Kaliya Khissamidinova, Chief Financial Officer Member of the Board of Directors of Qazaq Green Renewable Energy Association

Qazaq Green RES Association ALE represents the interests of investors implementing investment projects in the field of renewable energy sources in the Republic of Kazakhstan.

ALE RES Association "Qazaq Green" represents the interests of investors implementing investment projects in the field of renewable energy sources in the Republic of Kazakhstan.

The renewable energy sector is currently concerned that despite the approved National Fixed Assets Classifier of the Republic of Kazakhstan (FAC), which provides for the division of plants in the field of renewable energy into a group of "machines and equipment" and "structures", which allows paying the annual property tax on the group of "structures", the tax authorities of the Republic of Kazakhstan when conducting tax inspections express a position of disagreement with this classification and insist that renewable energy facilities should be recognized as structures in full. This means that the annual payment of property tax must be calculated from the total cost of renewable energy facilities.

It is worth noting that the main cost of renewable energy plants is generating equipment (about 60-65%), therefore, an increase in property tax will lead to the default of implemented projects due to the insolvency of renewable energy facilities. For example, a solar power plant includes solar panels, inverters, transformers, junction boxes, etc., which are equipment, not structures. Accordingly, this equipment is not subject to inclusion in the tax base for calculating property tax.

Disputes over the classification of generating equipment of the plants began several years ago. Due to a lot of appeals from business entities due to incorrect classification of tax payments, and as a result, significant monetary consequences, on behalf of the Minister of Finance of the Republic of Kazakhstan dated March 4 and March 17, 2020 No. 17-12/3612, state bodies and interested parties began work on making clarifying changes to the FAC.

The essence of the issues in relation to generating equipment was that the original version of the FAC allowed for a certain double interpretation.

Since January 1, 2021, as part of the execution of the above-mentioned order, Amendments No. 1 to the FAC (Amendments) have been put into effect, according to which clarifying formulations have been introduced for various positions, including explanations to some FAC codes have been changed for the purpose of eliminating double interpretation of the FAC. All types of equipment for generating and converting electrical energy are clearly and unambiguously assigned to the section "Machinery and equipment".

Thus, the correctness of the logic of renewable energy plants was confirmed, in which generating equipment was classified as equipment and was not subject to property tax.

However, in practice it turns out that the tax authorities are still inclined to the interpretation of the FAC, according to which all equipment of renewable energy plants is classified as "structures". In our opinion, if the position of the tax authorities of the Republic of Kazakhstan is adopted, further development of the renewable energy industry is not possible due to the economic inexpediency of projects for all market participants.

Investors and financial institutions that have invested in existing renewable energy facilities did not foresee in their financial models a significant outflow of funds to pay property tax in an amount that will increase several times. After the inevitable default of existing renewable energy facilities due to cash shortages and inability to service long-term loans, the demand for the construction of new renewable energy facilities will decrease.

The Ministry of Energy of the Republic of Kazakhstan and other interested state bodies of the Republic of Kazakhstan managed to significantly reduce the tariff for electricity from renewable energy facilities by holding auctions. In case of an increase in property tax, potential investors will not be interested in investing in renewable energy facilities at auction rates.

Participation in auctions will be accompanied by a demand for an increase in the tariff in order to compensate for additional property tax expenses. As a result, the renewable energy market may stagnate, the targets for the development of the renewable energy sector in the Republic of Kazakhstan will not be achieved, and stakeholders will lose confidence and interest in the industry as a whole, considering that long-term investments are risky.

In this regard, we believe that it is necessary to take into account the opinion of the RES business community, and make a decision that will allow us to develop a unified law enforcement practice of state revenue bodies for classification of electric energy generating and converting equipment as "Machines and Equipment" of FAC in order to prevent the requirements of the authorities for additional taxes on such equipment for RES stations.

According to the request of the Renewable Energy Association "Qazaq Green" and Kazakhstan Electricity Association, this issue was put up for discussion by the State Commission on the Modernization of the Economy of the Republic of Kazakhstan. Following the results of the meeting of the commission held on July 13, the Prime Minister of the Republic of Kazakhstan A.A. instructed the Committee of Technical Regulation and Metrology of the Ministry of Trade and Integration of the Republic of Kazakhstan, together with the Ministry of Energy of the Republic of Kazakhstan to submit an agreed conclusion on classification of energy generating and converting facilities as equipment or structures with an evaluation of the socio-economic effect.

Qazaq Green will continue to keep in touch with these state bodies to resolve the issue of taxation of energy-producing organizations.

In addition, it should be noted that within the framework of the implemented initiatives of the Renewable Energy Association "Qazaq Green" following the results of the International Business Festival "Solar Fest 2019", renewable energy projects were included in the list of the priority investment projects and according to the provisions of the Entrepreneurial Code of the Republic of Kazakhstan, investment priority projects are subject to tax preferences: 100 % reduction in the amount of assessed CIT, the application of 0 coefficient to the land tax rates, assessment of property tax at the rate of 0 percent to the tax base. To obtain preferences, it is necessary to contact the authorized investment authority.