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How Did the Uzbek Taxation Change During the Pandemic?

In Uzbekistan, the first case of coronavirus infection was officially registered on March 15, 2020. In the same month, flights and railway services were suspended in the republic, restrictions on holding mass events were imposed, and educational institutions were closed.

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Amid this unclear situation, the Uzbek authorities decided to take measures aimed not only at fighting coronavirus infection, but also at supporting business, including fiscal measures.

We analysed what tax exemptions were supposed to save the Uzbek business and whether they helped.

What fiscal innovations were introduced amid the coronavirus outbreak in the country?

In the beginning of 2020, a new Tax Code was adopted in Uzbekistan, which was supposed to simplify the country’s fiscal legislation. However, due to the coronavirus pandemic, the authorities introduced additional tax exemptions for businesses.

From April 1 to October 1, 2020, the minimum amount of social tax for individual entrepreneurs was reduced from 223 thousand soms ($21.5) to 111.5 thousand soms (about $10).

In addition, the due date for payment of property tax and land tax for individuals was extended until October 15, 2020.

The tax rate for the use of water resources required for irrigation of farmland was reduced by 50%.

The local authorities were granted some powers to implement these measures. That is, some decisions on business support could be made locally considering the situation of each region.

What measures were supposed to help the small business?

The Uzbek authorities reduced the social tax rate for all small businesses from 12% to 1% from May 1 to July 1, 2020. Later, this benefit was extended until the end of the year. It applied to 328,782 taxpayers.

Respectively, the amount of social tax payments fell 12 times. Previously, the tax authorities collected 600 billion soms (almost $57.5 million), but in 2020, the treasury received only 50 billion soms ($4.8 million) at this tax rate.

In addition, the small businesses, individual entrepreneurs and service entities were exempted from property and land tax, as well as from penalties and fines from January 1, 2020. The exemption was valid until the end of the year.

The authorities postponed the payment of customs duties and excise taxes levied on the import of all goods except consumer goods until July 1, 2020.

 Were there any exemptions for VAT taxpayers?

Yes. From July 1, for all business entities, a mechanism was introduced for returning a part of the VAT paid by them when purchasing material and other resources (input VAT).

The Uzbek authorities claim that this was a very effective measure: it allowed entrepreneurs to keep about 700 billion soms (more than $67 million) as the working capital in the third quarter of 2020.

What did the authorities do to support the tourism sector?

In May 2020, the President of Uzbekistan adopted a Decree “On urgent measures to support the tourism sector for reducing the negative impact of the coronavirus pandemic”. According to it, from June 1 to December 31, 2020, the income tax rate for entrepreneurs in the tourism sector was reduced by 50%.

According to official data, this measure allowed the owners of 184 hotels, 267 tour operators and travel agencies to save 15.2 billion soms (almost $1.5 million).

 What tax rates were in effect for self-employed citizens of Uzbekistan during this period?

In 2020, self-employed citizens received the right to pay only social tax in the amount of at least 50% of the basic calculated amount – 111,500 soms or $10.5. This amount is fully transferred to the Extrabudgetary Pension Fund and affects the amount of the pension.

Self-employed citizens were exempted from the income tax.

How many self-employed citizens are there in the country?

In June 2020, Uzbekistan introduced a new free online procedure for registration and taxation of self-employed citizens. Self-employed status can now be obtained via the Soliq mobile application. It includes 67 types of activities available for self-employed persons.

According to the State Tax Committee, in October 2020, the number of self-employed persons reached 453,420. During the first week after the adoption of the decree, there were about 44 thousand of self-employed people.

Did the tax exemptions help businesses?

Despite tax exemptions and breaks, unfortunately, not all entrepreneurs were able to save their businesses. Twice introduced lockdown measures caused difficulties for each of the economic areas. In particular, from April 1 to June 19, 2020, 37 cafes and bars, and more than 30 stores stopped working in Tashkent.

Among those who closed their business, was Akmal A., the owner of one of the cafes in the capital. 

A month after the first lockdown, I had to close the cafe. The food service industry was in a difficult position. Initially, due to the self-isolation measures, we were forced to send most of our employees on leave. We tried to work for delivery. However, it turned out to be unprofitable, since there were not many orders. Employees went to work, they had to receive their salaries, to buy food.

Tax exemptions did not really help. We looked for the investors to revive the business. At that time, the food service industry did not seem profitable at all. Nobody knew what would happen tomorrow. After the first quarantine, we returned to work, but since we were allowed to work only outdoors, there were not so many visitors. And people did not have money to go to cafes.

After working for a month, the entrepreneur closed the business. The decision was difficult, but he did not dare to run the unprofitable business amid such uncertainty.

Yuliy Yusupov, Director of the Center for Economic Development, considers the measures taken by the Uzbek government to ease the tax burden on businesses during the quarantine period to be justified and timely:

– The opinion polls show that many entrepreneurs assessed these measures positively. I think, the government has to continue its course to reduce the tax and administrative burden on business and the population. So far, this is the most effective method of supporting our economy during the pandemic.

Other tools can have the opposite effect. For example, attempts to create additional demand for the local products by restricting imports can cause the loss of local consumers of imported resources and future difficulties in entering foreign markets. They would respond with similar actions. To address the problem of reduced demand, it is very important to maintain agreements with our external trading partners in order to restore and expand foreign trade flows.

The administrative measures to reduce interest rates and the practice of easy-term loans may have a short-term effect, but in the medium and long term, would only worsen the situation with the affordable loans.

In addition, this would become the reason for the inflation growth. The assistance in expanding access to finance for small and medium-sized enterprises should be provided through reforming the banking sector, creating institutional conditions for reducing interest rates in the free market and developing forms of non-bank lending.

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