1. The client and the problem
An individual entrepreneur installing and maintaining air conditioning and ventilation systems came to us for help.
When the business was registered several years earlier, its activity was incorrectly recorded in the tax database under OKED code 62020 (“Computer consultancy activities”). Throughout that time, the entrepreneur had used the special tax regime based on a simplified declaration.
The problem arose unexpectedly: the district State Revenue Department issued a notice stating that consultancy services were ineligible for the simplified regime. When the client sought clarification, his bank accounts were blocked. Under pressure and stress, he signed an explanatory statement and an application to switch voluntarily to the general tax regime retrospectively for the preceding three years.
The consequences:
- The entrepreneur was moved to the general tax regime from 2018.
- Additional personal income tax and late-payment interest were assessed totalling more than KZT 4.2 million.
- Cash expenditure transactions were suspended and restrictions were imposed on the disposal of property.
- The business’s bank accounts were fully blocked.
2. What we did
Our lawyers took on the case and developed a defence under Kazakhstan’s Administrative Procedural and Process-related Code:
- Evidence of the actual business activity: We collected and analysed the client’s source documents for the disputed period, including e-invoices, completion certificates and contracts. The documents showed that the entrepreneur had never provided IT consultancy and actually installed air conditioning and ventilation systems, under OKED 43.22.0, an activity eligible for the simplified regime.
- Legal arguments under the Administrative Procedural and Process-related Code: We argued that the tax authority had breached key administrative law principles:
- Protection of legitimate expectations, Article 13 of the Code: The tax authority could not impose burdensome consequences on the client because of a formal error in the activity code.
- Prohibition of abuse of formal requirements, Article 14 of the Code: The authority disregarded the substance of the business and relied solely on the database code.
- Failure to explain rights, Article 19 of Kazakhstan’s Tax Code: Instead of explaining the client’s right to correct the activity code, tax officials pressured him into applying for a less favourable tax regime.
- Representation in the administrative court: We filed a claim with the Specialised Interdistrict Administrative Court of Almaty and defended the client’s position in court, establishing that the tax authority’s actions were unlawful.
3. The result
The court accepted our arguments and ruled in the entrepreneur’s favour:
- Declared unlawful: the tax authority’s demands for an explanatory statement and an application to switch to the general regime.
- The switch was cancelled: of the entrepreneur to the general tax regime for previous years.
- Additional assessments were annulled: of more than KZT 4.2 million in tax and late-payment interest, with the notices cancelled.
- All restrictions were lifted: The decisions restricting property, cash transactions and bank accounts were cancelled.
- The court ordered the tax authority to unblock the client’s bank account.
The lesson:
An incorrect activity code or pressure from tax officials should not mean losing your business or paying unjustified additional assessments. The law protects the entrepreneur’s actual activities. Seek legal advice before signing documents and challenge unlawful decisions promptly
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