MONCAMÉ: The Parliament of Mongolia has approved final amendments to the tax legislation

The Mongolian Parliament has officially approved final amendments to the country's tax legislation, marking a significant shift in its fiscal policy. The changes were announced by Finance Minister Mendsaihan Zagdjavyn, who stated that after over a month of discussions within parliament and revisions to the proposed package, the new tax laws have been finalized. These reforms aim to simplify the taxation system for both individuals and businesses while also introducing measures designed to boost economic activity and local government revenues.

Under the revised law, the income tax rate for physical persons will be set at 0% for earnings up to 792,000 tugriks (approximately 194 euros) and 1% for incomes up to two million tugriks. The zero-rate bracket will take effect on January 1, 2027, while the one percent rate will come into force on January 1, 2028. It is estimated that around one million and 30 thousand working citizens will benefit from these adjustments. Additionally, sole proprietors will now enjoy a simplified tax regime with a flat rate of 1% on annual sales up to one billion tugriks.

The reform also includes provisions that exempt individuals from paying a 2% tax on the sale of real estate properties. For businesses, the threshold for corporate income tax has been adjusted, reducing the rate from 10% for income up to six billion tugriks and 25% for income exceeding this amount to a 15% rate for income between six and ten billion tugriks. The revenue threshold for small and medium-sized enterprises has been increased from 1.5 to 2.5 billion tugriks, with a simplified tax regime of 1% established for them. Furthermore, companies operating in virtual zones are fully exempted from income tax, and there is an exemption from VAT for firms with annual revenues up to 400 million tugriks.

In addition to these changes, the amendment introduces a two-month deferral for VAT payments and reduces the time required for submitting tax returns. These modifications are intended to ease the administrative burden on taxpayers and encourage more investment and business activities.

Meanwhile, Sofia’s mayor, Vasil Terziev, has expressed concerns about the distribution of taxes, particularly regarding the portion of income tax and corporate tax that remains within municipal budgets. He emphasized the need for decentralization, suggesting that part of the tax should stay within local communities to fund their projects without relying heavily on national grants. Terziev pointed out that many countries allocate a portion of at least one of the two main taxes to municipalities, which could lead to greater financial autonomy and better resource allocation for local initiatives.

He also highlighted issues related to the European Union funds, noting that Sofia is being treated as a separate region due to its development status, but the city lacks control over how much of its generated economic output stays within its borders. This situation, he argued, leaves Sofia having to seek funding for projects through national programs, often facing delays and unequal treatment compared to other cities. Terziev stressed the importance of increasing Sofia’s own revenues to support ambitious urban projects, such as the redevelopment of Borisov Park, where he noted fewer objections than expected despite initial concerns about tree cutting and construction.

These developments reflect broader trends in Mongolia's approach to economic management and local governance, aiming to balance national priorities with regional needs and enhance fiscal sustainability. As the new tax policies take effect, they are expected to influence both domestic economic behavior and international perceptions of Mongolia's fiscal discipline and regulatory environment. The implementation phase will likely involve close monitoring to ensure compliance and assess the impact on various sectors of the economy.