TAX CODE OF THE REPUBLIC OF TAJIKISTAN

PART II. SPECIAL PART

SECTION VI. GENERAL PROVISIONS CONCERNING THE PROFIT TAX AND INCOME TAX
________________________________________________________________

CHAPTER 19. DEDUCTIONS FROM GROSS INCOME

Article 146. Deduction of Expenses Related to Earning Income

1. All expenses effected in a (tax) reporting period (applicable to a reporting period) that are related to earning the income in question, including expenditures on the payment of taxes specified by this Code, taking into account the restrictions established under Article 158 of this Code, expenditures on labor compensation and providing material and social benefits for employees that are subject to the income tax, expenditures on payment for raw materials, supplies, and energy, except expenditures on construction, the purchase of fixed assets and their installation, as well as other capital expenditures in accordance with Article 195 of this Code, and expenditures that are not deductible in accordance with Article 147 of this Code and other provisions of this chapter, shall be deducted from gross income.

2. Deductions shall be taken by a taxpayer provided that the taxpayer has properly prepared documents confirming the expenses related to earning gross income.

3. In the event that the same expenses are specified under several expenditure items, said expenses shall be deducted only once when calculating taxable profit (taxable income).

4. Penalties, interest (fines), and charges that have been awarded or recognized and are related to earning gross income, which are payable (have been paid) at the taxpayer's expense, shall be deductible, with the exception of those payable to the budget.

Article 147. Nondeductible Expenses

1. Deductions shall not be allowed for expenses that are not related to commercial activity. Deductions shall not be allowed for expenditures on the construction, operation, and maintenance of facilities that are not related to commercial (principal production) activity.

2. The deductions provided for under this chapter shall not be allowed if they do not meet the requirements set forth in Article 146 of this Code.

3. No deductions shall be allowed for hospitality and other similar expenses (related to making arrangements for parties, housing of guests, etc.)

4. Item 3 of this article shall not apply to a taxpayer whose commercial activity is of an entertainment nature, if the expenses are incurred as part of this activity.

5. Deductions with regard to contributions to reserve funds shall be taken only in accordance with the provisions of Articles 150 and 151 of this Code.

6. An individual may not deduct expenditures on personal consumption or expenses related to his own work for hire.

7. The value of property transferred, work performed, or services provided free of charge (on a charitable basis) shall not be deductible, with the exception of the case referred to under Article 148 of this Code.

8. Deductions shall not be allowed for expenses related to passenger cars which at any time during the tax period were at the personal disposal of employees or shareholders (partners of a taxpayer), including their use for transporting employees to and from work.

Article 148. Deduction of Charitable Payments

Regardless of the provisions of Article 147 of this Code, deductions of payments to charitable organizations and for the performance of charitable activity in accordance with items 2 and 3 of Article 17 of this Code shall be permitted in the amount of the payments actually made, not to exceed 5 percent of taxable profit (taxable income) determined without including the amount of the deduction allowed under this article. In the case of charitable payments in the form of property, the amount of the charitable payment actually made shall be the lesser of two values: the market value of the property or its production cost.

Article 149. Restriction on Deductions Pertaining to Interest

1. Except as otherwise provided under item 2 of this article, interest actually paid (payable when the accrual basis is used) for each credit (loan) shall be deducted, but in an amount not to exceed three times the amount of interest accrued (accruable) using the refinancing rate of the National Bank of Tajikistan in effect in the tax period. This item shall also apply to interest paid under financial leasing agreements.

2. In the case of an enterprise in which more than 25 percent of the authorized capital is held directly or indirectly by nonresidents or legal entities that are exempt from the profit tax, interest paid on each credit (loan) used during a tax period shall be deducted in accordance with item 1 of this article, but the maximum amount of interest that can be deducted in accordance with item 1 of this article shall be limited to the following amount:

1) any interest income earned by the given enterprise, plus

2) 50 percent of the amount received as a result of a reduction in this enterprise's gross income (other than interest income) by authorized deductions allowed in accordance with this chapter, other than deductions pertaining to interest.

Article 150. Deductions Pertaining to Bad (Problem) Debts

1. Taxpayers shall have the right to take deductions for bad (problem) debts related to the delivery of goods, the performance of work, and the provision of services, if the income related to these debts was previously included in gross income earned from commercial activity.

2. A deduction of a bad (problem) debt shall be allowed at the point that the debt is written off in the taxpayer's accounting records as having no value.

3. Banks, credit unions, and micro-credit deposit institutions that have been set up following the established procedure shall have the right to deduct contributions to a reserve to cover possible losses on credits (loans) (referred to hereinafter as in this item as a reserve) in accordance with the rules for the formation of this reserve and the classification of credits (loans) established by the National Bank of Tajikistan. A deduction shall be allowed for contributions to the reserve for all groups of credits (loans), with the exception of contributions for standard credits (loans). The authorized deduction shall be equal to 90 percent of the amount determined for contributions for all groups of credits (loans), with the exception of contributions for standard credits (loans), in accordance with the following procedure: the amount of the reserve at the end of the year minus the amount of the reserve at the beginning of the year, plus the contributions to the reserve during the year based on bad credits (loans) that have been written off, minus contributions to the reserve during the year based on credits (loans) actually repaid. An instruction on determining the amount of the authorized deduction shall be approved by the authorized government body in consultation with the National Bank of Tajikistan and the Republic of Tajikistan Ministry of Finance.

Article 151. Deductions of Contributions to Insurance Reserve Funds

A legal entity operating in the insurance business shall have the right to take deductions for contributions to insurance reserve funds in accordance with the procedure and norms established by the Republic of Tajikistan government on the basis of a proposal from the Republic of Tajikistan Ministry of Finance and the authorized government body.

Article 152. Deductions Pertaining to Expenditures on Scientific Research, Planning and Development, and Experimental Design Work

Deductions shall be taken for expenditures on scientific research, planning and development, and experimental design work related to earning gross income, other than expenditures on the purchase of fixed assets, their installation, and other capital expenses. The basis for the deduction of these expenses shall be planning and estimate documentation, a certificate of work performed, and other documents confirming the performance of the relevant scientific research, planning and development, and experimental design work.

Article 153. Depreciation Charges and Deductions for Fixed Assets

1. Depreciation charges for fixed assets used in commercial activity shall be deductible in accordance with the provisions of this article.

For the purposes of this Code depreciation charges for fixed assets and intangible assets not used in commercial activity (used in noncommercial activity) shall not be calculated and shall not be deductible.

2. Depreciable assets shall not include land, works of art, inventory, including unfinished construction projects and uninstalled equipment, property whose value is deducted in full in the current year from taxable profit, and other assets not subject to depreciation.

3. Depreciable fixed assets shall be divided into groups with the following depreciation rates:

4. The depreciation charges for each group of fixed assets (referred to hereinafter as a "group") shall be calculated by applying the depreciation rate indicated under item 3 of this article, but not in excess of the maximum, to the value balance of the group at the end of the tax year.

5. Depreciation charges for buildings, constructions, and structures (referred to hereinafter as "structures") shall be applied not for the group, but for each structure individually.

6. The value balance of a group at the end of a tax year shall be equal to the amount determined as follows (but not less than zero (not negative)):

1) the value balance of a group at the end of the previous year less the amount of the depreciation for the previous year, as well as the amounts indicated in items 8 and 9 of this article, plus

2) the value of fixed assets in accordance with Article 195 of this Code, added to the group in the course of the tax year, minus

3) proceeds from the sale of fixed assets in the tax year, established on the basis of the selling price.

7. If the proceeds from the sale of fixed assets in a certain group during a tax year exceed the value balance of the group at the end of the year, the surplus amount shall be included as income, and the value balance of the group shall be equal to zero.

8. If the value balance of a group at the end of the year is equal to less than 50 times the minimum monthly wage, the amount of the group's value balance shall be deductible.

9. If all of the fixed assets in a group have been sold, transferred, or liquidated, the group's value balance at the end of the tax year shall be deductible.

10. The value of fixed assets placed under financial leasing (received under financial leasing) shall be included in the value balance of the relevant group of the lessee.

11. For a lessor the principal, which is considered paid for fixed assets placed under financial leasing, shall be the proceeds from the sale of such fixed assets for the purposes of subitem 3) of item 6 of this article, if the fixed assets were included in the value balance of the group prior to their placement under financial leasing. For the lessee the principal paid to the lessor shall be treated as the acquisition price of the fixed assets.

12. Accelerated depreciation of groups of fixed assets shall be allowed, applying higher coefficients, not to exceed 2, to the maximum depreciation rates.

Accelerated depreciation shall be allowed with respect to fixed assets put into operation after December 31, 2004. In this case these fixed assets shall form independent groups.

Article 154. Deductions for Expenditures on the Repair of Depreciable Fixed Assets

1. Deductions shall be allowed for each group for expenditures on the repair of fixed assets included in the given group.

2. A deduction for expenditures in accordance with item 1 of this article shall be taken in the actual amount of these expenditures, not to exceed 10 percent of the value balance of the group at the end of the tax year.

3. The amount of actual expenditures on repairs in excess of 10 percent of the value balance of the group shall be treated as an increase in the value balance of the group.

4. In the event of accelerated depreciation, in order to determine the maximum expenditures on repairs that are permitted as a deduction, the amount of the group's value balance shall be determined as if the fixed assets were not subject to accelerated depreciation, and their depreciation were calculated on the basis of the rates specified under item 3 of Article 153 of this Code.

Article 155. Deductions of Expenditures on Insurance Premiums

Insurance premiums paid by insured persons under insurance agreements shall be deductible, with the exception of insurance premiums under agreements of a savings and repayment nature.

Article 156. Expenditures on Geological Prospecting Work and Preparations for the Extraction of Natural Resources

1. Expenditures on geological prospecting work and preparations for the extraction of natural resources, which are deductible from gross income in the form of depreciation charges at the depreciation rate for fixed assets in Group 2, shall form a separate group.

2. This article shall also apply to expenditures on intangible assets effected by a taxpayer in connection with the acquisition of rights to perform geological prospecting work and the development and extraction of natural resources.

Article 157. Expenditures on Intangible Assets

1. Intangible assets shall include expenditures by individuals and legal entities on intangible items (intangible property, such as licenses, invention patents, trademarks, copyrights, contracts to use the name of a legal entity, computer programs, and so on) which are used for at least 12 months, if they have a limited service life.

2. Expenditures on intangible assets that are deductible in the form of depreciation charges at the depreciation rate for fixed assets in Group 5 shall form a separate group.

3. The value of depreciable intangible assets shall not include expenditures on their acquisition or production if they have already been deducted in calculating the taxpayer's taxable profit.

4. This article shall not apply to intangible assets referred to under Article 156 of this Code.

Article 158. Restriction on Deductions for Taxes and Penalties

Deductions for taxes and penalties shall not be allowed only with respect to:

1) the income tax or profit tax paid on the territory of the Republic of Tajikistan or in other states;

2) penalties and interest paid (payable) to the budget (state fund) of the Republic of Tajikistan or to the budget of another state;

3) the minimum business income tax.

Article 159. Losses from the Sale or Transfer of Property Not Used in Commercial Activity

Losses resulting from the sale or transfer of property (other than property used for commercial activity, or property the profit from the sale of transfer of which is tax-exempt) shall be compensated for at the expense of profit earned from the sale or transfer of other property of this kind. If losses cannot be compensated for in the same year, they shall be carried over to a subsequent period for up to three years and shall be compensated for by profit earned from the sale or transfer of other property of this kind. Losses specified under this article shall not be deductible from gross income for the purposes of the profit tax or income tax.

Article 160. Carryover of Losses to Another Period

1. With respect to an enterprise, allowable deductions in excess of gross income (loss from commercial activity) shall be carried over to a subsequent period for up to three years and shall be covered at the expense of before-tax future profits.

2. With respect to an individual, allowable deductions from gross income from activity that is not work for hire in excess of said gross income may not be deducted from this person's wages, but may be carried over to a subsequent period for up to three years and applied against gross income from activity that is not work for hire in future periods.

Back>>