Development of the tax system in Uzbekistan
Studying tax reforms and their influence on economy of the republic of Uzbekistan. Main features of tax system of the Republic of Uzbekistan. The role of international organizations is crucial in improving the qualifications of the tax authorities.
|Рубрика||Финансы, деньги и налоги|
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THEME: TAX REFORMS AND THEIR INFLUENCE ON ECONOMY THE REPUBLIC OF UZBEKISTAN
O u t l i n e
2. Development of the tax system in Uzbekistan
3. Main features of tax system of the Republic of Uzbekistan
Since independence in 1991, Uzbekistan has pursued a gradual approach to the transition from a planned to a market economy. The Government aimed at building a socially oriented market economy and developing industrial and manufacturing capacity in a predominantly agricultural economy using substantial and direct central control.
The tax system of Uzbekistan developed in line with the country's course of reforms, and the elements of a modern tax system, administrative and institutional capacity evolved in successive steps. This less-than-ideal tax reform was the result of a compromised to preserve government revenues in the early years of independence
Early tax reforms were mainly directed towards the fiscal role of taxation and underestimated its regulatory, social and stimulating roles. This short-term fiscal policy negatively affected private sector development, investment and employment and led to the rapid growth of an informal economy. More recent reforms in taxation were directed towards reducing the tax burden, optimizing the structure and rates of taxes, simplifying and unifying the tax system, as well as increasing the stimulatory and regulatory functions of tax policy.
From 2000 to 2007, the tax burden in the economy fell from 40 per cent to 27 per cent. This was achieved through consecutive reductions of federal and local tax rates, mandatory payments and the streamlining of taxes. The small business sector plays an increasingly important role in Uzbekistan. According to the State Committee on Statistics, in 2008, small business accounted for 48.2 per cent of GDP and 76 per cent of total employment (Uzbekistan, 2008). Changes in tax legislation create favourable preconditions for the further development of small business. In 2007 alone, tax exemptions increased the financial resources of the business sector by 830 billion sums. However, numerous amendments in Uzbek taxation do not yet testify to the creation of a perfect tax system, and this remains as one of the most complex aspects of Uzbekistan's business environment.
Development of the tax system in Uzbekistan
Over the past 18 years, the Uzbek tax system has gone through roughly four development phases:
Phase 1 - from 1991 to 1994;
Phase 2 - from 1995 to 1999;
Phase 3 - from 2000 to 2004;
Phase 4 - 2005 to the present.
In the early 1990s, Uzbekistan's economic situation was very fragile; consequently, the tax system was geared first of all to meet its fiscal targets. These targets were to be met against the backdrop of a rupture of economic relations, high inflation rates, a slump in production and a narrow taxable base. The deciding factor in the economic policy of 1991- 1994 was the need to prevent a collapse of the economy, the sudden impoverishment of population and the stratification of society. The share of GDP derived from private sector activities was very small in all transition countries early after independence. In Uzbekistan, it was less than 1 per cent. These changes required the creation of a new tax system, laws, fiscal institutions and new skills. Fiscal institutions needed clear strategies and objectives, well-defined legal powers and well-defined legal obligations towards those taxpayers. An acute need was to develop the basic economic knowledge of government employees responsible for forming the new tax policy. Interestingly, during this stage, taxation was considered part of the responsibility of accountants and, consequently, at institutions of higher education, taxation was a component of accounting subjects.
The main achievement of the second stage was the development and adoption of the Tax Code in 1998. The Tax Code attempted to streamline taxes, reduce the burden on taxpayers, and simplify accounting and payment procedures. The establishment of the State Tax Committee at the beginning of 1998 was aimed at ensuring compliance from all taxpayers.
The tax policy of this period sought to maintain revenue collection while easing the tax burden on enterprises. In line with the latter objective, the Government reduced the profit tax rate from 36 per cent to 35 per cent in 1998 and to 33 per cent in 1999. In 1998, authorities eliminated the cotton excise tax in response to a decline in world cotton prices. To compensate for the impact of these changes on tax revenues, excise tax rates (in particular on energy products) and VAT rate were increased in 1998 and 1999.
Realizing the significant role of small businesses in promoting fast and healthy economic and social development, the Government of Uzbekistan in 1999 started the structural transformation of the economy through the accelerated development of the private sector, especially small enterprises, and viewed it as a priority of government reforms.5 The main mission of the Government during this period was to implement the small business promotion law, which involved the following tasks:
· To further improve policies and measures concerning the development of MSEs;
· To remove institutional barriers that hinder the development of small businesses;
· To create a level playing field for the development of MSEs;
· To promote scientific and technological innovation and upgrading;
· To optimize the industrial structure of MSEs;
· To enhance the overall quality and competitiveness of MSEs.
By the year 2000, the tax system of Uzbekistan had its established fiscal institution (the State Tax Committee) and regulatory framework (the Tax Code) as a result of the reforms implemented. The economy of Uzbekistan recovered after the separation from the Soviet Union and GDP was growing steadily. However, the overwhelming fiscal role of taxation created a high tax burden for the business sector, increased the shadow economy and suppressed investment. This was the time for new reforms directed towards enforcing the regulatory framework and stimulating the role of taxation through:
1. Reduction of the tax burden;
2. Further simplification of taxation procedures for small enterprises;
3. Simplification of tax administration.
Main features of tax system of the Republic of Uzbekistan
Double taxation, “tax on tax”, and taxation of sales: A fundamental taxation principle--the one-time taxation of any taxable item--is not currently adhered to in Uzbekistan. For example, sales revenue is the basis not only for the single tax payment, in the case of the simplified taxation system, but also for mandatory payments to the pension fund, road fund, and education fund, in the case of the general tax regime. The VAT on imports is calculated on a basis that includes the customs value, the excise tax and customs duties. This “tax on tax” is a heavy burden on the importer. The same applies to goods subject to excise tax produced in Uzbekistan.
Actions taken to reduce tax burden: Indirect taxes, which bring the highest revenues to the government budget, fulfil mainly the fiscal role of taxation, while direct taxes fulfil regulatory and stimulating roles. In order to strengthen the regulatory and stimulatory roles of taxation, the government reduced the tax rates of some direct taxes. Reduction of the tax burden is one of the instruments for stimulating local producers and developing entrepreneurial activities.
The “simplified” taxation scheme for small enterprises is actually not, as it envisions that, for taxation purposes, gross revenues may not be lower than the cost of the product. According to this requirement, a small company is required to maintain cost accounting records on its products, which is one of the most complicated forms of accounting and requires a highly qualified accountant. Furthermore, for many small companies involved in providing services or works, there is no point in calculating costs, so they write off all their expenditures to operational costs (periodic costs), as this is simpler and more convenient. These requirements of tax legislation significantly complicate tax administration and increase costs for small businesses
According to the results of a UNDP survey in 2007, the majority of taxpayers complain about the low level of professional knowledge of tax authorities, unsatisfactory communication skills and lack of willingness to teach novices in the tax system. On the other hand, a survey conducted among tax officers detected a lack of economic as well as legal and business accounting knowledge among most tax inspectors.
The role of international organizations is crucial in improving the qualifications of the tax authorities. Such organizations as USAID and the Japan International Cooperation Center (JICE) have organized foreign internship programs for the civil servants of Uzbekistan. Since 2008, UNDP, in cooperation with IFC, OSCE and OECD, has been holding short-term courses for tax authorities on innovations in tax legislation, new methods of tax control, and the specifics of taxation of particular activities.
tax reform uzbekistan
The Government of Uzbekistan attaches great importance to the development of MSEs and has integrated small business development issues into its national strategic plan for economic and social development. In order to promote the development of MSEs, the Government has gradually amended relevant legislation and launched a series of policies and initiatives.
The Government of Uzbekistan should continue the policy of reducing the tax burden aimed at maintaining the competitiveness of local MSEs as well as improving the tax and customs administration systems.
The findings of the present paper can, to certain extent, apply to other Central Asian countries and serve as an initial overview of the fiscal and socio-economic situation of neighbouring republics, since they have many things in common: roots, cultural values, traditions and the consequences of the collapse of the Soviet Union
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