On March 13, the Ministry of Finance and the Mongolian Tax Administration reported on a comprehensive Tax Package Bill which aims to reduce the tax burden on citizens and businesses while expanding the tax base and improving the overall tax system.
The package includes amendments to several key laws, including the Law on Corporate Income Tax, the Law on Value Added Tax (VAT), and the Law on Personal Income Tax, along with related legislative changes. According to officials, the reform is expected to reduce taxes for citizens by approximately 2 trillion MNT and lower the tax burden on businesses by about 700 billion MNT. In total, the tax package aims to reduce taxes by 2.7 trillion MNT in stages.
The draft law proposes significant changes to the corporate income tax structure. Under the proposal, companies earning between six billion MNT and 10 billion MNT annually would pay a 15 percent tax rate, while companies with income exceeding 10 billion MNT would be taxed at 25 percent. Currently, companies with income above six billion MNT are subject to the higher tax rate. The reform would therefore raise the threshold for the 25 percent tax rate from six billion MNT to 10 billion MNT, allowing medium-sized companies to expand their operations with a lower tax burden.
The bill also proposes increasing the threshold for small and medium-sized enterprises (SMEs) to receive a 90 percent tax refund from 1.5 billion MNT to 2.5 billion MNT. In addition, small and micro businesses with annual revenue of up to 400 million MNT would be eligible for the simplified one percent tax regime, expanding the scope of support for smaller enterprises.
The proposed reforms include several provisions designed to improve the business environment. One key measure would allow 20 percent of the future income of companies with tax debts to remain accessible in their bank accounts. Currently, tax authorities can freeze the entire amount of future income, which can halt business operations. The draft law would also extend the period allowed for correcting tax reports from one year to two years. In addition, businesses importing goods would be allowed to defer VAT payments at customs for up to two months, easing cash flow pressures.
Another important change would address VAT deduction issues that have long been a concern for businesses. The bill proposes allowing VAT deductions related to business activities and enabling manufacturers to fully use electronic documents when purchasing raw materials and claiming VAT deductions. Officials said these changes are intended to reduce unnecessary costs for companies and improve transparency in tax reporting.
Under the proposed system, consumers would receive refunds on VAT paid for purchases. Purchases of up to 500,000 MNT per month would receive a 100 percent VAT refund, while purchases between 500,000 MNT and one million MNT would receive a 50 percent refund. Purchases exceeding one million MNT would receive a 20 percent refund. In addition, 100 percent of the monthly personal income tax paid by all employed citizens would be refunded. The bill also proposes tax incentives for housing. Citizens purchasing their first home in rural areas or buying energy-efficient housing would be eligible for tax deductions of up to 15 million MNT.
Officials said the reforms also aim to reduce the shadow economy by encouraging wider use of payment receipts and digital tax documentation. Expanding the use of electronic invoices and requiring receipts for all transactions is expected to improve tax compliance and increase transparency. According to the drafters of the legislation, the new tax framework is designed to support business growth, encourage investment, and improve fairness in the tax system while maintaining stable government revenue.
