Y. Manayenko, K. Mychka, D. Nurakhmet New Tax Code – What Should Subsoil Users Expect? // Petroleum – 2025 – №5.
On 18 July 2025, the President of the Republic of Kazakhstan signed the new Code of the Republic of Kazakhstan on Taxes and Other Mandatory Payments to the Budget (the "Tax Code"), marking the beginning of a far-reaching reform in the taxation sphere.
Starting 1 January 2026, the Tax Code will enter into force, introducing the updated approaches to the corporate income tax (the "CIT"), value-added tax (the "VAT"), and procedure for calculating advance payments. Certain norms will be gradually introduced in 2026–2027, which reflects the law-maker's intention to ensure smooth transition to the new rules.
The Tax Code represents the transition to a more predictable and balanced taxation model. Significant reduction of the scope of tax reporting and the number of effective taxes creates relevant prerequisites for lower administrative burden on business and optimization of interaction with the state. At the same time, the amendments secure transition to the service model of the tax authority's work where the focus is kept not on sanctions, but on advisory support and partnership with taxpayers.
Below are the key amendments to the Tax Code affecting the activities of subsoil users, as well as general amendments affecting all economy sectors, including the sphere of production and processing of raw hydrocarbons.
1. Changes in the Hydrocarbon Sector Taxation
As part of reform of the tax legislation, the law-maker re-considered the key provisions regulating taxation of the subsoil users' activities. Such changes are intended to unify the tax regime in the oil and gas industry and create conditions to stimulate the development and support the production at the producing and depleting fields.
The key amendments include as follows:
• Starting 1 January 2027, exemption from the necessity to pay the export rental tax on crude oil and oil products will cover not only subsoil users applying the alternative tax, but will also apply to the payers of the mineral production tax on hydrocarbons [1].
The current Tax Code provides for a similar exemption only for the payers of the alternative tax on subsoil use [2]. Introduction of a similar exemption for the payers of the mineral production tax is intended to reduce differences between the tax regimes within the oil and gas sector and form more equal taxation conditions.
• Furthermore, the new Tax Code provides for a possibility to apply the alternative subsoil use tax with respect to depleting oil and gas fields, with the degree of depletion of more than 70% and water cut of more than 85% [3]. This tax is paid instead of the mineral production tax, payment for reimbursement of historical costs, excess profit tax, and export rental tax.
The current version of the Tax Code limits the right to apply the alternative tax by contracts entered into with respect to projects in the Kazakhstan sector of the Caspian Sea or a field with deep occurrence depth [4]. The new version of the Code expands this list, includes depleting fields, and secures inalterability of the right to apply the alternative tax within the entire effective period of a relevant contract.
The purpose of introducing this norm is to support major fields, which have already passed the peak production stage (including Uzen, Kumkol, Kenkiyak, etc.), which require significant investments to preserve the production volumes and workplaces.
• The new Tax Code also provides for the right to treat as deductible the costs incurred in connection with formation of a pledge over a bank deposit intended for ensuring remediation of subsoil use consequences in the sphere of hydrocarbons [5]. The contributions to form such pledge are recognized as deductible when calculating the corporate income tax, similar to the current procedure established for the liquidation fund. In case of returning the amount of pledge, it must be included in the total annual income of a taxpayer.
• In addition, to stimulate capital-intensive projects in the oil and gas industry, the new Tax Code secures a special tax regime for subsoil users implementing complex projects involving exploration and production of hydrocarbons.
Relevant provisions are set out in the new Chapter 83 of the Tax Code providing for special taxation rules for both complex onshore oil and gas projects.
For the subsoil users that entered into contracts for complex projects (except for onshore gas projects), the amendments provide for increased deductions relating to costs in connection with geological exploration and wear and tear, as well as for a special procedure for property accounting and revenue recognition [6]. This allows for more accurate accounting of costs incurred at early stages of a field development and reduces the effective tax burden during the period of active investments.
As regards complex onshore gas projects, the amendments provide for complete exemption from the CIT payment for the entire effective period of a relevant contract [7]. Such exemption is combined with special tax accounting rules, including recognition of expenses and wear and tear, which makes implementation of such projects more economically attractive and predictable.
Securing of these norms reflects a strategic course on support of complex projects with a long-term investment cycle and high level of geological and technical risks.
• Another novelty of the new Tax Code is the introduction of changes into the approach to determination of a taxable base of the mineral production tax as applied to raw hydrocarbons. According to the new Tax Code, the cost of marketable hydrocarbons produced by a subsoil user under each subsoil use contract will be determined as the product of the volume of produced marketable hydrocarbons and the world market price per a product unit [8].
The world market price becomes the base figure for the purpose of calculating the mineral production tax, whereas previously it was applied in a limited scope, primarily in case of exporting or transferring oil on account of obligations to the state.
The current version of the Code uses different methods: sales price was used in a number of cases, while it was allowed to use the production cost with an extra charge.
The new rule significantly changes correlation between income and the taxable base for subsoil users, specifically those that sell oil on the domestic market at regulated or agreed prices irrelevant to the world price quotations. This results in effective growth of the tax burden in the absence of a comparable revenue growth. This mechanism gives rise to certain concerns of business regarding the tax transparency and equity, especially under the conditions of limited access to export infrastructure or obligations on domestic supplies.
• The new Tax Code also altered the procedure for determining the cost of flared gas when calculating the mineral production tax, which is of great importance for subsoil users carrying out geological exploration operations for raw hydrocarbons.
If previously the cost of associated gas was calculated for the taxation purposes based on the world market prices, starting 1 January 2026, a more economically sound approach will be applied: cost of flared gas will be determined as the input cost of its production increased by 20% [9].
Introduction of a new formula will allow for more accurate accounting of real expenses of a subsoil user in the course of exploration where the gas flaring volumes may reach considerable amounts with no commercial sale of such gas. This reduction of the taxable base is intended to stimulate geological and exploration operations, especially at early stages of a field development.
2. General Changes in the Tax Legislation
First of all, it is worth mentioning that the structure of the Tax Code with respect to regulation of taxation of subsoil users has been drastically changed. Specifically, Article 10 introduced a separate conceptual framework.
In addition to the updated conceptual framework, new special Chapters were added to the Tax Code, among which, for example, there is Chapter 83 "Specifics of Taxation of Subsoil Users Implementing Complex Projects", which includes the articles regulating the specifics of taxation of subsoil users carrying out activities under contracts for exploration and production or production of hydrocarbons in the course of implementing complex projects (except for onshore gas projects) and specifics of taxation of subsoil users implementing complex onshore gas projects.
At the same time, the Code introduced a number of systemic changes aimed at increasing transparency, predictability and effectiveness of the tax administration in general. These novelties relate to the key types of taxes – CIT and VAT, special tax regimes and social payments, and procedure for conducting tax inspections. Let's consider the key changes below.
• CIT The CIT base rate remains at the level of 20% [10]; however, to increase flexibility of the tax system the Code introduces differentiated rates for certain categories of taxpayers.
However, as regards the subsoil use contracts for hydrocarbons, the CIT rate also remains at the level of 20%, which corresponds to the current level and ensures further tax stability for long-term projects in the oil and gas industry.
• VAT One of the key amendments is the increase of the VAT base rate from 12% to 16% [11], which is intended to strengthen the revenue base of the budget and unify approaches to taxation in the countries of the region.
The threshold for mandatory VAT registration has been reduced twice: from 20,000 to 10,000 MCI [12], which will expand the range of payers.
There are also changes in the procedure for submitting reporting: VAT declaration (form 300.00) must be submitted not earlier than the 15th day of a month following the reporting month and not later than the 15th day of the second month.
There are more obligations on the work with electronic tax invoices (ETI): a taxpayer must confirm recognition of the amount of VAT for offset before submitting a declaration, and a recipient must approve or reject the issued ETI.
Furthermore, execution of ETI becomes mandatory when acquiring work or services from non-residents in case the Republic of Kazakhstan is recognized as the place of sale.
• Social Payments Starting 1 January 2026, the rates of social deductions will be changed. Mandatory pension contributions of an employer will increase from 2.5% to 3.5%, and social tax will be reduced from 11% to 6%. The right to reduce the social base by the amount of social deductions will be cancelled, which actually preserves the total burden at the same level.
The rate of social deductions as part of a single payment will be reduced from 18.9% to 18.1% with subsequent gradual reduction up to 1 January 2028.
• Tax Administration and Inspections Starting 2026, the desk audit will be conducted completely automatically. Notices may be fulfilled same as before by applying two methods:
- in case of the taxpayer's consent – by way of own rectification of violations;
- in case of disagreement – by way of submitting clarifications to the tax authority regarding the reasons for differences.
Important novelty is the prohibition against discovery of documents when fulfilling the notices in the course of a desk audit.
Furthermore, the amendments simplify the procedures for recovering tax debts and giving additional time: from now on, bank accounts may be blocked only up to the amount of debt without complete freezing of funds.
Sanctions are differentiated based on the amount of debt:
- up to 20 MCI – sending of a notice;
- from 20 up to 45 MCI – suspension of expense transactions and issuing of a collection order; and
- more than 45 MCI – blocking of accounts and property inventory.
Such approach is intended to increase predictability of tax administration and stimulate voluntary performance of obligations.
3. Conclusion
The adopted Tax Code is the most sweeping reform of the tax legislation over the past years. It is aimed at simplification of the tax structure, greater transparency of administration, and transition to a more predictable model of interaction between the state and business.
However, despite positive expectations, the new regulation contains the aspects giving rise to certain concerns. As regards the subsoil users, the key factor remains the stability of the tax regime: long-term projects require predictability and confidence that the game rules will not change within the entire term of implementation. Frequent adjustments of the tax policy may complicate the planning and reduce attractiveness of investments; therefore, business will pay close attention to whether the Tax Code specifically ensures stability and consistency of performance conditions.
At the same time, the very Code has not been put into effect yet, and only practice will show its impact on real activities of companies. So far, we can only wait to see whether the reform will support the stated focus on stability, predictability and partnership between the state and business.
[1] Article 746 of the Tax Code. [2] Article 713 of the current Tax Code. [3] Article 812 of the Tax Code. [4] Article 766 of the current Tax Code. [5] Article 258.14 of the Tax Code. [6] Article 742 of the Tax Code. [7] Article 743 of the Tax Code. [8] Article 776.2 of the Tax Code. [9] Article 776.5.2 of the Tax Code. [10] Article 357 of the Tax Code. [11] Article 503 of the Tax Code. [12] MCI is a monthly calculation index. According to the Law No. 141-VIII of the Republic of Kazakhstan "On National Budget for the Years 2025-2027" dated 4 December 2024, 1 MCI = KZT 3,932 (USD ≈ 7.28).