Kazakstan sending mixed signals to mining sector

The Kazakstani government has drafted a bill aimed at simplifying regulations for gold miners, but has scrapped value-added tax (VAT) exemptions for foreign companies operating there.

The proposed legislation would strike down a 1995 presidential decree that the country’s national bank and treasury have the right of first refusal to buy gold produced in the former Soviet republic.

Government officials say the move is meant to counter slumping production.

The country produced 9.5 tonnes of the yellow metal in 1997, down from 14.5 tonnes in 1994. Output is not expected to rise in 1998.

The bill would also enable producers to sell gold at their discretion rather than only to government agencies, though it would not alter present state control on the issuance of exploration and development licences.

But if the new legislation is designed to make the sector more attractive to potential operators, the decision to scrap VAT concessions for foreign firms sends the opposite signal. Under the old rules, foreign companies operating in Kazakstan were exempt from paying taxes on certain goods and services.

Britain’s Trans-World Group, which runs one of Kazakstan’s largest aluminum plants, says abolishment of the concession would force the price of raw materials to about $160 from $134 per tonne. Officials at Pavlodar Alumina, the refinery attached to TWG’s operation, say Kazakstan, which can barely compete on the global stage as it is, will fall further behind.

To that end, Kazakstani miners, too, are looking for a tax break. Citing a similar inability to remain competitive in light of poor metals markets and high taxes, steelmakers Karaganda Metallurgical Combine and Magnitogorsk Metallurgical Combine, as well as iron ore producers Sokolov-Sarbai Mining and Lisakovsk Mining, are lobbying the Kazakstani government to lower value added taxes to 10% from 20%.

According to one company official, Kazakstan is lagging behind other members of the Commonwealth of Independent States in encouraging mining development by cutting taxes, and energy and rail tariffs. “The finished products of Kazakstan’s primary sector are unable to withstand competition on the external market,” the official said.

The lobby group has asked that the government decrease land and rent taxes, as well as ease its royalty payment requirements and certain tariffs.