, when determining the amount of Social tax to be paid to the budget by micro, small and medium-sized businesses, persons engaged in private practice carrying out activities within the category for which a 0 correction factor is set to the rates of OPPC, social charges, OSMI contributions and charges approved by the RoK Government, the amounts of social charges shall be accounted for without the 0 correction factor provided for by the RoK legislation, and the amendments will be effective from October 1, 2020 to January 1, 2021.

Accordingly, in the period from October 1, 2020 to January 1, 2021, Social tax is to be paid at a rate of 6%.

[1] Republic of Kazakhstan.

[2] Personal Income Tax.

[3] Obligatory Pension Charges.

[4] Obligatory Professional Pension Charges.

[5] Obligatory social medical insurance.

[6] Individual entrepreneur.

[7] Code of the Republic of Kazakhstan No 120-VI dated 25 December 2017 “On Taxes and Other Obligatory Payments to the  Budget (Tax Code)”.