The Head of the Trade Union Committee of Oyu Tolgoi LLC, G.Bayarmaa sat down with Undesnii Shuudan to discuss the increases in the personal income tax and how it will affect Oyu Tolgoi workers and the working class in Mongolia in general.
The trade union at Oyu Tolgoi was established in August 2010 at the initiative of the company’s employees. About 70 percent of members of the Trade Union Committee work at the mine, with the remaining 30 percent living and working in Ulaanbaatar. The stated purpose of the committee is to protect the interests of its members, improve their livelihoods, and represent and protect their interests.
Effective January 1, 2018 the personal income tax will increase. The group that will be largely affected by this increase is obviously workers in the mining sector. As the head of the trade union at Mongolia’s largest mining company, what is your stance on this issue?
It will have a hard effect. There was some expectation in the mining sector that the government might reverse this decision as it had not yet come into effect. Unfortunately, the final approved version of the 2018 state budget included the tax brackets that were proposed as part of the tax increases. Cabinet expects to increase its revenue from the personal income tax by 110 billion MNT compared to 2016. This will be directly sourced from the increased taxes based on tax brackets. Those making a minimum of 1.5 million MNT will be affected by the tax increases. Statistics from the National Statistical Office show that the average salary of an employee in the mining sector is 2.2 million MNT. The amount increases depending on how many hours a person has worked but it does not really decrease from that amount. This means that the majority of the workers in our union will be included in tax increases. We believe time has come for us to unite our voices and make our stance clear to the government.
How many workers do you represent?
This issue does not only concern the employees of Oyu Tolgoi but the 47,000 workers that are employed in the mining sector. Workers in the mining sector account for four percent of the total Mongolian working force. It might seem like its only four percent but a lot of those working in the mining sectors are the sole providers for their families. Their partners or family members usually do not work, as they have to raise the children.
The schedule for an Oyu Tolgoi employee is to work for 14 days and rest for seven, then work for 21 days and then rest for seven. This schedule does not really provide time for workers to spend time with their families. You can say that a whole family is depending on the salary of a mining worker, which has been classified as high by today’s standards.
As you mentioned, compensation in the mining sector is relatively high at 2.2 million MNT a month. Who receives these salaries? There is an understanding that only engineers and high-level management receive high salaries. Is this correct?
That is not necessarily true. The average salary of all workers including mechanics, welders, miners, assistants, and engineers is at 2.2 million MNT. Engineers and upper-level management of course receive more compensation than this. The main thing to understand is that workers in the mining sector work for an average of 230 hours in a month. Office workers usually clock-in around 160 to 170 hours, so there is that discrepancy.
People need to understand that mine workers clock-in an additional 50 hours compared to the average worker. Also, 250 of the 365 days is spent away from their families. Workers usually clock-in an average of 12 hours to earn their salary. It is unfair to classify these workers in a different tax bracket and increase their taxes.
There is a vast difference between someone earning two million MNT for eight hours work and someone earning the same amount for 12 hours’ work. I believe that our decision makers must take that into account, it is not fair to punish someone for working more hours. In fact, the government should be striving to create a bigger middle class in Mongolia.
It has been almost a year since the amendment to the Law on Personal Income Tax was passed. At that time, your union expressed opposition and organized a peaceful protest. Unfortunately, there might have been some neglect since then from your union regarding this matter. Would you say this is true?
Looking at the how the decision to increase the personal income tax was reached, it is still unclear if the International Monetary Fund explicitly told the government to increase this tax. It is true that we were mostly observing the situation; we had some expectation that this decision would be reversed.
In 2017, 602 billion MNT was expected to be sourced from the personal income tax while that amount increased to 716 billion MNT in 2018. It was stated by many members of Parliament during the discussion of the 2018 budget that Cabinet had flexibility and more options when it came to cutting expenditure and increasing revenue in other ways. If it is indeed true that there was an option to cut expenditures and Cabinet instead elected to impose taxes on people who work hard and are far away from their families. Trade unions in the energy sector, geology, and mining will unite to oppose this issue. We are planning to meet Minister of Mining D.Sumiyabazar soon.
There is one issue that has caused some uncertainty. There are many foreign employees in the mining sector. Will they be included in this tax bracket?
Mongolia has tax agreements with around 20 countries. Workers that are citizens of those 20 countries do not pay personal income tax in Mongolia. Those workers pay a personal income tax to their country.
Most of the foreign workers who receive high salaries will not be included in the tax increases. You can say that we are solely discussing the issue of the salary of Mongolian workers.
Using the tax bracket system, how much will the average worker pay in taxes?
A worker that has a monthly salary of 2.7 million MNT will shoulder a 12 percent increase. If a person earns four million MNT, they will pay an additional 200,000 MNT to 300,00 MNT on top of what they already pay. Those who earn that much are usually professionals who have invested more than 20,000 to 30,000 USD for their education.
There are many countries around the world that have tax brackets. Politicians have explained that this is a very common tax mechanism. What are your thoughts on this?
If you want to implement a tax system used in developed countries in Mongolia, first the economic development of Mongolia must be equal to those countries. Yet, our country is considered as poor and developing. Second, we need to look at the social service provided by the government and its factors.
Looking at developed Asian countries, a 25 percent personal income tax is only imposed on those who earn an amount equivalent to 161 million MNT in Japan, 512 million MNT in Singapore, and 200 million MNT in Malaysia.
We need to compare the salaries of workers in the mining sector. For instance, the average monthly salary of 2.2 million MNT amounts to 24.6 million MNT. If the salary is three million MNT, it amounts to 36 million MNT. This discrepancy is evident only looking at Asian countries. The government cannot automatically determine taxes.