‘There is no need for VAT if 10 percent is refunded’

Mongolia introduced the ValueAdded Tax (VAT) Law in 2015. The tax rate is a flat 10 percent of all purchases, and 2 percent is cashed back in the form of refunds and lottery.

The public is, now more than ever, keen on raising the refund rate of VAT refund rate.

Regarding this issue, D.Tungalag, head of the Revenue Control and Refund Department of the General Taxation Authority, said, “We are studying how raising the VAT refund rate would affect the state budget. In 2021, 13 billion MNT was allocated for the National VAT Lottery and 160 billion MNT for refunds.”

She continued, “Tax operations need to be improved to increase tax revenue. In order to improve operations, businesses need to be fully taxed. This requirement created the VAT system and under the law, 2 percent VAT is refunded. The tax administration has developed and implemented a special plan to tax stall traders. As part of this, they’ve been giving out QR codes for VAT since 2019. The ‘X’ report (unprofitable) accounts for 23 percent of all tax reports. This type of report is still not increasing currently.”

President of the Association of Mongolian Certified Tax Consultants G.Altanzaya said, “VAT has a significant contribution to budget revenues. In some countries, some refunds are provided through a lottery. In a country like ours with little tax knowledge, it is sometimes used to mobilize citizens. This is the world standard. For example, Taiwan uses lotteries.”

“It is the government’s policy to keep the refund rate at 2 percent and if the full 10 percent is cashed back, we don’t have to keep the VAT system. There is nothing wrong with researching the benefits of increasing refunds,” she says.

G.Altanzaya noted that VAT is set in more than 160 countries around the world. Its main role is monitoring businesses and controlling the shadow economy by measuring the input and output of businesses.

“Different rates should be set for personal income tax and VAT. In other countries, there is a practice of charging a higher rate on luxury purchases and a lower rate on consumer goods. So, we don’t have to have a flat 10 percent rate. If the personal income tax is imposed on everyone at the same rate of 10 percent, the burden on low-income employees will be high,” she added.