Prime Minister Ch.Saikhanbileg discussed the government’s current policy priorities and an overview of the economic outlook at the American Chamber of Commerce in Mongolia’s (AmCham) Monthly Meeting on Wednesday.
At the beginning of the meeting, Kirk McBride, Deputy Chief of the Mission for the U.S. Embassy in Ulaanbaatar said that the main concern for investors was Mongolia’s unstable legal environment.
“As you all know, Mongolia is open for business. The U.S. and Mongolia share mutual priorities, not just politically but also economically. It includes increasing trade, increasing FDI, investing in people, creating jobs, and making our societies more prosperous,” said Ch.Saikhanbileg, specifying that Mongolia is demonstrating its commitment to the partnership with the U.S.
Ch.Saikhanbileg emphasized that it is important to stay open and regionally integrated to attract foreign domestic investment, his main area of expertise. He listed the reasons why Mongolia was favorable for investors, and added, “Mongolia has every reason to be filled with optimism, as Mongolia has long-term growth potential.” He also noted that Mongolia ranked higher this year in World Bank’s Doing Business report, ranking 56th compared to last year’s 76th.
The PM spoke about the recently signed Free Trade Agreement with Japan, the second phase of the Oyu Tolgoi mine and the incoming 4.2 billion USD in foreign investment for its construction, the government’s settlement with Khan Resources, and the long-term development goals for Mongolia promoting FDI, human capital, mega projects and such. He also mentioned that he has submitted a draft of the Taxation Law to Parliament.
During the question and answers portion of the meeting, AmCham members and guests asked about changes to investment policies during an election year. A representative from an international auditing office said that the new VAT law doesn’t allow for reversed VAT charges, VAT paid on fixed assets to offset input VAT. “That is quite painful. We have at least one client who is withholding his investment in Mongolia because of the new tax law,” she said.
“The Mongolian investment environment will remain stable and economic development will be provided during the election. Mega projects will continue normal operations and we’ll work to provide stability in the investment field,” the PM explained.
“Second, there’s a law requiring all entities to use MNT as functional currency, which is a really big issue for OT,” the auditing firm representative said, and asked about solutions to contradictions in laws and regulations. “As auditors, we have to issue opinions under IFRS, not under the Mongolian law. If we issue an opinion under the Mongolian Law, some investors will not approve our opinion. It becomes worthless. But we have to follow Mongolian law, so it’s a real complication for our daily work,” she said.
The PM said that there were many complications around the VAT Law, and that he was discussing the new tax law on Friday at 4:00 p.m. at the Economic Council meeting. “As for the second issue, everyone, no matter who or what [big] organization in whichever sector will abide by the Mongolian law. Since Oyu Tolgoi hasn’t received government permission to operate in another currency, they will be asked to submit financial reports written in Mongolian, in Mongolian currency, under the Mongolian law,” said PM Ch.Saikhanbileg. “We went through this very difficult negotiation process with Rio Tinto regarding the OT issue, and we agreed on principles. There were many disputes regarding international rules and Mongolian tax laws. We completely changed all of these issues and transferred to international practices, and amended some laws accordingly. We have to send clear messages that laws should be used the same way everywhere in Mongolia. If there are some kinds of business friendly issues, we will bring it. After bringing it, and after having agreed to principles, Rio Tinto should abide by Mongolian law, no matter how big it is,” the PM answered.
“Mongolian law also says all companies operating in Mongolia should follow international accounting standards. So Mongolian law says follow IFRS, and IFRS says if all transactions of a company are in USD, your report is in USD,” the auditor responded. The PM shifted the question to Kirk McBride, asking what he would do if it were an American case. McBride said that U.S. law is not at odds with international practices.