Coming into effect on January 1, 2018 five new tax will be increased as agreed upon with the International Monetary Fund. The biggest and the most controversial tax increase is the personal income tax.
Starting in 2018, the personal income tax will increase to 15 percent for those earning above 1.5 million MNT. Business owners and miners alike have been opposed to the decision and have staged public protests. Finance Minister Ch.Khurelbaatar took questions from the media at a recent press conference leading up the tax increase.
The decision to increase the personal income tax for high-income individuals was made earlier this year. Many are opposed to this decision. Even some Parliament members are saying that we need to reconsider this issue. What is your stance on this issue?
There are two sides to the issue. In April of this year, Cabinet proposed to Parliament to increase taxes and Parliament ultimately decided. People are only focusing on the highest rates. The tax rate will vary from 10, 15, 20, and 25 percent depending on which tax bracket an individual falls into.
However, 92 percent of workers will pay the 10 percent they have been paying. Therefore, only eight percent of Mongolia’s workforce will be included in the tax increases. On the other hand, those that earn the lowest will have less burden. Depending on inflation and the fluctuations in the exchange rates, the group that earns the lowest suffers the most. This is why we have taken this measure.
The taxes were agreed to be increased as part of Mongolia’s enrollment into the extended fund facility with the International Monetary Fund (IMF). As some Parliament Members have brought up the issue, if we do not increase taxes, would it be a breach of agreement?
Mongolia enrolled into the IMF program in April of this year. Shortly after, the program came to a standstill due to the government providing 100 percent of the child money allowances. A week ago, the Executive Board of IMF reviewed Mongolia’s progress for the extended fund facility and said the program was being implemented successfully.
IMF told us that there was an opportunity to improve the economy and erase debt. If we amend the tax increases now, it will mean going back on what we agreed upon with IMF. Outside of the personal income tax, the tax on alcohol and tobacco is increasing also. I believe many would support this increase. Alcohol is the main cause of various crimes. I imagine very few would protest this increase. Only alcohol producers are protesting this decision.
Will a new type of tax be introduced in 2018? For example, there was a proposal to legislate a tax on livestock. Can you elaborate on this possibility?
We will not be creating any new taxes. In the 2016 election, the Mongolian People’s Party promised to not create any new taxes. It is possible for us to operate within the tax law we have in place right now. Preliminarily, we will focus on improving the fiscal discipline of Mongolia and spending the assets from the state budget wisely. We have the full opportunity to decrease the budget deficit while also improving the financial and fiscal management of Cabinet.
In the past, the government has stored its money and assets in commercial banks and has had to pay an exorbitant amount of money on interest rates for high interest loans to get it back. Since being appointed as Finance Minister, I have not decreed for loan from commercial banks. Funds from foreign aid and assistance that are being used for the implementation of projects will be transferred from commercial banks to the State Treasury Fund. It has not been easy; we have been receiving a lot of pushback. In addition to all of this, we have to monitor the budget spending.
There is a necessity to fully implement the glass account law. All transactions conducted from the state fund must be placed in the glass account. As of right now, all of the projects have been registered in the glass account. At this time, the government has not cut back on its wasteful spending and the financial and fiscal management of Cabinet has not reached a level where taxes can be feasibly increased. We are of the mindset of implementing all of the previously mentioned measures and then taking a look at Mongolia’s internal assets and opportunities.
As part of the budget amendment to the 2017 state budget, all civil servants will be provided with a one-time bonus of 300,000 MNT. At a time when this was being discussed, you said that the bonus would be tax-free. Yet now, civil servants will receive 250,000 to 270,000 after taxes. How did this situation come about?
In the amendment to the 2017 state budget, initially Cabinet proposed to provide a one-time 300,000 grant to all civil servants. When it went to Parliament, it was rebranded as a bonus, most likely due to the climate of Mongolia’s society at the time. The law states that bonuses are subject to a social insurance fee and the personal income tax of 10 percent must also be imposed.
The controversy surrounding Mongolia’s placement in the EU’s tax haven blacklist still hasn’t died down. Is this issue being discussed in Cabinet?
Cabinet will discuss this issue today (December 20). The Finance Ministry is working to improve transparency through reform in the General Law on Taxation, Law on Personal Income Tax, and Law on Corporate Income Tax. This will allow information regarding any foreign nationals registered at Mongolian banks to be reported through the taxation office.
In addition, we will also need to undertake legal reform regarding the shareholder information of foreign nationals in companies registered in Mongolia.
Is it true that a special ambassador will be appointed to resolve this issue?
From what I know, the Foreign Minister is discussing this issue and will be appointing a special ambassador. Ambassadors from various countries, the World Bank and IMF have all expressed regret at Mongolia’s placement in the blacklist. They have expressed that Mongolia is a developing country and it is unfortunate for Mongolia to be included in the blacklist at a time when the Ministry of Finance is taking measures to alleviate the issue. There is now the issue of why the possibility of a blacklist was not mentioned to the Finance Minister at the time or an ambassador at the very least. However, I concede that we do need to improve our legal environment.