Kazakhstan: Liability of agents for failure to make timely tax payments still unclear, despite guidance

The Tax Committee of the Kazakhstan Ministry of Finance recently issued a letter to the General Prosecutor that sets out the tax authorities' position on the liability of a tax agent that fails to make timely withholding tax payments in accordance with part 2 of article 210 of the 2001 Code on Administrative Violations (COAV). This provision imposes a penalty equal to 50% of the tax or other mandatory payments on legal entities that are large-scale businesses for failure to deduct or remit tax and other obligatory payments, but not for a failure to comply with a deadline.

The issue first arose when the Tax Committee issued a letter (No. -06-26/5133) to local tax departments on 1 June 2009 confirming that administrative penalties can be applied to tax agents for failure to make timely payments of withholding tax payments. The local tax departments, and in particular, the Almaty City Tax Department, have issued specific instructions for holding tax agents liable for failure to comply with payment deadlines and there are several court decisions supporting the tax authorities' position. The Association of Taxpayers of Kazakhstan sent a letter to the General Prosecutor on 11 September 2009 expressing disagreement with the Tax Committee's letter and requesting an explanation of the legitimacy of holding tax agents liable for administrative penalties for failure to pay tax, etc. The General Prosecutor replied on 25 September 2009, agreeing with the Association of Taxpayers, and recommending that the Tax Committee recall its 1 June 2009 letter and initiate the legislative process to fill the gaps in the legislation.

The Tax Committee of the MOF has now responded, setting out the current position of the tax authorities:

- The June letter sets out recommended actions, but has no binding force;

- There are court decisions in favor of the tax authorities that support the imposition of liability for failure to make timely payments under part 2 of article 210 of the COAV;

- Part 2 of article 210 establishes administrative liability for not transferring tax withheld to the budget in accordance with the tax legislation and the tax legislation itself sets specific deadlines for making tax and other obligatory payments. Thus, the failure to comply with a deadline to remit tax is also an administrative violation under article 210 of COAV; and

- The imposition of administrative liability on a tax agent in these situations is lawful.


Because the enforcement practices on this issue seem to be conflicting, it is our opinion that:

- According to article 1 of the 1995 law "On the Prosecutor's Office," it is the prosecutor's office that is ultimately responsible for supervising the uniform application of legal acts; letters of the tax authorities do not constitute a regulatory legal act;

- It is the General Prosecutor's responsibility to confirm the existence of gaps in legislation relating to the imposition of an administrative penalty on a tax agent for failure to timely transfer tax withheld and other obligatory payments to the budget;

- According to part 1 of article 9 of the COAV, administrative violations and penalties are defined exclusively by the COAV, except where the relevant article of the COAV directly refers to tax legislation;

- Part 2 of article 210 of the COAV only governs the incomplete transfer of deducted amounts that need to be transferred to the budget, not failure to comply with deadlines. That provision refers to the tax legislation only to define persons responsible for transferring the deducted tax payments to the budget and amounts that must be transferred to the budget; and

- When courts are ruling on tax disputes, they should rule in favor of the taxpayer when the provisions of the COAV are ambiguous.

On the basis of the above, affected taxpayers should have grounds to challenge administrative penalties, although the facts of each situation need to be considered carefully.