Payments to the Republic
KPO performs its operations as the Operator in conformity to the terms of the Final Production Sharing Agreement (hereinafter “FPSA”) executed between the Karachaganak Project shareholders and the Government of the Republic of Kazakhstan.
The Venture is financed by shareholders and all main assets built or acquired by KPO are not written off, exhausted or depreciated, considering the stipulated right of the shareholders to use the assets as per the FPSA. The FPSA envisages capitalization with regard to the debt and the capital. Accordingly, the KPO financial reporting does not contain information about the volumes of sales and results of financial and economic activities. The revenues resulting from the KPO activities are shared between the Government of the Republic of Kazakhstan and the shareholders who separately reflect information on their financial activities, including revenues, netbacks, capitalization and other in their financial reports.
In accordance with the article XIX of the FPSA the current activities under the above-mentioned agreement is not subject to corporate income tax in Kazakhstan. The corporate income tax is a commitment of shareholders or Parent Companies of KPO and is reflected in their financial reports.
During the last few years KPO has been repeatedly recognised as the second largest tax-payer, whose contributions amount to a substantial part of the entire tax income of the state budget, in the National Reports on implementation of the Extractive Industries Transparency Initiative in the Republic of Kazakhstan.
The KPO tax regime is regulated by the Final Production Sharing Agreement and the applicable tax legislation of the Republic of Kazakhstan.
KPO, wherever possible, seeks to build up an open dialogue and co-operative relationship with the tax authorities based on the mutual respect and transparency in order to form a favourable environment for business development and social area in West Kazakhstan Oblast. When tax benefits or tax exemptions are applicable KPO also seeks to ensure their transparency and compliance with legislative and regulatory framework.
On the practical plane, the KPO tax strategy consists of correct calculation of taxes, minimization of double taxation risks and prevention of any disputes with tax authorities. In relation with this, the Company’s key principle is the timely payment of all taxes payable and prompt submission of all information required by the law or necessary for correct determination of taxes payable to the relevant authorities.
Currently, there are Risk Management Systems (RMS) in place throughout Kazakhstan used in the planning and organisation of tax inspections, the risk level assessment criteria have been developed and approved. This system represents a set of measures implemented in order to evaluate the probability that a tax payer may fail to pay or fully pay his taxes payable resulting in damage to the Republic. The RMS also includes measures applied by the tax authorities to identify and prevent such risks. Based on the risk assessment results the tax control forms are applied in a differentiated mode. Thus, during 2023 the tax authorities ranked KPO as a medium level of risk.
For KPO, the average level of risk could impact the amount of VAT return under the new VAT return rules with the RMS applied because the criteria to determine the level of tax payer’s risk (low / medium / high) in the majority of cases are identical to the risk level criteria applied to confirm the credibility of the exceeded VAT return amounts.
KPO strictly follows the RoK legislation norms and fulfils its tax legal relationships in accordance with the Extractive Industries Transparency Initiative (EITI) global standard that promotes reflection of the income transparency and accountability in the oil & gas and mining industries.
Extractive industries transparency initiative
KPO supports the Extractive Industries Transparency Initiative (EITI) in order to ensure the transparency of revenues and the whole value creation chain in the process of natural resources management in the Republic of Kazakhstan (RoK).
In 2023, KPO paid taxes to the RoK budget in the amount of US$ 2.156 bln (as per the exchange rate in the internal SAP accounting system) in accordance with the EITI requirements. This information is reflected in the RoK National Report on the Extractive Industries Transparency Initiative for 2023.
KPO submits separate EITI reports on its tax liabilities to the RoK authorities from 2014.
KPO payments for the period from 2014 to 2023 are represented in Table 54.
Tab. 54.KPO taxes and compulsory payments in 2014–2023 (US$)
|
2014 |
2015 |
2016 |
2017* |
2018 |
2019 |
2020** |
2021 |
2022 |
2023 |
|
2.1 bln |
1.2 bln |
0.369 bln |
0.746 bln |
1.9 bln |
1.6 bln |
0.971 bln |
1.6 bln |
3 bln |
2.156 bln |
Note:
* Variance from the amount of 897MM published in the Sustainability Report 2017 is explained by the reflected return amount after the reconciliation of data between the payer and the beneficiary at a later stage.
** Starting from 2020 converting from KZT to US$ KPO uses calculations at the moment of payment in accordance with the internal SAP accounting system and not in accordance with the RoK National Bank rate as of the end of the accounting period.
Information about the taxes, paid by KPO to the state budget of the RoK, is publicly available at http://egsu.energo.gov.kz in the section “Final report on tax and non-tax payments/contributions from the RoK oil & gas and mining payers”.