Chaarat Gold (LON:CGH) says the tax changes in the Kyrgyz Republic have ‘simplified and clarified’ the operational environment for mining in the country.
The changes, along with the recently simplified process for land allocation and licensing, demonstrate that the Kyrgyz Republic is becoming one of the best mining addresses in the frontier markets, according to chief executive Dekel Golan.
Speaking with Proactive Investors, Golan said: “It was [a positive outcome], definitely.
“Ordinarily, when taxes are raised you wouldn’t be in a positive mood. But, in this case it was clear that something was going to happen and there were a number of options, some better [for us] than others.
“The [mining] industry had the opportunity to participate in the process, and the decision of the government is a good balance.
Golan says one of the positive points of the new regime is that it provides clarity in the long term, as far as gold price inflation is concerned.
“We know what is going to happen [with our taxes] when the gold price goes up and goes down.
“It doesn’t leave any room argument [over what tax is due] and that makes any discussion with the government very straight forward. And I think that is a positive.”
Under the new mining tax code, which came into effect at the start of January, income tax will no longer be payable for gold mining companies.
Instead, there will be a revenue based tax, calculated monthly, which will be tied to global gold prices. Chaarat says that at the current gold price range - between $1,601-1,700 per ounce – the revenue tax rate is 9%.
The new tax code keeps government royalties at 5% of gold sales, and a 2% sales tax on revenue will still be payable on exported gold as before. There will now be a ‘local infrastructure participation fee of 2% payable from revenue, which will go into a fund to support social and infrastructure projects in the regions where mines are located.
It also spares foreign mining companies the proposed requirement to transfer 20% of their shares ‘free carry’ to the Kyrgyz state.
Chaarat says it welcomes the certainty that the new tax code brings. It also, however, told investors that proposals from the Ministry of Economy would permit negotiations over special concessions, and based on draft legislation the company may have the opportunity to negotiate a more favourable tax arrangement as the project moves closer to full production.