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.