Draft

Law of the Kyrgyz Republic
On Amendments to the Tax Code of the Kyrgyz Republic 

Article 1. To add to the Tax Code of the Kyrgyz Republic (Vedomosti of the Jogorku Kenesh of the Kyrgyz Republic, 1996, #7, p.92)  the following provisions. 

To add Article 9 of Section 1 with Items 68-80 of the following contents:
-       68. Bonuses – single payments for the exploitation of mineral resources payable by subsoil users after obtaining a mining license. 

69. Royalty – current payments for the use of subsoil payable monthly by subsoil users during the period of commercial development of deposits, as mineral resources are depleted.

-       70. Commercial minerals – subsoil natural mineral formations, carbonhydrates and underground waters which chemical composition and physical properties allows using them in production and for direct consumption or after their final processing.  

72. Commercial mineral by-products  - mining and processing wastes which may have value at present level of prices and technologies. 

73. Technical project – detailed (work) analytical and graphical documentation including geological, mining, technological (processing and (or) metallurgical) and financial parts of the project for exploration or development. 

74. Mineable reserves – mineral reserves which extraction for mining and processing will be economically acceptable for the investor at present level of prices and technologies.  

75. Potential sub-economic reserves – mineral reserves not economically acceptable for the investor but could become Mineable under certain economic and technological conditions.       

76. Mineral deposits development – a complex of mining operations for stripping, preparation and extraction of minerals.  

77. Crude mineral processing – a complex of operations o obtain a commercial mineral product.

License for the use of subsoil – a legal document for the use of land issued by state agency on subsoil in accordance with subsoil legislation. 

License agreement for the use of subsoil – an agreement between state agency on subsoil and licensee on terms and conditions to use subsoil including information on quantity and quality of registered reserves, product distribution, royalty payments, technical and ecological safety measures. License agreement is an integral part of the license for the use of subsoil.

-       Fixed assets of mining companies -  mine working (shafts, cross-cuts, entries, air drifts, stripping trenches and other permanent working, providing access and extraction of reserves), mining machinery and equipment for development of the deposit and minerals processing, buildings and structures on site.  

-       To add Section IX with the following:

-       SECTION IX. MINERAL RESOURCES TAXES

Chapter 35 

-       Article 208. Taxpayers 

Taxpayers are legal entities and individuals engaged in development of deposits and processing of mineral resources at the stage of obtaining the primary marketable product, including intake and use of underground waters. 

-       Article 209. Exemption from Mineral Resources Taxes 

The following individuals and entities are exempted from mineral resources taxes: 

owners and lessees of land property, engaged in mining of generally found minerals and intake of underground waters within the owned or leased land for own consumption purposes;

-       mining project operators engaged in the treatment of mining, ore dressing and metallurgical wastes;

-       mining project operators conducting geological research into mineral resources;

-       mining project operators holding licenses for the exploitation of mineral resources with a view to forming underground objects being under special protection and of a scientific, cultural, aesthetic or another humanitarian value. 

-       Article 210. Types of Payments 

Payments for the use of mineral resources include: 

single payments for the right to use subsoil (bonuses);

-       current payments for the use of subsoil (royalty); 

-       Article 211. Taxation Base 

The object of taxation is the right to use and actual use of mineral resources in the process of development of deposits, including intake and use of underground waters. 

The base of calculation of the single payment for the right to exploit mineral resources (bonus) is the fixed amount of payment, subject to the type of mineral, quantity of the explored underground reserves and the extent to which the reserves have been explored. 

The base of calculation of current payments for the exploitation of mineral resources (royalty) is the cost of the primary marketable product produced from the mineral (metal concentrate for metallic deposits, exclusive of precious metal deposits where the royalty calculation base is the value of the metal sales) or the cost of the mined minerals in a marketable form (for hydrocarbon mineral and nonmetal deposits), exclusive of VAT, excise and operator’s transportation costs. 

The subject of calculation of fees for the mineral resources use (royalty) involving intake of underground waters, shall be the amount of taken-in water. 

-       Article 212.  Tax Rates 

1)Bonuses shall be established as per Appendix 1 subject to the type of mineral resources, amount of prospected reserves and degree to which these reserves have been explored. Bonus payments shall be effected under a lump-sum or installment mode prior to the signing of the license agreement (to set forth mineral resources use conditions) between the mineral resource users and the National Agency for Mineral Resources Use. In case that a bonus should fail to have been paid over the scheduled period, then the right of mineral resources use shall be suspended until such time that the said bonus be paid in full. In the event that the bonus should not be paid within 1 year from the date of issue of the mineral resources use license, this license shall be terminated. 

2) Royalties on solid minerals, oil and gas, excluding noble metals, shall be established at the rate of 3% of the value of the primary commercial product obtained from the mineral raw materials. Based on price of commercial gold sold, noble metal royalties shall be established at the rate of 5% for gold deposits containing commercial reserves in excess of 50 t, and at the rate of 3% - for gold deposits containing less than 50 t of commercial reserves.  

3) Royalties on underground waters shall be established at the following rates:

-       mineral fresh drinking waters for bottling – 200 som/m³  ;
-       mineral waters for cure - 0.05 som/m³  ;
-       thermal waters for heating – 0.05 som/m³ ;
-       fresh drinking and technical waters - 0.05 som/m³ 

-       Article 213.  Stabilization of Taxation 

Taxation regime established for mining companies during a period of initial investments, shall be retained for a period of their license validity to use mineral resources.  

-       Article 214. Payment and Accounting for Subsoil Use Tax  

Each subject of taxation shall: 

develop the subsoil use tax statement as per the format established by the Revenue Committee for each taxable period; 

  2) pay to the national budget a tax payable over the taxable period concerned as at the date of statement submission or before the scheduled date. Taxes for the mineral resources use must be duly paid up prior to the date of statement submission. 

-       Article 215.  Distribution of Subsoil Use Taxes  

Bonuses shall be paid to the national budget.
-       Current fees payable for subsoil use (royalty) shall be distributed among the local and republican budgets according to the budget procedures of KR 

To amend Article 94 with clause 4 as follows: 

“4.  All costs of mining companies associated with production and commercial activities will be referred to costs deducted from combined profit.” 

To amend Article 97 (Chapter 19) with clause as follows: 

“11.  For mining projects, accelerated depreciation shall be established at the rate of 50%.”  

To amend clause 4 article 98 after words “repair costs” with “fixed assets of mining companies” and further as in the text. 

-       To amend Chapter 19 with Article 106 as follows: 

- Article 106.  Mineral Resources Depletion Discount 

Mining companies taxable income shall be reduced by 15% and deposited as reserve with a special fund for reproduction of deposit mined reserves. Over a period of 5 years, assets of the above fund shall be spent by the mining operations on exploration within the limits of mining lease. Accumulated and unused assets of the fund shall be added to the mining operations taxable income as of the end of the above 5-year period. Income tax therewith shall be deducted from total amount.” 

Accounting of exploration costs shall be on a separate balance. 

To add into Chapter  26 Article 139-2 as follows: 

-       “Article 139-2.  Supplies relating to Exploration and Mining 

Supplies relating to exploration and mining will be taxed on zero rate.” 

-       Chapter 26 shall be added with Article 151-2 as follows: 

-       “Article 151-2.  Import of Mining, Concentrating, Metallurgical and Exploration Equipment, Reagents and Materials 

Mining, concentrating, metallurgical and exploration equipment, reagents and materials imported in the Kyrgyz Republic for implementation of mining and exploration projects will be exempted from VAT.” 

Article 2.  This Law will take effect as of the day of its formal publishing.