In order to implement the Extended Fund Facility with the International Monetary Fund (IMF), the government ratified a budget amendment.

In line with the amendment, seven taxes will be increased in an effort to increase budget revenue. The first round of tax increase came into effect on May 1 with the tax increase on savings interest, imported tobacco, and automobiles.

Now the second round of increases sees tax increases on fuel, social insurance fee, and electric, hybrid, and low-emission vehicles.

FUEL TAX

With the Organization of the Petroleum Exporting Countries (OPEC) agreeing to cut their production along with the depreciation of the MNT in 2016, the Cabinet found itself in a predicament. With the threat of petroleum prices surging up to unsustainable levels, the Cabinet made the decision to cut the petroleum import tax. The tax on imported petroleum was cut from 160,000 MNT per ton to 30,000 to 50,000 MNT per ton. The diesel fuel tax rate was cut from 180,000 MNT to 70,000 MNT. However, due to the IMF’s extended fund facility program agreement, these tax breaks will be reversed in stages. Starting July 1, the tax on petroleum imports will be raised to previous levels. The government forecasts that reversing the tax cuts will lower the state’s 210 billion MNT fiscal deficit to 118.6 billion MNT.

PENSION FUND PREMIUM

The other increase is the pension payment of the social insurance premium. The Cabinet set the annual pension payment at seven percent in 2017, eight percent in 2018, 8.5 percent in 2019, and 9.5 percent in 2020. As the pension payment is part of the larger social insurance services, the overall premium will also increase. Meaning that in 2017, the overall social insurance premium will remain at its current level of 21 percent, but it will increase to 23 percent in 2018, 24 percent in 2019, and 26 percent in 2020.

The changes will also affect voluntary insurance holders or people who are self-employed and those who work in an informal sector. Currently, voluntary social insurance holders pay a 12 percent premium, three quarters of which is the pension payment. Their pension payment premium will increase to 10 percent on July 1, with a stage-by-stage increase starting at 11 percent in 2019 all the way up to 12.5 percent in 2020. The overall premium of voluntary social insurance holders will become 14 percent this year, 15 percent in 2018, 15.5 percent in 2019, and 17 percent in 2020.

TAX INCREASE ON ELECTRIC, HYBRID, AND LOW-EMISSION VEHICLES

Parliament approved an amendment to the Excise Tax Law, agreeing to refund the collected vehicle import taxes paid for electric, hybrid, and low-emission vehicles between May 1 and June 9, including taxes on the most abundantly imported car, Toyota Prius.

Back in April, Parliament passed an amendment to increase seven taxes to bolster budget revenue in relation to Mongolia’s enrollment in the IMF’s extended fund facility program. Among the taxes increased was the import tax on vehicles. The amendment raised the tax on electric, hybrid, and low-emission cars from zero to 50 percent of taxes on regular vehicles.

After protests from vehicle importers, including one protest where a hybrid vehicle was set on fire, the Finance Minister recommended that the tax increase be postponed until July 1. Parliament then decided to refund taxes that were paid by vehicle importers from May 1 to June 9.

“The government is refunding the excise taxes paid by electric, hybrid, and low-emission vehicle importers who had already imported or shipped their vehicles before the new vehicle excise tax increase became effective. However, starting July 1, the tax increase that was approved in April will come into effect. The Customs Office reported that there are 2,600 vehicles that were imported after May 1 that have not been processed,” said Head of Parliament’s Budget Standing Committee Ch.Khurelbaatar.

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