Support for entrepreneurs increases and the burden on business is reduced in Uzbekistan

The video conference held on April 15, 2022 under the chairmanship of the President of the Republic of Uzbekistan Shavkat Mirziyoyev was devoted to the issues of ensuring price stability in markets by increasing food production within the framework of food supply security of the country, as well as additional support for entrepreneurs.

It should be noted that during the reforms in the country, the business sector has traditionally been given increased attention. This is evidenced by the dynamics of growth of registered small business enterprises in Uzbekistan, when in 2021 there were 503 thousand companies (in 2016 - 278 thousand), and now there are about 1.5 million entrepreneurs who have created about 5 million jobs.

On August 20, 2021, during the first open dialogue with entrepreneurs, a large number of issues were raised in the sphere of taxation, land use, business facilitation, support for exports and other issues of concern to entrepreneurs. At that time, more than 15,000 appeals, questions and proposals from business were received in such areas as: financing and crediting of business, taxation, allocation of land, accessibility of infrastructure, obtaining licenses and permits. Then, following the results of the meeting, appropriate instructions were given and specific tasks were set.

During the video conference on April 15, 2022, additional measures to support entrepreneurs were also discussed. The President put forward a number of initiatives aimed at reducing the tax burden, inspections and requirements for entrepreneurs, simplifying the issuance of permits, supporting exporters, refunding VAT and increasing the attractiveness of credit, as well as critical comments on the work of state bodies at the local level to solve existing problems in the sphere of development of entrepreneurship and specified deadlines for their solution.

Taxes, inspections and authorizations

It is noteworthy that in the past three years the number of taxes in the country has been reduced from 16 to 9, and the rates of property, income and social taxes have been reduced by half. The meeting announced the simplification of the tax administration and inspection system for entrepreneurs from June 1, 2022. Thus, with the conversion of the property tax system to market principles, the practice of applying additional high tax rates to inefficient facilities will be abolished. In addition, innovations have also affected VAT, namely, enterprises with a turnover of more than 1 billion sum will automatically - without prior analysis and verification - be assigned the status of VAT payer, and taxpayers in the high-risk zone will be notified of this prior to the suspension of the VAT certificate.

Moreover, 22 types of audits would now be conducted only with the permission of the business ombudsman to prevent undue interference with business activities. In the same time, the task was foreseen to simplify the requirements for the issuance of various permits. For example, if we analyze the 200 sanitary standards in force today, it turns out that it is simply impossible to comply with 20. This is especially true for sanitary requirements for catering establishments, as well as for delivery services. Thus, as the main problems related to catering, attention was paid to the outdated legislation, a large tax burden (catering pays 7-9 types of taxes), which is why part of this business goes into «shadow», as well as numerous inspections, that create an enabling environment for corruption. To solve these problems, approaches will be revised, and outdated points and requirements in the legislation will be canceled.

In support of exporters

Support for exporters will be strengthened, in particular, by solving the problem of VAT refunds. Thus, for exporters, a simplified mechanism will now be used, namely, when 80% of VAT will be paid back within 7 days without additional checks (previously 60 days and the 7-day fast refund was available only for some categories of exporters). The last year’s open dialogue with entrepreneurs set a task to introduce the procedure of VAT refund without additional documents, which will greatly facilitate the provision of reports for more than 14 thousand entrepreneurs. Obviously, the task will finally be accomplished this year.

Also in addition to this innovation should be recalled the Presidential Decree «On additional measures to support participants in foreign trade activities», signed on April 6, 2022, according to which until April 1, 2023 local enterprises, High value-added exporters will receive subsidies for transport costs, where they will account for 50% of transport costs for exports to the near abroad and 70% for exports to the EU. This will reduce logistics costs, increase the volume of exported products with high added value and increase its competitiveness in foreign markets. In addition, the meeting mandated the establishment of a permanent headquarters to liaise with exporters to address emerging issues immediately and in a timely manner. There will be a call center at the headquarters where you can reach the short number 1094.

Access to land and credit

At the meetings in the regions, entrepreneurs voiced more than a thousand problematic issues, among which the most often related to affordable credit, tax administration, as well as land allocation. Separately focus was on the issue of sale of land plots from e-auctions. Despite the fact that 35,000 plots of land were included in the electronic system, not a single land plot in Navoi, Syrdarya, Tashkent regions and the city of Tashkent was put up for auction. Khokims have been instructed to treat this issue with all seriousness and responsibility.

Last year the President instructed to auction objects of state property together with the land on which they are located as a single property complex, and entrepreneurs who bought the building, will also be able to own the land adjacent to it on the right of private property. A working group has already been established under the Cabinet of Ministers, which will coordinate the identification of vacant areas in the context of makhallas, the formation of projects involving professional organizations and the implementation of land plots.

In addition, the Head of State instructed to allocate additional funds to the State Fund for Support of Entrepreneurship and to increase the effectiveness of financial assistance. Thus, in the services sector, the National Bank of Uzbekistan will attract $200 million, which will be directed to entrepreneurs. The amount of the loan will be up to 5 billion sums, and the loan rate will not exceed 18% taking into account compensation from the fund. At the same time, $300 million will be allocated to finance small and medium-sized business projects in the regions. These funds will be placed in national currency at a 10% rate for a period of 7 years in banks offering the best conditions for entrepreneurs. At the same time, the rate of the credit provided to the entrepreneur will not exceed 14%. Non-bank financial institutions will also be given opportunities to finance business - this will be provided for in the new law. Mechanisms for crediting entrepreneurs in national currency are also being introduced, regardless of the currency in which banks attract resources, and tax benefits for entrepreneurs registered in economic zones will also remain. Special attention will be paid to the necessity of rational use of funds and only to the projects that will pay off, increase incomes and create jobs.

Business activity indicators continue to grow

It should be noted that over the years of the reforms, about 2 thousand laws, decrees and resolutions aimed at supporting the development of private business have been adopted. Special attention was paid to the elimination of numerous administrative barriers to business. 114 licenses and permits for 33 types of activities were canceled, procedures for obtaining permits were simplified and the terms of their issuance were reduced by an average of 2 times. Unnecessary checks have also been canceled, restrictions related to the turnover of cash, currency and raw materials have been lifted. The positive effects of these reforms can be clearly seen in various economic indicators calculated monthly by the Center for Economic Research and Reforms, such as the Business Activity Index (IDA) and the Business Climate Index, implemented according to the methodology of the analog of the Business Climate Index of the IFO Institute in Germany (IFO Institut). Thus, in March 2022, IDA in the regions and the capital increased by 2.6% compared to the previous month, and the consolidated indicator of the business climate in February 2022 was 60 points, which assesses the state of the business climate in the country as positive.

Speaking about key business indicators in the regions and the capital, the volume of tax revenues in the period from January 1 to March 31, 2022 increased by 17.4% compared to the same period last year. This growth was achieved due to positive changes in the economy, the conjuncture of prices on the world gold market, improvement of the tax administration system, including the introduction of new administrative tools, digitalization and automation of processes, legalization of business activities and simplification of the procedure for compliance with the requirements of tax legislation. As for the receipts of customs payments for this period, they increased by 45.7%. This increase is due to an increase in the volume of taxable imports and the exchange rate, measures taken by customs authorities to simplify customs procedures, accelerate the release of goods into free circulation and the introduction of new methods of customs administration.

The volume of exports of goods has increased by 12.2% since the beginning of the year compared to the same period last year. It is due to the growing growth rates of exports of industrial goods, food products, chemicals and agri-food products. Not to forget about the volume of loans issued by commercial banks during this period, which increased by 8.5% compared to the same period last year due to lending to large projects in the real sector of the economy. It is also worth noting an increase in the volume of transactions on the Uzbek Republican Commodity Exchange by 43.8%, due to an increase in sales of such goods as gasoline, diesel fuel, rolled ferrous metals, cotton fiber, construction materials, etc.

Khokimiyats and public councils are given tasks

A large number of unjustified inspections of the activities of entrepreneurs by some khokimiyats were critically evaluated. Thus, 11,000 checks were carried out in Tashkent, 8,000 in Tashkent region, 7,000 in Fergana region and 6,000 in Surkhandarya region. Khokims were instructed to hold meetings with entrepreneurs within a week and solve their problems. Also, despite the measures taken, there are still a number of complex and important tax administration and burden sharing issues that require careful and constructive consideration. Therefore, a Public Council shall be established under the State Tax Committee, where regular meetings will be held with members of the Chamber of Commerce and Industry, the Chamber of Tax Advisers, the Chamber of Auditors and the National Association of Accountants and Auditors, as well as scientists, entrepreneurs and public figures. In addition, in order to continue the dialogue with the business on the measures taken and on new software products, the Ministry of Finance and the State Tax Committee together with the professional organizations will hold regular meetings with entrepreneurs, as well as discuss their proposals and issues, including those coming through telegram channels to tax authorities.

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Transformations aimed at eliminating numerous administrative barriers to business, non-interference in entrepreneurial activity and, in general, improving the business climate, will lead to significant positive changes both in the country's economy and in business development. Active implementation will allow accelerated achievement of the large-scale goals set in the "Development Strategy of New Uzbekistan for 2022-2026".

Mukhsinjon Kholmukhamedov,

Deputy director of the Center for Economic Research and Reforms under the Administration of the President of Uzbekistan