On Uranium Taxation and the "New Kazakhstan"
Translated from Russian with the help of AI. Original: Russian version
The author describes how the reform of uranium taxation, in force since 1 January 2023, replaces a tax base tied to production cost with one tied to sales price, and argues that this makes the tax regime fairer and will bring in hundreds of billions of tenge in additional revenue.
Twelve years ago, when I was still working at a uranium deposit, I raised the issue of how uranium should be properly taxed. I went on to write about it many times: to the Ministry of Finance, to the Ministry of National Economy, on Facebook, and I spoke about it at various forums. Then, this spring, I was invited to a meeting at the Ministry of National Economy, where I raised the issue once more, and this time I was finally heard. Exactly 12 years later, as of 1 January 2023, amendments to uranium taxation have come into force that will make it fair and bring Kazakhstan hundreds of billions of tenge in additional taxes.
Briefly, the essence of the problem was this. Before 1 January 2023, the tax base (the amount on which tax is calculated) was determined as the volume of extraction multiplied by the cost of extraction, increased by 20%. This anomaly arose because the extracted uranium then went through processing to produce triuranium octoxide (U3O8), and it is U3O8 that is the product actually sold. Yet extraction is a continuous process (neither the pregnant leach solution nor yellowcake can be sold to anyone), but here it was treated as secondary processing, so an internal sales price derived from production cost was used.
As a result, uranium companies paid taxes on the cost of production rather than on the real sales price, and billions of tenge never reached the budget.
But that is only half the problem. The main issue is that the poorer the deposit, the higher the production cost, since cost depends entirely on the uranium content of the pregnant solution. Mines spend their money on producing the solution, and the less uranium it contains, the higher the cost. This meant that mines with poor ore paid more tax than mines with high uranium content, when by any legal logic it should have been the other way round. What is most interesting is that the richest mines are those with significant participation by foreign companies. This meant higher profits for the foreign partners, while the poorer mines remained wholly owned by Kazatomprom and paid more tax per unit of uranium.
Now, thanks to the Ministry of National Economy (my thanks to them for their constructive approach), this injustice has been removed. It only took 12 years 🙂
I had proposed scrapping the cost-based provision altogether and calculating tax on the sales value of the final product, but I think that will now have to be addressed in the new Tax Code.
I hope the right people will be drafting it. There are glimmers of the "New Kazakhstan" (Zhana Kazakhstan).