Tag Archives: Economy

Mongolian Free Trade Zones

In 2016, matters related to Free Trade Zones (FTZ) came under the power of the Deputy Minister. There are three FTZ in Mongolia: Zamiin-Uud, Altanbulag and Tsagaannuur. The Law on FTZ was revised in 2015 to enabled and promoted the cooperation between private entities and public authorities in developing FTZs.

Altanbulag Free Zone in Selenge province covers 500 hectares of land. Since the establishment of Mongolian FTZs, MNT 35 billion has been allocated by State Budget and 77 per cent of the budget was invested to the infrastructures of Altanbulag Free Zone. At the moment only Altanbulag has drawn investment from private entities, which totals MNT 6.2 billion.

Zamiin-Uud Free Zone in Dornogobi province covers 900 hectares of land. In 2010, Development of Zamiin Uud infrastructure project started with soft loan of the Government of China which totals USD 58.8 million. The project performance is 95 per cent. As of this day, 23.6 hectares of land are in possession of 13 private entities for the purposes of trade, service, hotel, manufacture, storage, logistics and gas station.

Tsagaannuur Free Zone in Bayan-Ulgii province covers 708.4 hectares. 115 hectares are in possession of 5 private entities.

The Deputy Minister Khurelsukh Ukhnaa has stated that the Free zones are in need of accelerated foreign and domestic investment and noted that the Parliament and the Government should start establishing joint FTZ areas with bordering countries. Deputy Minister Office and Ministry of Foreign Relations are working on research and assessment and negotiating with Chinese authorities about a potential new joint FTZ.

Mongolia Tax on Gasoline and Diesel Fuel

We continue to introduce various Mongolian taxes to be aware of. The Law on Gasoline and Diesel Fuel Tax was adopted on June 2, 1995, yet only came into force on  June 6, 1995.

According to this law, the tax is levied on all types of gasoline and diesel fuel whether produced within the territory of Mongolia, or imported into Mongolia. This tax is levied on every ton of fuel calculated as follows.

Gasoline up to 90 octane will be taxed at 20,350 MNT per ton, while gasoline with octane over 90 will be taxed at 25,700 per ton. Diesel fuel will be taxed at a substantially lower rate of 2,140 MNT per ton. This suggests the government recognizes the importance of diesel fuel in economic activities such as logistics and transportation of goods.

This tax is different and in addition to the tax levied on petroleum and diesel fuel in accordance with Law on Excise Tax. The purpose of the Excise Tax is to limit harm to the society or reduce the worst effect of the products as like as international standards. The excise tax on petroleum and diesel fuel is expected to be increased on July 1, 2017 and October 1, 2017 respectively.The tax on gasoline and diesel fuel produced on the territory of Mongolia is levied by the National tax offices and the tax on imported gasoline and diesel fuel is levied by the Customs offices in accordance with the amounts above.

Several changes to Mongolian taxes have been ratified recently by the Mongolian Parliament as a means to raise additional revenue in hopes of improving the state budget. The new implemented tax on gasoline and diesel fuel is primarily intended to raise revenue.

Introduction to the Mongolian Excise Tax

The Excise Tax Law was adopted by the Mongolia Parliament on June 29, 2006 and became effective from January 1, 2007. The law has been amended several times and has been the subject of a Supreme Court interpretation in 2007.

The law’s purpose is to establish parameters with respect to imposing excise tax on goods, whether imported or locally manufactured, as well as on special purpose apparatuses and equipment utilized for individuals and legal entities engaged in the paid quiz or gambling games.

According to the law, following goods shall be subject to excise tax:

  • all kinds of alcoholic drinks;
  • all kinds of tobacco;
  • gasoline and diesel fuels;
  • passenger vehicles.

The excise tax is also imposed on activities of individuals and legal entities engaged in paid quiz or gambling games and on equipment used for such games, such as gaming tables or electronic wheels, automatic games, cashier devices or devices which calculate and display gaming results or keeps track of bids. The excise tax to be imposed on goods, other than spirits distilled in Mongolia, are due before 25th of each month, in advance.

Excise taxpayers are the individuals and legal entities which import and sell the goods as described above, and those which engage in activities of paid quizzes or gambling games. In the event goods subject to the excise taxes are donated or transferred to another party free of charge, as well as when used internally by an individuals and or legal entity, an excise tax shall be imposed.

An excise tax equal to MNT 36,250,000 (approximately US$ 14,800) per month, is imposed on the activities of individuals and legal entities which operate paid quizzes or gambling games via cyber, internet or mobile networks.

The some goods are exempted from excise tax under the law, such as goods produced within the territory of Mongolia solely for export; Mongolian traditional home-made liquor distilled from milk for household use; snuff tobacco; legally obtained and imported duty free alcohol and tobacco; dual-fuel cars; cars running on liquefied gas; and electric cars.

The recent amendments to the state budget include provisions to increase excise taxes on gasoline and diesel fuel. The excise tax on passenger cars will be increased based on the vehicle’s engine capacity. The excise tax on alcohol, excise tax on cigarettes, and customs tax on cigarettes will also increase. If the amendment is approved by the Parliament, these proposed excise tax increases to take effect on April 1, 2017.

Mongolian Government Introduces Positive Amendments to 2017 Budget

Mongolia Minister of Finance B. Choijilsuren presented to the Speaker of Parliament M. Enkhbold a set of planned amendments to the 2017 state budget. These amendments have been designed to better ensure the government’s ability to meet its obligations under the International Monetary Fund’s extended fund facility program from which the government will receive substantial loans.

The amendments are intended to stabilize the national budget and the fiscal outlook financial environment, by reductions in budget deficits, and imposing discipline.

The primary changes in the new budget include:

  1. Increasing taxes on alcoholic beverages and imposing tariffs on imported cigarettes;
  2. Increasing taxes on gasoline and diesel fuel;
  3. Increasing taxes on imported vehicles, in accordance with engine capacity;
  4. Dividing personal income taxes into three brackets and increasing personal income tax for people with higher incomes;
  5. Charging a ten percent tax on interest earned from savings accounts;
  6. Raising social insurance fees;

Of these, the biggest and the one that caught the attention of our China lawyers is the changes proposed for the personal income tax. The exact income levels which will be cut off points between the three tax tiers is not yet known, however it is likely that many expatriate employees in Mongolia may be affected by higher taxes on their income.

In addition to the above, the amended budget will impose several new measures intended to reduce the government’s overall operational sending levels and bring expenditures in line with government revenues.

  1. Increase the efficiency of tenders being carried out in the medical sector;
  2. Raise the retirement age every two years;
  3. Promote the Meat and Milk Campaign to develop Mongolian meat and dairy industry;
  4. Provide the state’s monthly welfare allowance of 20,000 MNT for children and other state assistance only to targeted groups;
  5. Repeal existing laws that put pressure on the state budget.

The government will aim to limit deficit spending to 10.6% of overall GDP, with revenue expected to be 23.1 percent of GDP, and overall spending to be 33.7% of GDP.

Of the above measures, LehmanLaw Mongolia is pleased to see efforts to promote the Mongolia meat and dairy industry included. Mongolia’s large expanse of green pasture land, clean water and fresh air should provide excellent opportunities for entrepreneurs and foreign investors seeking to establish meat and dairy production operations in the country. Exports of such products to China should find a willing market, as Chinese meat and dairy consumption is expected to continue rising trends.

The other good news is the general commitment to eliminate old laws that cause unnecessary financial strain on the government. This review process is necessary and is expected to help the government identify new areas where spending can be reduced by smart changes to the law. This is the kind of reform needed to stabilize the Mongolian economy and prepare for long term growth.

United Nations Development Program in Mongolia

Assistant Secretary General of the United Nations and Director of the Regional Bureau for Asia and Pacific at the United Nations Development Programme (UNDP) Haoliang Xu, is meeting with Mongolian officials to review and discuss the United Nations Development Assistance Framework, a plan for the continued development of Mongolia in years 2017 through 2021.

Mongolia’s cooperation with the UN Agency is intended to assist in the development of new renewalble energy sources in Mongolia and improving Mongolia’s capacity to implement legal and regulatory reform in areas important to preventing and responding to environmental risks. Also priorities are general economic development, and implementation of international principles of rule of law.

The UN Agency is also expected to work with Mongolia in cultivating new ideas and programs for the reduction of air pollution in Ulaabaatar, which has become a problem in recent years, particularly winter. Initiatives to promote the private sector in Mongolia will also be discussed.

Continued cooperation between Mongolia and international organizations such as Mongolia are expected to bring long term benefits as Mongolia navigates trends of increasing urbanization and seeks modernization and development in both its economy and its legal system. Continued cooperation with UN agencies helps to promote stability and prosperity in the country.

Mongolia Economy to Benefit from Key Stabilization Measure

The good news is that the Government of Mongolia has agreed with the International Monetary Fund on the terms of financing of USD 440,000. The total current external financing for Mongolia is USD 5.5 billion. Negotiations on the current financing agreement have been ongoing since August of last year.

The agreement is preliminary, and has to be approved by the IMF’s Executive Board; however, in most cases the Executive Board will not overturn a preliminary agreement. The agreement will also depend on the Government of Mongolia meeting a series of agreed actions, which include the ceasing of certain off the record activities of Mongol Bank, and performing a diagnostic on the Mongolia banking system.

According to experts at the IMF, Mongolia’s loose budgeting in past years is a major cause of the country’s current economic troubles and relatively high debt. As a result, the IMF is requiring the national budget to be tightened. The agreement allows for the continuance of certain social spending for low income populations.

The government will be required to implement several fiscal reform actions. A Council will be established to provide independent budget forecasts and review expenditures. The Ministry of Finance will have to approve the budgets for any proposals.

The agreement with the IMF if implemented is expected to strengthen Mongolia’s prospects for sustainable growth going forward. Finance Minister B. Choijilsuren compared the reform package to a medicine that is “Bitter,” but helps to “heal.” LehmanLaw Mongolia is excited to see the agreement as it demonstrates both the belief the IMF has in the Mongolian economy as well as the determination of the government of Mongolia to accept difficult reforms in favor of a more sustainable path toward economic growth. With this agreement reached, there has never been a better time to come to Mongolia and see what unique business opportunities may be had in this unique developing country.

Will Mongolia Continue Economic Growth?

Mongolia may be poised for a new phase of economic growth according to Nikkei Asian Review. After an initial mining boom in 2011 and 2012, with growth reaching up to 17% of GDP in 2011, The Mongolian economy slowed. Low commodities prices led to reduced economic growth.

That may be set to change. According to the article, commodities prices increased toward the end of 2016, setting Mongolia up for a new phase of growth; if the right policies can be found to cultivate growing industries.

In addition to the Mining industry, the article gives examples of two Mongolian entrepreneurs who are producing and marketing new diabetes testing devices. The article also points to initiatives to increase renewable energy production capacity in Mongolia.

In the past, Mongolia’s windfall from mining resulted in poor planning and waste. Recent reforms by the new government have encouraged the International Monetary Fund to step in with new funding to ease Mongolia’s foreign debt burden.

If the trend of smart government continues, and at LehmanLaw Mongolia we think it will, the country is well placed for continued future growth. The key will be to diversify the economy away from reliance on the mining sector and to promote entrepreneurship and small business. The recent tax break on small business is a step in the right direction.

Prime Minister Discusses Future of Mongolian Cooperation With Eurasian Economic Commission

On February 2-3, Mongolian Prime Minister J. Erdenebat met with a representative of the Eurasian Economic Commission (EEC) for talks promoting economic cooperation between the EEC and Mongolia.

In the meeting, Mongolia indicated that it hoped to establish a Free Trade Agreement with the EEC. The EEC representative supported the PM’s proposal, suggesting a formal decision would be seen from the EEC relatively soon. As trade between Mongolia and the EEC has been stable but stagnant for several years, the EEC hopes to organize a business forum for entrepreneurs from EEC member states, and Mongolian organizations.

The Prime Minister was quick to agree and assured EEC companies there are great business opportunities in Mongolia, and made clear that the Mongolian Government is currently making efforts to improve its agricultural sector, including exports to EEC states.

The sides agreed to work to strengthen collaboration in establishing regulations and raising standards in veterinary, sanitation, and quarantine regulations and practices. There was also mutual agreement to promote joint training, and business seminars in Mongolia.

The meeting ended with an agreement on protocol for a second meeting to be held this year In November, and developing an action plan for joint working groups, which will include provisions to facilitate cooperation in transportation and infrastructure.

LehmanLaw Mongolia is pleased to learn of the government’s continued focus on developing the Mongolian economy through increasing trade and promoting the agricultural sector, as well as development of Mongolian infrastructure.

Doing Business in Mongolia

Mongolia is a country with vast open land, and few people. While the economy has been slow in recent years, the country has a huge amount of untapped potential. Now could be an excellent time to consider starting a new unique business opportunity in China.

LehmanLaw Mongolia is pleased to introduce our clients to the Business Counsel of Mongolia, and its support for the Doing Business in Mongolia project.

The Business Council of Mongolia (BCM) strives to make real effective contributions to bettering the environment for businesses large and small in Mongolia. BCM fosters international trade and healthy business relations by providing a network for its members and Mongolian businesses. BCM also works closely with the Mongolian Government private sector, embassies, NGOs, special interest groups and business associations to advance these goals. About 370 individuals act as volunteers on the BCM’s working groups which help to make recommendations on key areas for effective advocacy.

The Doing Business in Mongolia project aims to identify and promote new opportunities in Mongolia and well as help businesses struggling with common issues and challenges regarding operating their business in Mongolia. The volume will include 12 detailed and insightful interviews exceptional Mongolian business leaders.


Mongolia Cabinet Approves Construction of Oil Refinery

The Cabinet’s ministers voted to pursue negotiations to use a one billion USD loan from India to build a petroleum processing factory in Sainshand soum in Dornogovi Province. Total preliminary estimated cost for opening refinery will be 1 billion USD, 264 million USD will be spent on refinery and 264 million USD will be spent on a petroleum pipeline.

Early studies indicate the refinery could generate annual revenue of 1.2 billion USD, and net profit would be 43 million USD. The plan for the refinery capacity to process is up to 1.5 million tons of petroleum annually, 560,000 tons of gasoline, 670,000 tons of diesel fuel, and 107,000 tons of liquefied gas meeting Euro 4 and Euro 5 emission standards.

Studies shows that the proposed factory could contribute to increase the country’s GDP by 10 percent and a twofold increase in the revenue generated by the natural resources processing sector.

Economists predict that the investment could contribute to increasing the flow of foreign currency and help to stabilize Mongolia’s macro economic and monetary policy. The Cabinet believes that the refinery could create around 600 new jobs and pay more than 150 million USD a year in state and local taxes which will contribute to the state budget. The Finance Ministry suggests that a total of 30 factories, including tire, rubber, plastic, cosmetics, and pharmaceutical factories, could be established with direct access to a domestic refinery.