Economic Policy Reform and Competitiveness Project (EPRC)

Chemonics

www.eprc–chemonics.biz

Economic Policy Support

Initial impact of the tax reform:  Working closely with GDNT, the project completed an analysis of the initial impact of the tax reform. One year after enactment of the new laws, introduction of revised regulations and tax forms, intensive taxpayers public education efforts, and training of tax officers and inspectors on the new laws, regulations and underlying IFRS standards, there was a measurable impact of these efforts.

• Personal income tax (PIT): Initial data on personal income tax for the first year after the reform indicate that there was a discernible impact on “reducing the size of the shadow economy and expanding the tax base,” a key objective of the reform. In spite of lowered, quasi-flat tax rates, collections were uniformly higher in all categories. Tax collections from the self-employed increased three-fold as they declared twice as much taxable income as before.  The tax base in 2008 expanded by over 40 percent as compared to 2007 based on the number of withholdings of personal income taxes due.
• Corporate income tax (CIT): Despite reductions in the corporate tax rates and higher thresholds, the total CIT revenues due in 2007 rose to almost MNT 219 billion relative to MNT 197 billion the year before.
• Value-added tax (VAT): Domestic net VAT revenues doubled in 2007 relative to the two prior years and the number of filings with VAT due increased by 19 percent relative to 2006—more than twice the 8 percent average annual rate of increase of the prior two years. These trends are consistent with the tax reform objectives of expanding the tax base and formalizing the economy.

VAT collections at the border also increased, but the reduction of the VAT rate from 15 to 10 percent introduced under the tax reform had a dampening effect on the annual rate of increase. Collections at the border increased by only six percent in 2007 relative to the year before—less than the average annual growth of 25 and 18 percent observed in 2006 and 2005. However, the taxable VAT base for imports doubled in 2007 relative to 2005, and expanded by 60 percent relative to 2006. VAT filings at the border increased by 20 percent in 2007 relative to the year before, almost a fourfold increase relative to the average rate of increase of 2004-2006.

Market analysis of cement, glass-making, and iron bar manufacturing: At the request of the First Deputy Prime Minister Altankhuyag the project began a market analysis of these sectors to examine potential feasibility of expanding local manufacturing.

Financial Markets Support

Corporate governance: The project commenced a short term consultancy to develop Mongolia’s institutional capacity to provide training in corporate governance. The primary objectives are to:

• Develop a corporate governance course to be delivered at the Institute of Finance and Economics. This will be a pilot program and is planned to be rolled out in other faculties and universities in Mongolia.
• Deliver a Train-the-Trainers session of the complete course to professors selected by the Institute of Finance and Economics and approved by EPRC.
• Deliver a pilot session of the complete course to Directors of relevant enterprises.

Mortgage glossary: EPRC completed and issued the first edition of the Mortgage Glossary, a compilation of mortgage-related terms and definitions used in the legal and financial communities. The glossary is designed to start the process of filling in a current void in the standardized mortgage lexicon in Mongolia. It can be downloaded from the EPRC website: www.eprc-chemonics.biz.

Zamyn Uud Gateway Logistics Park:  On 7 November EPRC hosted a meeting of representatives of private sector freight forwarders who agreed to establish a working group to develop a memorandum of understanding (MOU) with the Government of Mongolia (GoM) to initiate a Zamyn Uud Logistics Park Development Company in the form of a Public-Private Sector Partnership (PPP). EPRC assisted with the drafting of the MOU and the working group initiated negotiations with GoM representatives.

Business Development Support

Tourism promotion: The project assisted the Mongolia National Tourism Organization, the Mongolian Tourism Association, the Ministry of Nature, Environment, and Tourism (MNET), MIAT Mongolian airlines and five Mongolian tour operators to organize the nation’s participation in the World Travel Market (WTM) 2008 international tourism and travel fair held in London, England 10-13 November 2008. EPRC assisted the Mongolian participants in the design and set up of the Mongolia booth, production of a promotional CD, and organization of the first Mongolian country presentation at the WTM.

EPRC business development advisor Indraa Bold moderated the country presentation which featured presentations by the Ambassador of Mongolia to the United Kingdom, the Director of Tourism of the MNET, and private sector tour operators. The highlight of the country presentation was the keynote speech by Mr. John Man, author of “Chinggis Khan: Life, Death, and Resurrection.” 

Project support to the Mongolian participants provided the opportunity for them to renew contracts with their existing partners as well as secure new business-to-business (B2B) partners in promoting inbound Mongolian tourism.  It also allowed Mongolian participants to initiate negotiations with the Institute of Tourist Guiding to train local communities and tourism service providers in Western Mongolia as part of promoting the Western Mongolia tourism circuit under the brand “Mongolia–your next adventure” on behalf of the MNTO.

Energy Sector Support  

Energy sector financial status:  EPRC continues to assist the Energy Regulatory Agency (ERA) in implementing the remaining tasks in the approved Tariff Reform Plan in accordance with the plan schedule. The ERA is collecting information from the energy enterprises and other concerned parties and preparing a resolution for the next tariff increase, now scheduled for mid-2009.  

Competitive electricity market design:  Following the meetings with the ERA and the five largest energy enterprises, the project organized a workshop in mid-November and delivered the final and revised report entitled “Proposed Competitive Electricity Market Design for Mongolia’s Central Energy System,” which incorporated comments received earlier.  The project is also revising the Rules for the New Competitive Market, first submitted in early 2006, and the ERA is organizing a Working Group of stakeholders to meet regularly to review and comment on the Rules on a chapter by chapter basis.

Update of ERA Assessment:  The update of the assessment first completed in November 2006 is in its final stages. Both the project and the ERA are pleased with the results. The assessment report will be issued in December.

Development of the CHP #5 tender process and documents:  The tender was issued via the Mongolian media on 1 August 2008. The date for submission of proposals was extended to 15 January 2009.

Consensus Building, Public Education and National Dialogue Support

Potential national dialogue and consensus building on mining policy and issues: EPRC continued meetings with stakeholders in Parliament, civil society, trade unions, and others to seek common ground for a consensus-seeking activity. The project wll engage a short-term communications expert during December to assist with this activity.