Kazakhstan Government Introduces Changes to the Calculation of the Share of Domestic Value in a Product

This LawFlash summarizes key takeaways from the recent amendments by the Kazakhstan government to the formula for calculation of the share of domestic value in a product.

Kazakhstan’s Ministry of Trade and Integration on April 9 issued Order No. 169-НҚ (the order) on amendments to the rules for determining the country of origin of goods, the status of goods of the Eurasian Economic Union or of foreign goods, issue of certificate of origin of goods and canceling the same, establishing forms of certificate for determining the country of origin of goods approved by Order of the Ministry of Trade and Integration No. 454-НҚ dated July 13, 2021 (the rules) that introduce changes to the formula. The order becomes effective on April 28, 2024.

In accordance with the rules, the formula is the base for calculation of the percentage of the domestic value (the local content) of goods manufactured in Kazakhstan. Generally, local content requirements are adopted in furtherance of the national policy on imports substitution and localization. The percentage of local content is one of the requirements for obtaining CT-KZ, which sets a certain threshold of local content depending on the type or nature of the goods. CT-KZ certification is important for Kazakhstan manufacturers because it grants them various competitive advantages in procurement, such as release from delivery of securities, greater amount of advance payment, and guaranteed prequalification.

The current formula before the change goes into effect is:

Where:

C foreign materials is the cost of raw materials and goods of foreign origin

C finished product is the ex-works (EXW) price of the finished product.

Importantly, when applying the above formula, the EXW price of the finished product includes value-added tax (VAT; applicable only for VAT payers) and the producer’s margin.

Subject to the amendments to the formula under the order, the EXW price of finished product is replaced with the cost of product as follows:

Where:

C foreign materials is the cost of raw materials and goods of foreign origin

CP is the production cost of the product. The production cost of the product shall not include VAT and margin.

The new calculation based on the amended formula will effectively mean that the local content in the goods manufactured in Kazakhstan may substantially decrease, whereby products of Kazakhstan manufacturers will no longer be eligible for CT-KZ certification.

Additionally, while we are not analyzing the financial or economic rationale behind the amendments to the formula, we gather that it may affect the sales margin of goods manufactured in Kazakhstan (including goods whose final processing takes place in Kazakhstan) and consequently, the vendibility of such goods.