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The Tajik court sentenced Doniyor Nabiev, 80, former member of the banned Islamic Renaissance Party (IRPT), to seven years of imprisonment. Experts and human rights organisations expressed their concern, considering this sentence as inadequate and tantamount to the death penalty.
Tajik authorities continues to introduce new types of taxes and duties. This is happening despite the year-long reform of the tax code. However, this is only part of the bigger picture, on which an independent researcher, Muslimbek Buriev, elaborates in an article for CABAR.Asia.
Tajikistan is asking creditors to defer debt payments and simultaneously is applying for the new loans. Experts doubt that the authorities will be able to find sources to repay loans.
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Tajikistan is unable to pay off its external debt due to the deteriorating economic situation in the country after the coronavirus outbreak in 2020 and the decline in migrant remittances.
First Deputy Prime Minister of Tajikistan Davlatali Said wrote in his address to the Asian Development Bank (ADB) that due to the coronavirus pandemic, the Tajik economy is in a ‘force majeure’ situation and the country needs assistance.
Tajikistan’s request to defer external debts appeared amid reports that the government plans to borrow another $562 million from foreign countries and organisations in 2021; partially, the loan will be allocated for Rogun Hydropower Plant construction.
The World Bank December Update stated that Tajikistan has a high risk of debt distress. The World Bank believes that “any new non-concessional borrowing adds to the pressure on public debt sustainability”.
The World Bank reported that Tajikistan joined the group of countries that recently applied to the G20 Debt Service Suspension Initiative (DSSI) created to help developing countries.
“The DSSI’s objective is to support low-income countries by suspending official bilateral debt servicing through mid-2021,” the World Bank Update notes.
According to the World Bank, by now, only China agreed to Tajikistan’s request to defer the external debt payment until mid-2021.
After the World Bank Update publication, on January 19, the Ministry of Finance of Tajikistan issued a statement – it commented the undisclosed media’s publications about Tajikistan being on the verge of default.
“The main goal of the Republic of Tajikistan joining this initiative is to mitigate the consequences of the crisis by concentrating public expenditures on countering COVID-19 pandemic, and not relieving the debt burden on the country’s financial situation, as those published articles claimed,” the Ministry of Finance stated.
The Ministry of Finance assured that “the funds freed up after suspension of external debt servicing were allocated to the country’s healthcare sector”.
As part of this initiative, on September 3, 2020, Tajikistan signed a corresponding memorandum with the Paris Club.
“As a result, the parties came to the agreement to suspend payments on debt obligations to China’s Export-Import Bank (Eximbank) and Kuwait Fund for Arab Economic Development for $43 million and the German KfW Development Bank for €363 thousand,” the statement said.
According to the Ministry of Finance, as of October 1, 2020, the total amount of Tajikistan’s external debt is $3 billion 163.2 million, or 36.9% of the country’s GDP. $149.2 million was allocated to servicing the country’s external debt for 9 months of the last year.
At the same time, according to the global analytical organisation Transparency International, corruption is widespread in Tajikistan. According to the 2019 ranking, Tajikistan ranks 153 out of 180 countries by corruption level. The disproportionate wealth and large foreign assets of Tajik officials are highlighted in a number of studies and investigations by international think tanks and media. The Organized Crime and Corruption Reporting Project (OCCRP) published the latest investigation on this topic in June 2018.
Another major problem associated with the scarcity of the state budget is smuggling. Various reports and studies on Tajikistan also mention it.
The experts say the coronavirus pandemic is not over yet, and it is unlikely that Tajikistan will be able to pay off its foreign debt in the second half of 2021.
Economic expert Abdumannon Sheraliev said that after the second half of 2021, Tajikistan is unlikely to be able to pay off its external debt. According to him, the impact of the pandemic on the economy will continue at least until the middle of this year, when the economic crisis will reach its peak.
“The chances of repaying loans are very low not only in the first half of the year, but even in the second. The only way is to use gold (gold reserve), but considering the rate at which the government spends it on domestic needs, the prospects for debt repayment are very remote,” said the Tajik expert.
According to Sheraliev, the external debt’s growth will lead to default on credit.
“This means that in the near future, most financial institutions and countries, except for China, will not provide loans to Tajikistan,” Sheraliev said.
With the external debt’s growth from year to year, the country’s budget expenditures on interest payments and the loan amount increase. In particular, in 2021, Tajikistan will spend $213.5 million from its budget to pay off the external debt and interest, in 2022 – $238.2 million, and in 2023 – $243.3 million.
According to Doctor of Economics Khojimuhammad Umarov, the government’s plans to pay off external debt after the first half of 2021 are too optimistic and difficult to implement.
“The Tajik government should work on the strategy in case if these plans fail,” Umarov said.
He believes that Tajikistan can start paying off the loans no earlier than in the second half of 2021.
Can China Cooperate?
The main Tajikistan’s creditors are the government and banks of China, which account for half of the country’s external debt. Kyrgyzstan, a neighbouring state with Tajikistan, announced fundraising from citizens to pay off its external debt. However, this initiative did not find support and raised the criticism against corrupt officials and irresponsible authorities’ actions, which caused a sharp increase in external debt.
Rising debt to China increases the risk of country’s dependence, raising concerns among Tajik civil society activists. They believe that China, in exchange for repayments of debts, may demand taking control of deposits of gold or other minerals from Tajikistan.
Tajik economist Firuz Saidov believes that considering the political motivation, China can play along with Dushanbe’s plans, and either prolong the loan payments or discharge part of the debts.
“Excessive debt makes the country more dependent on the creditor state. This is part of the strategy of relations between the states: the way they cooperate and, most importantly, from whom they take loans,” added Saidov.
Economic observer Zulfikor Ismoiliyon says the only way to pay off Tajikistan’s external debt is to borrow from China again and pay other creditors.
“China realizes that Tajikistan will not be able to repay the debt, therefore, in exchange for the debt payments, the provision of the precious metals mines or part of Tajikistan’s territory will be required,” Ismoiliyon said.
According to him, the country needs to become independent of the migrant funds and develop its own economy in order to pay off external debts.
“Tajikistan is living off the migrants’ remittances for more than twenty years. Migrants cannot send money today. As a result, people do not know how to earn for a living,” concluded the Tajik economist.
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with financial support from the Norwegian Foreign Ministry. The opinions expressed in the article do not reflect the position of the editorial or donor.
In early November, the Parliament of Tajikistan adopted amendments to the Tax Code, according to which various global online corporate giants, such as Google, Apple, Microsoft, Facebook and others providing paid services in the country, must pay the Value Added Tax (VAT) to the Tajik budget. In CABAR.asia interviews, the digital market experts say the measures could destroy the internal online services market.
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Speaking in Parliament, Finance Minister Faiziddin Kahhorzoda said amendments on imposing taxes on foreign companies providing digital services in Tajikistan would be introduced in a separate chapter of the Tax Code. The Minister stressed that according to Article 193 Paragraph 1 of the Tax Code, foreign individuals providing digital services to individuals in Tajikistan directly or through intermediaries are recognized as taxpayers.
“In addition, according to Article 193 Paragraph 2, a foreign individual must submit an online application to the authorized state body and register as a VAT payer no later than 20 days from the date of the beginning of the digital services provision in the Republic of Tajikistan,” the official website of the Parliament quotes the Minister.
According to him, Article 193 Paragraph 5 explains the taxable types of digital services and lists 16 cases based on international experience.
According to the Minister, the introduced amendments will contribute to the further improvement of the tax legislation of Tajikistan and increase revenues to the state budget.
In 2017, the Chairman of the Tax Committee Nusratullo Davlatzoda addressed the government with a proposal to tax a number of popular global online services, including Google, Apple, Microsoft and Facebook.
Davlatzoda noted that the Internet is used not only to provide information, but also a number of paid services. These include the sales of games, movies, books, music, air tickets, hotels, housing, and travel programs. Mainly foreign companies provide such services, but, due to ‘imperfect legislation’, they do not register with the tax authorities and do not pay taxes.
Experience of Russia and Uzbekistan
Russia was one of the first post-Soviet countries to impose a tax (known as the “Google tax”) on large online companies. This type of tax is in effect in this country since 2017.
At the end of 2019, the Federal Tax Service of Russia reported that in the three years since the introduction of this tax, the country’s budget would receive about 82 billion rubles ($1.02 billion). Currently, the same tax is introduced in Belarus and Uzbekistan.
In Uzbekistan, the amended version of the Tax Code introduced on January 1, 2020 includes a separate Chapter 39 that defines the taxation on income of foreign legal entities providing digital services in Uzbekistan.
Currently, there is no exact information about the funds received by Uzbekistan from this tax, but in April 2020, the press service of the State Tax Committee of the Republic of Uzbekistan told the media that Google Commerce paid the Uzbek government €85 thousand of VAT during the first quarter of this year.
Last summer, Kazakhstan also decided to tax foreign online companies. The decision came into force on January 1, 2021.
The amendments to the tax legislation of the Republic of Kazakhstan suggest that starting from January 1, 2021, foreign online companies will be required to pay VAT. The new tax will not affect goods’ sales online, but will be imposed on, for example, the purchase of e-games and e-books, as well as online advertising and domain names purchase.
Introducing these amendments, the Kazakh tax authorities plan to replenish the budget by about 2 billion tenge ($4.6 million).
Violators Will Be Fined
An anonymous representative of the Tax Committee of Tajikistan told CABAR.asia that if the Tax Code were amended, the foreign companies providing digital services would register with the tax authorities in the taxpayer’s personal account. These services primarily include paid online games, audio and text e-books, and advertisements on the platforms of e-service providers. The source said that these companies would pay VAT – an indirect tax on the supply of services. The companies will also have to pay to place their ads on online platforms.
“Thus, the company providing e-service will have to include VAT in the service price and pay it to the budget of Tajikistan,” the source explained to CABAR.asia.
According to the tax officer, it does not matter where the seller providing e-services is, but it is important that the customers pay tax at the place of purchase.
He added that the amendments would not affect the work of stores selling goods online, as they sell products, for which VAT is paid when they are transported via the customs points.
Our source said that in case of non-compliance with the law, these companies would be subject to administrative fines and restrictions on the right to provide services.
“Everything that can be downloaded online for free will not be taxed. Only paid services will be taxed,” he explained.
The Tax Committee’s representative did not specify the volumes of the digital services market in Tajikistan.
Experts Doubt the Amendments’ Effectiveness
According to Muhammadi Ibodulloev, the Head of the Civic Internet Policy Initiative NGO, the proposed amendments could create problems in using digital services and purchasing goods online.
“Currently, online technologies facilitate many areas of activity. Therefore, any restrictions in this area will affect other areas,” Ibodulloev said.
According to him, the Tajik consumers will be limited in obtaining services such as purchasing software, antivirus software and e-books, in taking international exams online or distance education.
In case the consumers lose access to these services, they will not be able to maintain their equipment or will lose access to demanded information.
Ibodullev also doubts the economic effectiveness of these amendments.
“A question arises: what will the government gain from the adoption of these amendments? It will take a lot of time and effort to manage such a tax. Even if it brings financial benefit in the near future, the damage to the country’s development is possible in the long term,” Ibodulloev said.
Other experts also paid attention to the fact that the Tajik citizens will actually pay VAT.
The Advertising Market Will Be Affected
Another expert on information and communication technologies Asomiddin Atoev believes that the implementation of this project may create problems for the development of the country’s advertising market.
“This project will significantly affect the internal online advertising market. The amounts that the tax authorities are expecting to receive from the taxation of e-service companies are unrealistic,” Atoev said.
The expert underlined that the Tajik market is not very attractive for large e-service companies such as Google, Microsoft and Facebook, and they will not make much effort to keep working in Tajikistan.
“On the contrary, we need e-service companies. This will allow us to develop internal online content faster,” Atoev said.
Asomiddin Atoev considers it wrong to follow the example of Russia and other countries, where VAT was imposed on the e-services.
“The online market is more developed in those countries, so such comparisons are illogical,” Atoev said.
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with financial support from the Norwegian Foreign Ministry. The opinions expressed in the article do not reflect the position of the editorial or donor.