Underreporting of sales amounts, overstating deductions for purchased goods, works, and services, as well as underreporting income for corporate income tax — are among the most common violations identified by the tax authorities of Kazakhstan during desk audits and tax inspections. We will analyze what exactly falls under these definitions, who it concerns, and how to structure accounting to avoid receiving a notification.
What do these violations mean
We are talking about three interconnected distortions of the tax base.
Underreporting of sales amounts for VAT — when the taxpayer reflects in the declaration a turnover from sales that is less than the actual amount. This may result from unreported invoices, "grey" sales without documentation, or incorrect qualification of transactions as exempt.
Overstating the acquisition of goods, works, and services — including in the deduction (credit) amounts of VAT for transactions that are not supported by proper documentation, are not related to taxable turnover, or are conducted with counterparties whose activities raise doubts.
Underreporting income for CIT — reducing total annual income due to unreported revenue or unjustified overstating of expenses that are deductible when calculating corporate income tax.
These violations often occur together: unreported sales simultaneously understate both VAT turnover and CIT income, while "inflated" purchases increase VAT credits and CIT deductions.
Who does this concern
The focus is on all VAT and CIT payers: legal entities and sole proprietors under the general taxation regime, as well as companies working with a large number of counterparties. Special attention is paid to businesses with signs of discrepancies between the buyer's and supplier's declarations, significant turnover with minimal tax burden, and transactions with counterparties that raise questions about the reality of the deals.
How such violations are identified
The main tool is data comparison. Electronic invoices, VAT and CIT declarations, and information on the movement of funds and goods are cross-checked with each other and along the chain of counterparties. Discrepancies between what the supplier reported and what the buyer reflected, as well as between the account statements and reported revenue, become grounds for desk audits or inspections.
As a result of the desk audit, the taxpayer receives a notification to rectify violations, which must be responded to within the established timeframe: either agree and submit an additional declaration or provide explanations justifying their position.
What businesses should do
To reduce risks, adhere to several basic rules:
- Fully reflect sales. All sales must be accompanied by documentation and included in VAT and CIT declarations.
- Check counterparties. Before the transaction, ensure the reality of the supplier's activities — this protects the right to VAT credits and deductions.
- Keep primary documents. Contracts, waybills, acts of completed work, invoices, and payment confirmations must be available and correspond to each other.
- Only claim justified VAT credits. Deductions are allowed for transactions related to taxable turnover and documented.
- Regularly reconcile declarations. Periodic internal reconciliation of electronic invoices with declarations helps identify discrepancies before the controlling authority does.
If a notification has already been received, do not ignore it: a delayed response may lead to additional tax assessments, penalties, and restrictive measures. If there are grounds for disagreement, prepare reasoned explanations with supporting documents attached.
Frequently asked questions
What are the consequences of underreporting sales and overstating deductions? — Following an inspection, there may be additional assessments of VAT and CIT, penalties, and administrative liability; specific amounts depend on the nature and extent of the violation.
Can I correct the mistake myself? — Yes. If you discover underreported income or incorrect deductions, submit an additional tax declaration before the controlling authority identifies the violation — this reduces the risk of sanctions.
Why does the tax authority see discrepancies with counterparties? — Data from electronic invoices and declarations are compared across the entire chain of transactions, so discrepancies between what you and your supplier reported automatically become noticeable.
How to secure the right to VAT credits? — Verify the reality of the counterparty's activities, prepare a complete set of primary documents, and only claim VAT for transactions related to taxable turnover.
What to do after receiving a notification from the desk audit? — Within the established timeframe, either agree and adjust the declaration or provide reasoned explanations with supporting documents.
Sources
- Underreporting of sales amounts, overstating the acquisition of goods, works, and services for VAT, and underreporting income for CIT — DGT · all news (center + regions)