Brief Answer
Groundwater losses cannot automatically be excluded from the calculation of mineral extraction tax merely because the water was not sold to consumers. The Tax Code separately mentions actual losses of groundwater for domestic and drinking purposes exceeding the standard loss limits approved in the water supply tariff for the relevant reporting period. This rule applies to activities regulated by the legislation of the Republic of Kazakhstan on natural monopolies.
Therefore, to determine the tax liability, losses must be divided into standard and above-standard losses, and the purpose of the extracted water and the subsoil user's status must also be established. The conclusion is based on documented volumes, rather than solely on the total volume of water extracted or supplied.
Which Volumes Require Separate Accounting
Mineral extraction tax rates for groundwater are established per cubic metre of extracted water based on the MCI effective as of 1 January of the relevant financial year. The Code distinguishes several categories of groundwater depending on its use and the subsoil user's activities.
For organisations operating in the regulated water supply sector, it is essential to account separately for:
- the total volume of groundwater extracted;
- the volume of water transferred or used in regulated activities;
- actual process and other losses;
- the standard loss limit approved in the tariff for the relevant reporting period;
- the amount by which actual losses exceed the approved limit.
It is the amount by which actual losses of water for domestic and drinking purposes exceed the tariff standard that is identified as a separate category in the table of rates. Therefore, the fact that the lost volume was not sold does not in itself mean that it is exempt from mineral extraction tax.
How to Determine the Taxable Volume
First, it should be verified whether the organisation is a natural monopoly entity and whether the extracted water is used in regulated activities. Actual losses for the reporting period should then be compared with the limit approved in the water supply tariff specifically for that period.
It is advisable to arrange the practical calculation as follows:
- Record the extraction volume based on meter readings and source documents.
- Determine actual losses using the accounting methodology adopted by the organisation.
- Confirm the applicable tariff limit for standard losses.
- Calculate the amount by which actual losses exceed the approved limit.
- Record the resulting volume separately in the tax register to apply the relevant mineral extraction tax rate category.
If actual losses do not exceed the approved tariff limit, they cannot be classified as above-standard losses without further analysis. At the same time, the accounting treatment of the entire extracted volume should be assessed in light of the intended use of the water and other applicable provisions of the Tax Code.
Which Documents the Accountant Should Prepare
The calculation should make it possible to reconcile technical and tax accounting data. This will require meter readings, water extraction and supply statements or reports, a calculation of actual losses, the document approving the tariff and the standard specified therein, as well as the mineral extraction tax register.
Particular attention should be paid to ensuring that the reporting periods match. Current actual losses cannot be compared with a standard applicable to another period. If the tariff or standard loss limit changed, the calculation should be based on the documents in effect during the relevant period.
If an error is identified in previously submitted reporting, it must be determined whether the error affected the taxable item and the amount of tax. The Tax Code provides for supplementary tax reporting to amend or supplement previously submitted information.
Frequently Asked Questions
Should mineral extraction tax be charged on the entire volume of groundwater losses? — No definitive conclusion can be drawn solely from the total volume of losses. For regulated water supply, losses must, at a minimum, be divided into those within the approved standard and those exceeding it.
Are above-standard losses of water for domestic and drinking purposes taxable? — The Tax Code classifies actual losses exceeding the limit approved in the tariff as a separate mineral extraction tax rate category. This volume must be accounted for separately when calculating the tax.
Can lost water be treated as unsold and excluded from the calculation? — The mere fact that it was not sold is not sufficient grounds. For mineral extraction tax purposes, the extracted volume, the intended use of the water and the special rules governing losses are relevant.
How can standard losses be substantiated? — By the document approving the water supply tariff and the standard loss limit specified therein for the relevant reporting period.
What should be done if separate accounting for losses was not previously maintained? — The calculation should be reconstructed using source and technical data, compared with the tariff standard, and the need to amend the tax reporting should be assessed.