Experts believe that the government has to reduce the tax burden on the private business, which provides up to 80% of tax revenues to the budget in order to ensure tax collections. Otherwise, the entrepreneurs will withdraw their capital from the country whenever possible.
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Tajikistan is one of those countries where taxes make up the biggest share of the state budget revenues. On average, about 70% of revenue comes from taxes, which makes the budget dependent on them.
The planned revenue of the state budget for 2021 is 27.6 billion somoni ($2.4 billion), which is 1.6 billion somoni ($141 million) more than the current budget. The Ministry of Finance explains such rate of the revenue growth by finding new sources of taxation, increasing collection of basic taxes (VAT, excise tax, income tax), as well as ensuring real economic growth and creating new jobs.
The Tax Committee already instructed its regional divisions to find sources of taxation. Tax revenues are expected in the amount of 18.8 billion somoni, which is more than 68% of the total budget revenues.
The planned budget expenditures for 2021 are 28.1 billion somoni ($2.5 billion), which is 1.7 billion somoni ($146 million) more than the approved budget for this year.
Tax Dependence
Over the past decade, the state budget of Tajikistan was replenished mainly by taxpayers’ contributions. This is caused by the fact that the republic does not possess any other sources of income, oil, gas resources, etc.
Tax revenues to the budget in different years varied from 60.7% (in 2016) to 77.9% (in 2014), that is, they did not differ by more than 17.2 percentage points.
The average annual share of taxes in the total budget revenues in 2010-2019 is 68%.
The analysis of the tax structure demonstrates that tax revenues declined during crisis periods and recovered in post-crisis periods. For example, tax collection after the global financial and economic crisis of 2008 tended to grow until 2014. Later, due to the 2014 economic crisis in Russia, which is the main Tajikistan’s trade and economic partner and the main labour market for Tajik migrants, the volume of tax revenues declined during two years. In the post-crisis period, tax collection recovered.
How Is the Budget Replenished?
According to official statistics on budget performance for 10 years (2010-2020), 68% of revenues come from taxes.
On average, about 15% are various loans and grants, 9% – special funds of state-funded organisations, 7% – non-tax revenues, 1.3% – free balances from the previous year.
Main Taxes
Three types of taxes prevail in the structure of tax revenues: VAT (Value Added Tax), income tax and social tax.
The average annual share of these three taxes is 70% in total.
In the tax structure, the VAT share is 44%, income tax share is 14%, and social tax share is 12%.
VAT in Tajikistan has a uniform rate of 18%; however, the preferences are given to certain goods or directions sometimes: this rate is reduced depending on the level of need for such support.
Unlike income tax, only legal entities pay VAT. It is applicable to certain types of services: supply of goods, services, and work execution.
Income tax is a tax on individual income. It is calculated by a percentage of the annual income of individuals. The uniform rate for individual citizens of Tajikistan is 13%, and for foreigners – 25%.
Social tax is a compulsory payment paid by insurers (employers) for social insurance at a rate of 25%, and by insured persons (employees) at 1% rate.
Grants and Loans
After the taxes, the non-repayable funds of international financial institutions, as well as preferential loans from bilateral (countries) and multilateral (international organisations) donors replenish the budget. The average annual share of such budget revenues reaches 15%. The share of special funds of state-funded organisations in the revenue structure is, on average, 9% per year, non-tax revenues – 7%, and free balances from the previous year – 1.3%.
Revenue Growth and Pandemic
On average, it is planned to increase the revenue volume up to 10% annually by increasing the plans for collecting taxes and other compulsory payments.
However, these expectations do not always coincide with reality. For example, the budget revenues plan for 2020, by the results of 11 months, was not fulfilled by 1.4%, which is almost 300 million somoni ($26.5 million).
The Ministry of Finance connects this shortfall, first, with a reduction in the collection of basic taxes: income tax, social tax and VAT. This happened despite the fact that the budget had to be changed in this June due to the pandemic. The revenue plan was reduced to 23.6 billion somoni ($2 billion) from the previously planned 26.1 billion somoni ($2.3 billion).
Over the past 10 years, the budget revenues grew more than 2.3 times: from 7 billion 24 million somoni ($620 million) in 2010 to 16 billion 506 million somoni ($1.4 billion) in 2019.
Tax Burden on Business
Tajikistan is one of the countries with the highest tax burden on business, while up to 80% of tax revenues to the budget are provided by the private sector.
According to the World Bank, the average business entity in Tajikistan spends about 65% of its income on taxes and other compulsory payments.
Experts believe that tax revenues to the budget could be even higher – up to 80%, if there had not been such a high burden on business.
“The underlying problem of tax and budgetary policy is the constantly growing requirements for the fiscal expansion of growing costs, and, accordingly, the constant growth of the tax burden on economic entities, which exceeds reasonable limits, undermines opportunities for expanding and stimulating businesses to create jobs, and drives business into the ‘grey market’ economy,” said Aziz Khaidarov, independent economist.
Annually, the government’s tax collection requirements grow by an average of 10%, and the Tax Committee is forced to increase the burden on business, which causes entrepreneurs to close their business. According to official statistics, as of October 1, 2020, including previous years, 295 thousand business entities were liquidated in the republic. As of the same date in 2019, 270 thousand entities were closed. That is, from October 1, 2019 to October 1, 2020, 25 thousand business entities were liquidated. Some entrepreneurs withdraw their capital to neighbouring countries where the adequate taxation of the private sector functions.
In recent years, after the thaw of relations with Uzbekistan, hundreds of Tajik entrepreneurs opened their businesses in this neighbouring country.
According to the State Committee of the Republic of Uzbekistan on Statistics, as of September 1, 2020, 178 enterprises with Tajik capital operate in this republic. Of these, 103 are joint Tajik-Uzbek enterprises, and 75 enterprises operate with Tajik investments only.
It was also mentioned earlier about the outflow of Tajik capital to Kyrgyzstan, Kazakhstan, and even to politically unstable Afghanistan. It was mentioned by entrepreneurs, we could not obtain official data.