29 March, 2017
On 24 March 2017, the Government of Mongolia submitted to Parliament proposed amendments to the 2017 State Budget Law and other related laws. The amendments are proposed in relation to the pending approval of the Extended Fund Facility for Mongolia by the International Monetary Fund.
Among others, the proposed amendment laws aim to increase state revenues and decrease expenditure. They affect the tax regime, social insurance contributions, pension ages, civil servants' benefits, social benefits and other related matters.
Parliament is expected to discuss the proposed amendment laws during its regular spring session which starts on 5 April 2017.
During parliamentary discussions, the draft laws may undergo a number of changes. The following highlights the key changes in the proposed draft laws.
1. Increase in Personal Income Tax
The draft amendment to the Personal Income Tax Law proposes to introduce progressive personal income tax. The following table sets out the proposed tax rates and bands.
| Tier | Annual salary (MNT) | Monthly salary (MNT) | Applicable tax rate |
| 1 |
< 18 million |
< 1,500,000 |
10% |
| 2
|
18 million – 30 million |
1,500,001 – 2,500,000 |
1,800,000 + 15% of the annual income exceeding 18 million |
| 3
|
30 million – 42 million |
2,500,001 – 3,500,000 |
3,600,000 + 20% of the annual income exceeding 30 million |
| 4
|
> 42 million
|
> 3,500,001
|
6,000,000 + 25% of the annual income exceeding 42 million |
Further, the draft amendment proposes to impose an obligation to withhold 20% of income earned within the territory of Mongolia by non-resident individuals. Those who remit payments to non-resident individuals will be required to withhold 20% as income tax and pay such amount to the tax authorities. The proposed amendments would take effect from 1 January 2018.
Currently, interest payments on savings not exceeding MNT 100 million are exempt from tax until 1 January 2018. The draft amendments propose to revoke this exemption effective this year.
2. Increase in Social Insurance Contributions and Pension Age
The draft amendment to the Social Insurance Law proposes to increase social insurance contributions as follows (in bold):
| Type of insurance | Current rates of social insurance contributions (%) | Proposed rates of social insurance contributions (%) | ||
| Employer | Employee | Employer | Employee | |
| Pension | 7.0 | 7.0 | 9.5 | 9.5 |
| Social protection | 1.0 | 0.8 | 1.0 | 0.8 |
| Unemployment | 0.2 | 0.2 | 0.2 | 0.2 |
| Health | 2.0 | 2.0 | 2.0 | 2.0 |
| Total | 10.2 | 10.0 | 12.7 | 12.5 |
The proposed amendments would take effect from 1 January 2018. The increase would be implemented incrementally by means of increases of 1%, 0.5% and 1% respectively over the next 3 years.
Further, the Government proposes to increase pension ages incrementally for a period of 10 years so as to increase the pension age to 65 for men and 60 for women. Further, the pension age for women would be increased incrementally to ultimately reach 65 years of age in 2037.
3. Increase in Certain Excise Taxes
The draft amendment law to the Excise Tax Law proposes to increase excise tax rates for tobacco products, alcoholic beverages and imported vehicles.
In respect of tobacco products and alcoholic beverages, excise tax will be increased by 10% in 2018, 5% in 2019 and 5% in 2020 respectively.
For imported vehicles, excise taxes will be increased by 3% to 15% depending on the age of the vehicle.
4. Increase in import duties for tobacco products
Currently, the import duty applicable to tobacco products is 5%. The Government proposes to increase the applicable import duty to 30%, the maximum permitted rate under Mongolia's commitment to the World Trade Organisation. The proposed increase would be effective from this year.
5. Conclusion
Other amendments relate to the state and social insurance budget, social welfare, and infrastructure development under concession arrangements.
The proposed amendments would introduce progressive tax rates for individuals' income, increased costs for employers, and increased prices for alcoholic beverages, tobacco products and vehicles. The proposed tax increases will be debated in Parliament and it remains to be seen whether the changes will be approved in their current form, and to what extent they will contribute to reducing the current budget deficit.
For further information, please contact:
Anthony Woolley, Hogan Lovells
anthony.woolley@hoganlovells.com
