The State Revenue Committee has summarized the results of its audits of microfinance organizations (MFOs). The findings revealed that, across four MFOs, the total turnover under so-called “guarantee” agreements amounted to 55.9 billion tenge, with unpaid VAT totaling 6.1 billion tenge. The findings of the audits have been upheld on appeal and by the courts.

      Additionally, transactions totaling approximately 26 billion tenge (related to insurance agency activities) were identified; these were recorded as VAT-exempt and are currently under review.

     It is important to understand that microfinance organizations are exempt from VAT only on the loans themselves, that is, for the disbursement of funds. All additional paid services are subject to taxation.

     Audits revealed that in a number of cases, a scheme was used whereby a portion of the income was formally removed from taxation.

     The mechanism worked as follows. When applying for a microloan, the borrower was additionally offered to enter into a separate “guarantee” agreement. Formally, this service was positioned as a financial transaction to secure obligations. However, analysis showed that liability under such agreements arose only under limited conditions, and their term coincided with the loan deferral period.

     In fact, this was not a guarantee, but a service to extend the deadline for fulfilling obligations (payment deferral). At the same time, the borrower paid for such a “guarantee,” and the amounts received were recorded as transactions exempt from VAT.

     The investigations revealed that, while separate contracts were formally used, the economic substance of the transactions amounted to a single paid service related to loan servicing.

     It was precisely these schemes that allowed for the generation of significant turnover, which was erroneously classified as tax-exempt.

      The KGD’s audits are aimed at ensuring correct taxation based on the actual economic substance of transactions, including eliminating the use of formal schemes for tax evasion.

      It has been established that such approaches are not isolated cases. Comparable mechanisms are also used in other segments of MFIs’ activities. In particular, a similar model has been identified in insurance agency activities, where the same economic substance persists despite a different legal form.

      Audits in this area are currently ongoing. Based on their results, tax enforcement measures will be taken.

Source : https://www.gov.kz/memleket/entities/kgd/press/news/details/1202114?lang=kk