Uzbek Cabinet Discusses New Tax Policy Concept For 2007

As has been reported, o­n August 11, 2006, the session of Cabinet of Ministers of the Republic of Uzbekistan was held in Tashkent. Session addressed the main approaches and directions of further improving the tax policy for the year 2007.

Strategic priorities defined by President Islam Karimov and directed at ensuring sustainable economic growth, macroeconomic and fiscal balancing of economy and its certain spheres, as well as increasing the life standards of people made up the core of the proposed tax policies.

Draft of the tax policy concept for the year 2007, considered at the session of the Cabinet, is designed based o­n the following principles.

First, the decrease of the tax burden o­n economic entities, which promotes the growth of efficiency and competitiveness of the country’s economy.

Gradual conduct of the given policy for over the previous years has allowed ensure the sustainable high paces of economic growth. Yet o­nly for over the first half of 2006 the decrease of the tax burden has increased the financial resources of enterprises for more than UZS 126 billion. This has served as a considerable source for the growth of investments, own circulation funds and increase of salary payments to the staff workers. Thus, the volume of capital investments of entities in real terms for over the first half of 2006 grew by 26,8% against the same period last year. In this, the budget earnings did not o­nly were cut down, but rather have increased due to real growth of economy.

The proposed draft of the tax policy concept for the year 2007 envisages further significant decreasing of the rates:

Of legal entities income (profit) tax – from 12% down to 10%. According to calculations, this will allow yet o­nly in 2007 to increase part of the income (profits) at the disposal of enterprises, bound for modernization and technical re-equipment, expansion of production and increase in salary payments for the staff workers worth no less than UZS 37 billion;

Of the single tax payment – from 13% down to 10%, which shall bring about favorable conditions to implement the strategy of accelerated development of small business and private entrepreneurship, increase the share of private sector in the country’s economy and enhance its contribution to the economic growth;

Of the single social payment – from 25% down to 24%, which shall ease the tax burden o­n the salary fund and accordingly increase the means at the disposal of enterprises for the purposes of raising the staff salary payments and social allowances.

Full exclusion of such expenses by legal entities as payments for telecommunication services and advertising spending, which were earlier taxed, out of the income taxable basis, is aimed at stimulating the business activity of entrepreneurship entities and promoting the local manufacturer products at both domestic and foreign markets.

Lowering the duties for acquisition and temporary imports of large capacity freight automobiles, buses, and special automobiles from 20% down to 6% will allow many production, transport and tourist enterprises speed up to renew their fleet of automobiles.

Second, increase of real population incomes thank to the decrease of rates of physical entities income taxes. The proposed draft envisions that keeping the lowest scale of the taxable basis of the income tax at the level of 13%, lowering the middle scale given the incomes from 5 up to 10-times of minimal wage – from 20% down to 18% and higher scale given the incomes of higher than 10-times of minimal wage – from 29% down to 25% will directly impact the growth of population incomes.

Third, the change of the structure of the state budget earnings at the expense of gradual lowering the share of direct taxes with simultaneous raise of the share of resource taxes, for which the relevant indexation is envisaged. This will allow stimulate rational attitude to the exploit of nature, land and water resources.

At the same time, to attract foreign investments and raise the profitability of enterprises in the oil and gas sector the draft proposes to lower the tax rates for the resources in extracting oil from 35% down to 20%, natural gas – from 58% to 30%, as well as lower the excise tax rates for the petrol from 45% down to 28%, diesel fuel – from 40% to 25%, and air kerosene – from 20% to 8%.

Fourth, maximum unification and simplification of taxation system, calculation mechanism and order of payment of separate types of taxes and obligatory payments.

In order to stimulate further development of the modern trade system, enhance the quality of the offered trade services, especially, in rural areas, hardly accessible and mountainous populated destinations, the draft suggests the introduction of simplified taxation system for trade enterprises. Instead of existing five types of taxes and obligatory payments and quite complicated system of their calculation the document proposes to introduce the single tax payment from the goods turnover: for the trade enterprises in cities with population of over 100 thousand people-5%, other populated areas- 3%, in hardly accessible and mountainous areas – 1%.

Fifth, improvement of tax administration by way of further reduction of quantity and transition to the system of tax checking, depending o­n the degree of risk of avoiding taxation, provision of more transparency while conducting the tax check-ups.

Participants of the Cabinet of Ministers session noted that the softening the tax burden would result in considerable increase of production volume, growth in investment activities of economic entities and creation of stable basis for further growth of real population income. In this, the potential budget losses will be compensated with increased tax entries, ensured by economic growth, reduction of non-payment, increase of tax collection and removal of part of the taxation basis out of the "shadow" sector.

Measures, envisaged by tax policy for 2007, will allow create a solid basis to achieve the following macroeconomic forecasts – the real growth of GDP by 7.7%, outstripping growth of industry branches no less than by 10%, raising the investments volume by 8%, decreasing the inflation level down to 5-7%, and increasing the real population income by no less than 17%.

Heads of central economic and financial agencies, large enterprises and economic entities who spoke at the session took an active part in discussions of main provisions of tax policy concept for 2007 and assessed positively the measures aimed at further liberalization of the tax policy. They have highlighted its stimulating role for the growth of production and investments, growth of the tax-payers’ income, and rational use of natural resources.

It is necessary to note that this year the concept of tax policy for next year has already been worked out yet in August. The opportunity of beforehand acquaintance with new conditions of taxation is crucially important for economic entities, broad range of entrepreneurs from the point of planning the production and investment activity.

On the outcomes of discussions, the Cabinet Ministers of the Republic of Uzbekistan decided to approve the draft of the main directions in tax policy for 2007 in its entirety and take it as a basis in designing the state budget draft for 2007.

The Embassy of Uzbekistan
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10559 Berlin
Phone: 030 39 40 98 -0/13
Fax: 030 39 40 98 62
E-Mail: botschaft@uzbekistan.de
www.uzbekistan.de

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