In a bid to curb Mongolia’s shadow economy and increase tax revenue, the country’s parliament adopted legislation that offers amnesty to individuals and companies that declare hidden assets.
The Law on Economic Transparency, which passed Friday, protects people and companies from administrative sanctions and criminal punishment when they declare previously undisclosed assets. The protection doesn’t apply to political appointees or civil servants.
The law seeks fresh ways to stimulate an economy hurt by weak commodity prices and disputes with investors in the country’s nascent mining sector. Gross domestic product expanded 7.8 percent last year down from record growth of 17.3 percent growth in 2011.
The measure was designed to curb Mongolia’s underground economy and reduce extortion tactics by government officials, Oyungerel Tsedevdamba, a member of parliament, said by e-mail. About one-third of business activities are conducted off the books, she said. The amnesty is effective from August 7 until the end of the year.
An earlier law that pardoned tax cheats brought in 4.5 trillion tugriks when it was enacted in 2008, or about $3.8 billion at the exchange rate at the time, according to Oyungerel. The program could bring in even more, she said.
“The immediate impact will be a more legitimate economy,” Oyungerel said. “Our transition period with a significant portion of shadow economy will end with this law and a new, open, transparent economic environment will start.”
Luring companies out of the shadows into legitimate business activities will help to boost tax revenue, Bilguun Ankhbayar, chief executive officer of Mongolian Investment Banking Group, said by e-mail. “Because a lot of state procurement now requires companies to be lawful tax-paying entities, I believe many companies will take this opportunity to not be penalized and ‘come clean’ through this legislation,” Bilguun said.