© CABAR - Central Asian Bureau for Analytical Reporting
Please make active links to the source, when using materials from this website

IWPR Central Asia Held an Expert Meeting to Discuss Taxes on Google and Other Global IT Companies’ Services in Central Asia

On January 16, the legislative amendments to the Tax Code were adopted in Tajikistan, according to which all digital services in the country are now subject to Value Added Tax (VAT) at the rate of 18%. Similar amendments are discussed or are already introduced in other Central Asian countries.

Follow us on LinkedIn

On January 29, IWPR Central Asia gathered the experts on its online platform to participate in the expert meeting on the topic “Legislative regulation of the of global IT companies’ work in the Central Asian countries”. They discussed the problems, risks and international experience in the field of taxation of the global IT companies’ work.

The experienced professionals, IT experts, lawyers and auditors from Tajikistan, Kyrgyzstan, Kazakhstan, Uzbekistan and the Russian Federation attended this meeting.

Opening the discussion, the expert on information and communication technologies, Regional Project Coordinator of the SecDev Foundation in Eurasia Asomiddin Atoev noted the importance of the discussed topic.

Asomiddin Atoev. Photo from personal Facebook page

“The issues to be discussed at this meeting are very relevant for many countries of the world. Several options already are being tested in Central Asian countries. I hope that the countries will come to the most successful solution of the existing problems,” Atoev said.

Muhammadi Ibodulloev, the Head of the Public Foundation Civil Initiative on Internet Policy in Tajikistan, informed the meeting participants about the new legislative initiatives of the Tax Committee of Tajikistan.

Muhammadi Ibodulloev

Ibodulloev elaborated on the amendments to the Tax Code indicating possible scenarios for the administration of new amendments in Tajikistan. In particular, he noted that the Article 31 (1), which was introduced in the Tax Code of the Republic of Tajikistan under the title “Features of taxation of digital services provided by foreign entities”, indicates all taxpayers, objects and places of taxation.

Now, in accordance with this article, 18% VAT will be levied on foreign individuals and legal entities that provide digital services on the territory of Tajikistan.

All transactions made by Tajikistan citizens online (if the services and goods are paid for via Tajik banks, and payments are linked to the phone numbers with the country code +992) will also be taxed at 18% rate.

In accordance with Article 31 (1), The Tax Committee obliged State Communications Service and banks processing digital payments to provide the necessary information on transactions.

“At the same time, it is unclear how the issues of double taxation will be administered, how foreign companies will be reached and notified. It is not clear if the bloggers are considered tax agents and what expenses will the tax authority incur in administering this tax?” said Muhammadi Ibodulloev.

Ibodulloev identified the risks Tajikistan may face in applying these amendments. First, this is a reduction in access to educational materials, distance education and online events, vulnerability of software and information systems, a reduction in the ICT services market and a decrease in the level of investment attractiveness of the country.

The foreign entities will not register with the Tax Committee of the Republic of Tajikistan due to the limited market size, and the entire burden of taxation – VAT at 18%, will fall on the Tajikistan citizens who use digital services, the expert believes.

Irina Baikulova, lawyer at the Public Foundation Civil Initiatives on Internet Policy in the Kyrgyz Republic, delivered her speech after Ibodulloev. According to her, the issue of taxation of digital services and payments is discussed in Kyrgyzstan for five years. Last spring, a draft law was published on the website of the Jogorku Kenesh [Supreme Council – Tr.]. It is widely discussed and shows that the country chose a completely different taxation scheme.

Irina Baikulova

“Kyrgyzstan follows the example of European countries, such as France, Italy, Great Britain. The tax rate at 2% was introduced on the revenues of all companies. Moreover, during the first three years, the rate is fixed at 0.1%. This tax on digital services will replace three other taxes, and this is good,” said Irina Baikulova.

What is not so good about this draft law is that, despite the possibility of remote registration for all companies in the country, it is not entirely clear how the government plans to attract and force them to obtain registration and TIN.

The digital services in the tax authorities are not well developed yet to provide such services. What is even worse, is that companies have to submit reports every quarter.

“That is, I can hardly imagine Facebook, Amazon or Alibaba submitting a quarter report on their income to our tax authority and paying this tax, even if it is 0, 1 or 2 percent,” said Baikulova.

According to her, if the tax authority does not consider the risks, most likely, global IT companies will simply stop providing services in the market of countries such as Kyrgyzstan, even with such low taxation rates.

The next speaker, Ruslan Daiyrbekov, member of the International Media Lawyers Association (IMLA), presented a report “Digital Tax in Kazakhstan: Specifics of Taxation of Foreign Companies Providing Digital Services”.

Ruslan Daiyrbekov

In Kazakhstan, the national regulator – the Ministry of National Economy also initiated the introduction of a digital tax. In June 2020, a corresponding draft law was prepared.

On December 10, 2020, the corresponding amendments to the Tax Code of the country were adopted.

“However, these amendments consist only of the titles and headings of articles. This does not make it possible to fully analyse the amendments,” Daiyrbekov noted.

Additionally introduced to the Tax Code Section 25, “Specifics of taxation of foreign companies implementing electronic trade of goods, providing services in electronic form to individuals”, will come into force in January 2022. “Foreign companies and the state are given time to study and prepare, but unfortunately, we cannot say which norms are considered,” Ruslan Daiyrbekov said.

The algorithm of tax regulator’s proposed actions requires the identification of foreign companies in Kazakhstan; they will receive notifications with request to register, submit declarations, and pay VAT. In turn, the foreign company will report and provide declarations on its income.

Today, the government considers the identification, registration, and payment of taxes by these foreign companies to be the main difficulty in this regard. VAT is 12% in Kazakhstan.

Thus, from January 1, 2022, the foreign companies will have to register and pay taxes for the provision of services in the Republic of Kazakhstan. The list of services is long, since Kazakhstan residents actively use paid services provided by global IT companies.

However, the difficulties may arise in the tax administration of these companies due to their physical absence on the territory of the country, the Kazakh expert emphasized.

Russian expert Sarkis Darbinyan, cyber lawyer, head of RosKomSvoboda legal practice, spoke about the difficulties of creating digital sovereignty in national states and the problems of legislative regulation of the global IT companies’ work in the region.

Sarkis Darbinyan

Each country seeks to create the information policy and manage information flows independently, as they want it themselves, and ensure national security as they imagine it for themselves, regardless of external influence.

This is how some countries see digital sovereignty, and believe that it should be developed. “However, not everyone agrees with this, some countries follow a multi-stakeholder approach (management practice that involves several stakeholders to participate in a dialogue, make decisions and implement response measures to common problems),” the Russian expert said.

According to Darbinyan, most states are trying to extrapolate norms applied to national companies to foreign ones.

“Of course, it is not always possible to comply with and implement these norms in relation to foreign companies, so that these foreign companies obey these norms, to oblige them to comply with the norms of national law,” he said.

Despite the fact that large foreign companies try to monitor and comply with national laws, they are not always ready to obey them.

“This is one of the complex problems, because there is no way to force the company to do what is stipulated by national law. There are only two levers that nation states can use: fines and blocking,” Darbinyan said.

According to him, the experience of Russia shows that fines are not effective. The problem is that many companies are not located in the country, they do not have offices there, and they have no assets, so it is impossible to collect a fine. In addition, there are no agreements on administrative matters between the states.

The second enforcement action is blocking the access to the resources for failure to comply with the requirements of the national legislation. It is no longer recommended either by the standards of soft international law or by the international courts. In addition to blocking access to a huge number of resources, it creates economic damage, holding back the modern digital economy.

Nevertheless, the problem is often resolved even before the blocking. Darbinyan cited an example of the experience of Spain and Australia, when Google News, after the adoption of relevant laws in these countries, was obliged to pay the authors of news it published in the news feed.

As a result, Google stopped its services’ work in Spain. A similar situation is now happening in Australia. On the example of Spain, we see who is more affected in this situation, the Russian expert concluded.

After Darbinyan, the expert from Uzbekistan, financial auditor, a partner in the accounting company Yaran Consulting Evgeniya Son analysed the results of the first year of VAT introduction for international online companies in Uzbekistan.

Evgeniya Son

She noted that the fears that the global IT companies would leave the Uzbek market did not come true. The experience of the first year after the introduction of Article 39 into the Tax Code of Uzbekistan, according to which foreign legal entities providing digital services are required to register and pay 15% VAT, showed that they did not leave, but also began registering in the system.

Several factors facilitated this, including simplification of registration, the demographic factor (34 million population, 18 million of which are Internet users), the currency reform carried out in the country, as well as the impact of the pandemic, when many services went online.

The Uzbek market is interesting for foreign companies due to the large population. “In addition, the conditions for equal taxation of all market players, both national and foreign, were created,” concluded Evgeniya Son.

Title photo: rbc.ua

If you have found a spelling error, please, notify us by selecting that text and pressing Ctrl+Enter.

Spelling error report
The following text will be sent to our editors: