C                   Fee for the right to trade, payable by entities and individuals conducting retail trade. In Tashkent the rate is two minimum monthly wages per month.

Revenue collection problems13

C                   High tax rates on modest tax bases reduced not only by economic contraction but also  by various exemptions.

C                   Weak tax administration compounded by corruption.

C                   The effective tax burden on those who comply with the tax code is increased since large numbers of taxpayers successfully evade taxes ‑ equity and efficiency problems.

C                   Corruption and abuse of authority by poorly paid tax administrators are serious problems.

C                   Another major cause of poor tax revenues is dollarization  and the continued use of barter, payment in kind.

The Investment Policy of Uzbekistan

 Priority areas14

 1. Gold‑mining and non‑ferrous (Uzbekistan ranks 4th in the world in terms of gold reserves).

2. Power engineering.

3. Processing of cotton (40% of the gross agricultural production is cotton, however only 10% of produced raw cotton is processes in Uzbekistan, the rest is exported as raw material. The existing textile industry is obsolete).

4. Processing of vegetables and fruits (The production makes up 60% of the total fruit and vegetables production of the former USSR; agricultural infrastructure development needed ‑ processing, transportation, storage facilities, packing).

5. Transport and communication.

6. Tourism (4000 architectural monuments, many of them are under the protection of UNESCO;. world famous cities Samarkand, Bukhara, Khiva; tourism infrastructure is a potential area of investment).

7. Financial and monetary. Create a network of banks and insurance institution.

8. Environmental Protection (degradation of the ecosystem of the Aral Sea, irrational use of water resources).

Guarantees and privileges granted to foreign investors15 

1. If subsequent legislation of the republic of Uzbekistan impairs investment conditions, then the legislation which was valid at the time of making the investment shall apply for a period of time not exceeding 10 years.

2. Companies= profit tax shall be reduced by:

C                   20%, for an export share of 5-10% of the total production;

C                   30%, for an export share of 10-20% of the total production;

C                   40%, for an export share of 20 to 30% of the total production;

C                   50%, for an export share of 30% or above of the total production.

The purpose here is encourage export oriented manufactures and producers. "The great success stories of economic development in the last decade have been the newly industrialized countries of East Asia, especially the so-called "Four Tigers" (South Korea, Taiwan, Hong Kong, Singapore) and, increasingly, Thailand and China. In these countries, rapid growth of manufactured exports has produced dramatic increase in income. NICs have undertaken a host of interventionist measures to create incentives for export-oriented manufacturing firms, often in particular targeted industries at particular stage of development."16

The heritage of the old socialist system - exports of primary commodities and raw materials (cotton and cotton products in case of Uzbekistan)- has to be gradually replaced by exports of manufactured goods. "It makes a difference not only because of the recurring problem of gluts resulting in falling process in commodity markets but also because of the greater potential for raising technological capabilities".17

3. Receipts in hard currency earned by a company due to increase in export production (product, jobs, services) shall be exempt from profit tax.

4. A 25% profit tax shall apply to the profits of Joint Ventures with a foreign capital of above 30%.

5. Joint Ventures with a foreign capital investing into projects in priority industries included in the Investment Program of Uzbekistan shall be exempt form taxation for the first five years of operations.

6. Joint Ventures which specialize in agricultural products and the processing thereof (except for wines and strong alcoholic beverages), consumer products, and construction materials, medical equipment, machines and equipment for agriculture, light and food industries, recycling of waste materials are exempt from taxation for two years from the date of registration.

7. The profit tax base is decrease by 30% of the expenses for environmental protection.

8. Dividend on governmental bonds are exempt from taxation;

9. Joint Ventures in which the foreign investor=s share accounts for a least 50% shall be exempt of  profit tax provided that whole tax amount is re-invested into the development and expansion of production of consumer goods.

10. Exporting companies are exempt of VAT for materials resources used in the production of exported goods (jobs, services)

11. Beginning July 1994 through December 31, 1997 all commercial banks including those with foreign capital, as well as the branches and subsidiaries of foreign banks operating in Uzbekistan are exempt from profits, property, land and vehicle taxes.

 V. Intergovernmental Financial Relationship

The Statute of the Republic of Uzbekistan "About Taxes on Enterprises and Entities"  establishes revenue sources of the State budget of the Republic of Uzbekistan, State budget of  the Republic of Karakalpakstan18 and local budgets for the following expenditures:

C                   Social Security Payments;

C                   Businesses regulation;

C                   International payments;

C                   Stabilization of the foreign currency circulation;

C                   Stimulation of  extraction of mineral resources; and

C                   Environmental protection.

Uzbekistan has a unified statewide tax policy for all layers of government. Local governments are entitled to levy taxes within the format of the state wide tax policy.

Tax revenue is transferred to the budget of Uzbekistan, budgets of the Republic of  Karakalpakstan, regions, Tashkent city (the capital) and local budgets according to the norms established annually during the process of budget approval for the respective fiscal year.

 Local governments impose local taxes in their jurisdictions in full accordance with the Uzbek laws and based on the general tax policy of Uzbekistan.

The authorities levying  a specific type of tax establish:

C                   the taxpayer;

C                   the tax base;

C                   the tax rate;

C                   the procedure of calculation and payment;

C                   exemptions and privileges;

C                   life time of the tax.

IV. Social Insurance

In most transition countries proposals to reform social security have included the establishment of minimum  retirement benefits, compulsory employment‑related benefits, unification of treatment across occupations, increases in the retirement age, and steps to reduce access to benefits by younger working pensioners. It is important that pension and social security reforms help to insure adequate levels of protection without overburdening contributors to the system. This will require better collection of private sector contributions and improved  targeting of benefits, including tying future eligibility of pension benefits to past contributions.

As a part of the transformation process, most transition countries have introduced unemployment insurance  schemes. In Uzbekistan unemployment benefits were roughly 80 percent of the average wage in 1993, although the generosity of the scheme was matched by onerous administrative procedures, which ensured that few individuals qualified.19

Uzbekistan:

A Country Report and Profile

Presented By: 

Alfiya G. Mirzagalamova amirz@indiana.edu

Jason C. Holman jholman@indinanaedu

Dmitri Maslitchenko dmitri@mailroom.com

[1]Pomfret, Richard.  The Economies of Central Asia.  Copyright 1995 by Princeton University Press.

[2]Uzbekistan:  Master of its Destiny.  BISNIS - Uzbekistan report. 10 August 1995.

3The Economist Intelligence Unit.  Country Profile.  1995-1996

4Pomfret, Richard.  The Economies of Central Asia.  Copyright 1995 by Princton Universtiy Press.

5The Economist Intelligence Unit.  Country Profile.  1995-1996.

6The Economist Intelligence Unit.  Country Profile.  1995-1996.

7The Economist Intelligence Unit.  Country Profile.  1995-1996.

8The Economist Intelligence Unit. Country Profile. 1995-1996.

9The Economist Intelligence Unit. Country Profile. 1995-1996.

10The Economist Intelligence Unit. Country Profile. 1995-1996.

11The Economist Intelligence Unit.  Country Profile.  1995-1996.

12"A Tax Guide to Europe. Uzbekistan", Arthur Andersen, April 1996

13 IMF, World Economic Outlook, May 1996

14The Investment Guide for Foreign Companies, National Bank for Foreign Economic   Activity of the Republic of Uzbekistan

15 Guarantees and Privileges granted to Foreign Investors by the Legislature of the Republic of Uzbekistan, Appendix to Presidential Decree as of May 31,1996

16 Stephen C.Smith, "Industrial Policy and Exports Success: Third World Development Strategies reconsidered"

17 Stephen C.Smith, "Industrial Policy and Exports Success: Third World Development Strategies RECONSIDERED".

18An autonomous republic within the Republic of Uzbekistan

19 IMF, "World Economic Outlook", May 1996, p.77

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