Budget Deficit

Uzbekistan=s government budget has suffered from large deficits since the collapse of the Soviet Union.  The IMF has put the 1993 fiscal deficit at 12% of GDP, while the governments figure released through the World Bank was 2.5%.  The main reason for the deficits is lost revenue subsidies from the Soviet Union.  Uzbekistan had one of the largest subsidy share of revenue compared to many of the other (CIS) countries.  During the 1980s the proportion of revenue actually increased form 20.8% in 1987 to 43.2% in 1990.  Soviet grants which has once accounted for 7% of GDP in 1987 rose to 19.5% of GDP by 1991.             

10III.  Expenditure Policies and Assignments

Although Uzbekistan is now engaged in the necessary fiscal and revenue-raising reforms demanded by multilateral institutions, very little revenue is received from taxes.   Corruption, weak institutions, economic recession and poor tax compliance have hindered revenue collection severely.  The government claims that actual revenue to GDP has risen in recent years from 26.4% to 41%in 1993.  Given continued state control of the economy, tax compliance among state enterprises would tend to be greater than in countries with a growing private sector, although figures may be overstated.  On the expenditure side, increased outlays on defense and security, welfare payments,  and subsidies to industry have been the most important developments since 1991.  Increased expenditure was financed through huge expansion of domestic credit, montised by courtesy of the Russian Central Bank until 1993 when this tactical trend was eliminated once it was found to be unsustainable.  The government then went to the IMF.  The figures on the preceding page show this information

11State Budget (Rb bn)

1988    1989    1990    1991    1992    1993

Revenue                                                         9.7       11.8     15.1     30.2     139.8   1,814.5

of which:

Turnover Tax                                                    3.3       3.8       4.0       6.1       3.3       n/a

VAT                                                                0.0       0.0       0.0       0.0       38.4     477.1

Excises                                                 0.0       0.0       0.0       0.0       9.5       44.9

Company income Tax                                       1.7       1.3       1.5       3.8       23.9     382.9

Personal Income tax                                         1.1       1.5       1.3       1.8       11.4     145.3

Grants from Union Budget                                2.3       3.6       6.4       11.4     0.0       0.0

Expenditure                                                    10.1     11.0     14.9     32.4     193.9   1,923.4

of which:

Economy                                                          4.6       5.0       8.1       5.9       20.9     392.7

Defense and Public Order                                 n/a        n/a        n/a        0.2       11.7     n/a

Social and Cultural                                            5.2       5.5       6.2       9.2       70.8     n/a

Balance                                                           -0.4      -0.8      -0.2      -2.4      -54.1    -108.9

% of GDP                                                        -1.4      -1.0      -1.2      -3.6      -12.1    -2.5

* 1993 data are from the World Bank. They exclude non-budgetary accounts.

Sources: IMF, Economic Review: Uzbekistan; World Bank, Statistical Handbook: States of the Former USSR, 1994

IV. Tax Structure and Administration12

Corporate Taxation

Profit Tax

Uzbek entities ‑ taxed on their profits from all sources worldwide.

Foreign Entities ‑ taxed on profits from the entrepreneurial activities of their establishments in Uzbekistan.

Foreign entities receiving income from Uzbek sources other than through Permanent Establishments are subject to withholding tax on the gross amounts of the income without reduction for any expenses.

The general profit tax rate is 37%. This rate is reduced to 25% for entities with foreign investment of 30% or greater.

A tax return and activity report should be filed with the tax authorities by February 15. An audit opinion or an agreement for audit services should  also be submitted by the appropriate deadline.

Social charges

Employers must make social insurance and employment fund contributions, as well as contributions to a trade union if applicable. The total amount payable, which is deductible for profits tax purposes,  is 38% to 40% of each employee's gross salary, made up as follows:

Fund                                        Rate

Social insurance                        36%

employment                              2%

Trade union (if applicable)         2%

Individual Taxation

A resident is defined as an individual who is physically present in Uzbekistan for 183 days or more in a calendar year. Residents are taxed on their worldwide income, while non‑residents are taxed only on their Uzbek sources income.

Taxable income for 1995 and 1996 is taxed at the following rates:

Taxable income (less annual non‑taxable minimum)

Up to 2 annual minimum wage               15%

2 to 5 annual minimum wage                             25%

5 to 10 annual minimum wage               35%

Over 10 times annual minimum wage     40%

Social security contributions

1%  of the gross salary  to the Social Insurance Fund.

Deductions and Exemptions

All income  is taxable in Uzbekistan unless it is specifically exempt. The list of specifically exempt income includes alimony, gift, severance and pension income.

Capital gains

Capital gains in the disposal of shares are exempt for taxation. Capital losses are not deductible.

Other taxes and fees

Value Added Tax  ("VAT")

VAT was introduced in Uzbekistan on February 15, 1991. The current rate is 17%.

VAT is levied on turnover from the supply of all goods and services (including barter transactions), unless they are specifically exempt. Imports are exempt. Though, VAT is levied on the Uzbek seller's markup of imported goods. Exported goods and services are specifically exempt from VAT. Exported goods are defined as having cleared customs. Exported services are defined as being supplied to a "foreign person". For the determination of whether services are exported, neither the place of providing the services not the place  where the benefits are used are considered, only that the purchaser is a foreign person (entity). It could be argued  that Uzbek VAT legislation allows representative offices of foreign legal entities (which are non‑resident), paying for services in foreign currency through authorized Uzbek banks to also be classified as "foreign person".

Effective January 1 1996, the exemption on exported goods and services is only applicable  if the importing country does not impose VAT on exports to Uzbekistan. This restriction is especially important with respect to some members of the CIS as VAT is charged on exports to member states.

The VAT legislation of Uzbekistan allows a credit for VAT incurred, when such goods or services are "charged to the cost of production".

Excise taxes

Excise taxes are payable by domestic producers and importers of excised goods. The list of excised goods is determined by the Cabinet of Ministers and includes tobacco, jewelry, gasoline, liquor and other goods. Exported goods are exempt. Tax rate vary from 5% to 75%. The amount of excise tax is determined by the taxpayer, based on the volume of goods sold and established tax rates on such goods.

Property tax

The 2% rate tax is based on the historical cost of fixed assets used in production. Legislation specifically includes buildings, machinery, equipment and vehicles. Accumulated depreciation  does not reduce the taxable base.  The following assets are specifically excluded from he taxable base for property tax purposes: 

‑ housing, social and cultural facilities;

‑ environmental protection assets;

‑ agricultural equipment;

‑ transportation networks (including roads and pipeline);

‑ communication and power transmission lines (including

‑ maintenance structures);

‑ communication satellites; and

‑ automobiles.

Profit tax is deductible for profits tax purposes.

Subsurface use tax

Taxes on the mining, and oil and gas industries. Subsurface uses tax is deductible for profits tax purposes.

Land tax

A fee on land owners is imposed at a fixed rate per hectare.

Vehicle fees

A minimal fee on motor vehicle owners is imposed at a fixed rate per horsepower. Individuals must also pay this fee, though only at half the corporate rate. Only vehicles registered for road use are subject to this tax (e.g. not those used for production which would be subject to property tax).

In addition there is a fee on the purchase of vehicles, defined as a percentage of the purchase price of the vehicle excluding VAT or duties, 5% for cars and 10% for trucks, buses, trailers and semi‑trailers.

Road use tax

All entities are subject to road use tax which is applied to gross sales, excluding VAT and excises. For transportation companies a rate of 2% and for all other companies a rate of 1% applies. The tax is deductible for profits tax purposes.

Water use fee

There is a nominal charge for the use of water resources at a fixed rate per cubic meter of water consumed. For most companies, the rate is 0.09 soum per cubic meter. The fee is deductible for profits tax purposes within statutory water use limits.

Local taxes

There are numerous different taxes, though most are insignificant except for the administrative burden. Example of more significant local taxes include:

C                   Tax on advertising costs. In Tashkent the rate is 5% of total expense.

C                   Fee for cleaning the local territory, payable by entities and individuals conducting entrepreneurial activities. In Tashkent the rate is 0.5% of gross receipts.

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