The concept of transition of the Republic of Uzbekistan to the market economy (курсова робота)
The concept of transition of the Republic of
Uzbekistan to the market economy consists of five principles formulated by its
President Islam Karimov:
1. Economy should have priority over
politics. Economic reforms should not follow the lead of political processes.
2. The State is the main reformer. The
representatives of legally elected authorities have to determine priorities and
pursue balanced policy ofno social
3. Along with economic reforms it is
necessary to create a system of socialprotection of the Republic population especially of most vulnerable
4. Superiority of Law and Constitution.
5. Stage by stage movement to the market
economy. The transition to next stage only after the current stage targets have
I.Political and Economic Background
To understand the politics of Uzbekistan it is
important to delve into it=s most recent
history.The leader from 1959-1983 was
Sharaf Rashidov, who ruled in a quasi-feudal fashion, much like the newly
elected leader.Rashidov kept the USSR
content through a combination of patronage, corruption, and repressive
behavior.Once Mikhail Gorbachev was
elected, Rashidov was the prime target for his drive to eliminate
corruption.Although there was an
upsurge of national identity among the Uzbeks and a feeling of victimization by
the thousands of corrupt officials who where soon imprisoned, incredibly
through more repression the elections for new leaders would go unopposed.The
Republic of Uzbekistan declared its independence from the former Soviet Union
on August 31, 1991.Although it was not
recognized by the United States until December 25, 1992.Uzbekistan is a member of the United Nations
and the Commonwealth of Independent States (CIS).Although Glasnost led to many open media discussions
of the environment and ethnic issues, the elections held in 1990 were
one-sided.The main opposition party was
not allowed to stand, therefore leaving many communist candidates to be
elected.Islam Karimovwas first elected President in 1990 by the
Supreme Soviet and later was reelected by a popular vote in1991.
In 1995 Karimov held a national referendum which
would extend his term into the year 2000.He had 99% of the electorate=s support.Karimov proclaims he is a supporter of AEastern
Democracy.@He stresses the importance of stability of
eastern democracy over it=s western
counterpart.Thestability that Karimov suggests many believe
is just a ploy for Karimov to use his dictatorship power to cling to the old
world status.Karimov is one of the
strongest supporters of continued cooperation among the Soviet Republics.Karimov supported the new Union Treaty in
spring of 1991 and did not oppose the August 1991 coup in Moscow.Once the coup collapsed Uzbekistan declared
Uzbekistan is a multiparty system, yet the Erk (Freedom) Democratic Party, the
Birlik (Unity) People=s Movement (BPM)
and the Islamic rebirth Party (IRP) have been banned.
still remain suspicious of unregulated market mechanisms, although Karimovofficially commits to a market-oriented
reform.Prices were slowly liberalized
and the new trade policies are less harmful toward exports.The import tariffs proposed in 1993 are
preferential toward CIS communities and extra low tariffs toward Central Asian
countries.It is going to be very
difficult for him to explain why many of the neighboring Central Asian
countries are becoming richer through liberalization and privatization while
Uzbekistan continues to stay stable, but poorer then the other nations.Karimov stresses stability as a reason why
Uzbekistan has not seen the high inflation rates characteristic to other CIS
communities in transition.
little mention to human rights.He
believes that economic stability is necessary for socio-political
stability.In his new book, Along the
Road of Deepening Economic Reform, Karimov states, Apreparation,
discussion and adoption of fundamental laws regulating and providing guarantees
of human rights and freedoms, rights and freedoms of public organizations and
freedom of conscience and religion have been something principally new in
practical law making in this country.@He also briefly mentions the women=s rights and
acknowledges their special role as Awomen-mothers@ and presses for
better child care provisions.
the economy was dominated by cotton production.Uzbekistan hoped to benefit from this by selling the cotton on the
international market, but the early 1990s were a time of depressed prices on
world cotton markets.This created a
dispute with Russia, which responded by seeking to purchase cotton on the world
market. Uzbekistan lost a considerable amount of revenue due to this conflict
with Russia.Eventually the two
countries reached an agreement to barter Uzbek cotton for Russian petroleum
Other important agricultural products include grain,
fruit, vegetables and natural silk from cocoons.The main problem of Uzbekistan is that about
three-fifths of the country is desert or semi-arid desert: almost all
cultivated land must be irrigated.This
has resulted in the gradual drying up of the Aral Sea.By the 90's the available water supply had
been exhausted to the point that there was no possibility of increasing the
amount of land used for agricultural purposes.Grain production only covers a quarter of Uzbekistan=s total
consumption.Therefore Uzbekistan relies
heavily on imports from countries such as the United States to support their
supply of grain.Uzbekistan complains
that the USSR destroyed it=s grain-growing
capacity in order to create the cotton monoculture.This has remained a very difficult obstacle
for Uzbekistan and grain continues to be a major import.
4Uzbekistan=s other primary
product exports include gas and minerals.Uzbekistan has few energy sources besides gas and untapped hydro
power.Although a major oil field was
recently discovered in the Fergana Valley in 1992.Uzbekistan is the largest importer of oil by
all the CARs.The most accessible
mineral export is gold, of which Uzbekistan was the USSR=s second-largest
producer.Joint ventures are bringing
foreign technology to exploit Uzbekistan gold mines.Other mineral deposits include silver, lead,
copper, zinc, and tungsten.Uzbekistan=s minerals have a
low ore content, which suggests that it would not be as valuable on the world
5After World War
II, Soviet resources were concentrated on rebuilding industrial enterprises in
European areas.With less investment the
growth rate of Uzbekistans industry declined. There was a long trend of falling
industrial growth rates.Manufacturing
industry in Uzbekistan was originally developed in close relation to its
primary product base which of course was cotton and fruits and vegetables.Machinery for the cotton sector was a major
output and food processing industries were also important.These are the only two substantial forms of
manufacturing in Uzbekistan.This is
somewhat disturbing considering the large amounts of resources that are
problem was of lack technical ability and low standards of quality.The main approach to correct this problem was
to encourage joint ventures.Many joint
venture agreements were signed in 1992 and 1993, but there was little actual
foreign investment.There was also a
problem with Uzbekistan=s communication
capabilities.In 1993 a joint venture was
formed with the Turkish company, Teletas,to install seventy thousand lines.
Uzbekistan also would like to become the hub of
Central Asia.When the Aeroflot fleet
was shared out after the dismemberment of the USSR, Uzbekistan utilized its
share of the planes productively to earn vast amounts of hard currency.It created an international network in the
spring of 1993 with the goal of making Tashkent a hub for budget and travel
between Europe and Asia.Flights would
be established to Karachi, Delhi, Kuala, Lumpur, Bangkok, Beijing, Frankfort,
and London.Israel provided training
assistance to Uzbekistan Airways, and the airline raised its credibility by
purchasing several Airbuses.
Economic reform in Uzbekistan has been very
slow.Until 1994 Mr. Karimov opposed
reform.Since then he has had to start
some reforms to obtain IMF backing for his stabilization program and to get
World Bank financing.Uzbekistan has
been officially committed to economic reform since independence.The government has favored gradual change,
and the pace has become increasingly slower as the years have went on.Labor market and enterprise reform have been
limited, and indeed the ultimate reason behind Uzbekistans slow price
liberalization has been to maintain the value of real wages and subsidies.The government has promised to keep wage and
benefit increases ahead of future price rises.
Uzbekistan has progressed extremely slow.Karimov dominates economic policy; he has issued a raft of decrees that
are on occasion contradictory, but aim to convince the multilateral
institutions that reform is taking place. The first form of privatization took
place in 1994.The process lacked
transparency, was corrupt and resulted in Mr Karimov=s allies owning
the viable firms.Other obstacles are
that land liberalization ahead of establishing a guaranteed water supply would
be meaningless for the irrigation-based agricultural sector.In industry, not only has privatization of
state enterprises been slow but there was also very little privatization
created from many small-scale entrepreneurs.
8II.Budgetary and Monetary Conditions
Uzbekistan=s statistics are
notoriously inaccurate and in small quantities.The government views economic data as a state secret, and circulation of
the more informative data is restricted.All figures from Uzbekistan must be treated with a degree of caution as
the government is trying show that the country is handling the post Soviet
government better then its neighbors.The country is attempting to switch from the old communist national
accounting method using National material product (NMP), which excludes most
services and depreciation, to the standard System of National Accounts (SNA).
What is clear is that Uzbekistan=s economy has
been in decline since the collapse of the Soviet Union.After a 3.7 % fall in 1991 National material
product declined by 14.4% in 1992.GDP
in those two years has dropped by 0.5% and 11.1%.In 1993 the fall in GDP was 2.4 % according
to IMF estimates, with national material product down by 3.5% mainly due to
continued government subsidies.The IMP
initially estimated that, due to tighter policies, GDP contracted by 10.1% in
1994.However, the Uzbek authorities
claim that despite a severe credit crunch and a confiscatory change of
currency, GDP shrank by only 2.6%, the figure that the IMF now accepts.
9Net Material Product
current prices 21,58823,40249,636386,0713,686,800
Change ( %)3.111.3-3.7-14.4-3.5
Per Head (Rb)
*Derived from the World Bank mid-year
budget has suffered from large deficits since the collapse of the Soviet
Union.The IMF has put the 1993 fiscal
deficit at 12% of GDP, while the governments figure released through the World
Bank was 2.5%.The main reason for the
deficits is lost revenue subsidies from the Soviet Union.Uzbekistan had one of the largest subsidy
share of revenue compared to many of the other (CIS) countries.During the 1980s the proportion of revenue
actually increased form 20.8% in 1987 to 43.2% in 1990.Soviet grants which has once accounted for 7%
of GDP in 1987 rose to 19.5% of GDP by 1991.
10III.Expenditure Policies and Assignments
Although Uzbekistan is now engaged in the necessary
fiscal and revenue-raising reforms demanded by multilateral institutions, very
little revenue is received from taxes.Corruption, weak institutions, economic recession and poor tax
compliance have hindered revenue collection severely.The government claims that actual revenue to
GDP has risen in recent years from 26.4% to 41%in 1993.Given continued state control of the economy,
tax compliance among state enterprises would tend to be greater than in
countries with a growing private sector, although figures may be overstated.On the expenditure side, increased outlays on
defense and security, welfare payments,and subsidies to industry have been the most important developments
since 1991.Increased expenditure was
financed through huge expansion of domestic credit, montised by courtesy of the
Russian Central Bank until 1993 when this tactical trend was eliminated once it
was found to be unsustainable.The
government then went to the IMF.The
figures on the preceding page show this information
11State Budget (Rb bn)
from Union Budget188.8.131.521.40.00.0
and Public Ordern/an/an/a0.211.7n/a
* 1993 data are from the World Bank. They exclude
IMF, Economic Review: Uzbekistan; World Bank, Statistical Handbook: States of
the Former USSR, 1994
Structure and Administration12
entities ‑ taxed on their profits from all sources worldwide.
Entities ‑ taxed on profits from the entrepreneurial activities of their
establishments in Uzbekistan.
entities receiving income from Uzbek sources other than through Permanent
Establishments are subject to withholding tax on the gross amounts of the
income without reduction for any expenses.
general profit tax rate is 37%. This rate is reduced to 25% for entities with
foreign investment of 30% or greater.
return and activity report should be filed with the tax authorities by February
15. An audit opinion or an agreement for audit services shouldalso be submitted by the appropriate
must make social insurance and employment fund contributions, as well as
contributions to a trade union if applicable. The total amount payable, which
is deductible for profits tax purposes,is 38% to 40% of each employee's gross salary, made up as follows:
union (if applicable)2%
resident is defined as an individual who is physically present in Uzbekistan
for 183 days or more in a calendar year. Residents are taxed on their worldwide
income, while non‑residents are taxed only on their Uzbek sources income.
income for 1995 and 1996 is taxed at the following rates:
income (less annual non‑taxable minimum)
2 annual minimum wage15%
5 annual minimum wage25%
10 annual minimum wage35%
10 times annual minimum wage40%
Social security contributions
1%of the gross salaryto the Social Insurance Fund.
Deductions and Exemptions
incomeis taxable in Uzbekistan unless
it is specifically exempt. The list of specifically exempt income includes
alimony, gift, severance and pension income.
gains in the disposal of shares are exempt for taxation. Capital losses are not
Other taxes and fees
Value Added Tax("VAT")
was introduced in Uzbekistan on February 15, 1991. The current rate is 17%.
is levied on turnover from the supply of all goods and services (including
barter transactions), unless they are specifically exempt. Imports are exempt.
Though, VAT is levied on the Uzbek seller's markup of imported goods. Exported
goods and services are specifically exempt from VAT. Exported goods are defined
as having cleared customs. Exported services are defined as being supplied to a
"foreign person". For the determination of whether services are
exported, neither the place of providing the services not the placewhere the benefits are used are considered,
only that the purchaser is a foreign person (entity). It could be arguedthat Uzbek VAT legislation allows
representative offices of foreign legal entities (which are non‑resident),
paying for services in foreign currency through authorized Uzbek banks to also
be classified as "foreign person".
January 1 1996, the exemption on exported goods and services is only
applicableif the importing country does
not impose VAT on exports to Uzbekistan. This restriction is especially
important with respect to some members of the CIS as VAT is charged on exports
to member states.
VAT legislation of Uzbekistan allows a credit for VAT incurred, when such goods
or services are "charged to the cost of production".
taxes are payable by domestic producers and importers of excised goods. The
list of excised goods is determined by the Cabinet of Ministers and includes
tobacco, jewelry, gasoline, liquor and other goods. Exported goods are exempt.
Tax rate vary from 5% to 75%. The amount of excise tax is determined by the
taxpayer, based on the volume of goods sold and established tax rates on such
2% rate tax is based on the historical cost of fixed assets used in production.
Legislation specifically includes buildings, machinery, equipment and vehicles.
Accumulated depreciationdoes not reduce
the taxable base.The following assets
are specifically excluded from he taxable base for property tax purposes:
housing, social and cultural facilities;
environmental protection assets;
transportation networks (including roads and pipeline);
communication and power transmission lines (including
communication satellites; and
tax is deductible for profits tax purposes.
Subsurface use tax
on the mining, and oil and gas industries. Subsurface uses tax is deductible
for profits tax purposes.
on land owners is imposed at a fixed rate per hectare.
minimal fee on motor vehicle owners is imposed at a fixed rate per horsepower.
Individuals must also pay this fee, though only at half the corporate rate.
Only vehicles registered for road use are subject to this tax (e.g. not those
used for production which would be subject to property tax).
addition there is a fee on the purchase of vehicles, defined as a percentage of
the purchase price of the vehicle excluding VAT or duties, 5% for cars and 10%
for trucks, buses, trailers and semi‑trailers.
Road use tax
entities are subject to road use tax which is applied to gross sales, excluding
VAT and excises. For transportation companies a rate of 2% and for all other
companies a rate of 1% applies. The tax is deductible for profits tax purposes.
Water use fee
is a nominal charge for the use of water resources at a fixed rate per cubic
meter of water consumed. For most companies, the rate is 0.09 soum per cubic
meter. The fee is deductible for profits tax purposes within statutory water
are numerous different taxes, though most are insignificant except for the administrative
burden. Example of more significant local taxes include:
CTax on advertising costs. In Tashkent the rate is 5%
of total expense.
CFee for cleaning the local territory, payable by
entities and individuals conducting entrepreneurial activities. In Tashkent the
rate is 0.5% of gross receipts.
CFee for the right to trade, payable by entities and
individuals conducting retail trade. In Tashkent the rate is two minimum
monthly wages per month.
Revenue collection problems13
CHigh tax rates on modest tax bases reduced not only
by economic contraction but alsoby
CWeak tax administration compounded by corruption.
CThe effective tax burden on those who comply with
the tax code is increased since large numbers of taxpayers successfully evade
taxes ‑ equity and efficiency problems.
CCorruption and abuse of authority by poorly paid tax
administrators are serious problems.
CAnother major cause of poor tax revenues is
dollarizationand the continued use of
barter, payment in kind.
The Investment Policy of Uzbekistan
1. Gold‑mining and non‑ferrous (Uzbekistan
ranks 4th in the world in terms of gold reserves).
Processing of cotton (40% of the gross agricultural production is cotton,
however only 10% of produced raw cotton is processes in Uzbekistan, the rest is
exported as raw material. The existing textile industry is obsolete).
Processing of vegetables and fruits (The production makes up 60% of the total
fruit and vegetables production of the former USSR; agricultural infrastructure
development needed ‑ processing, transportation, storage facilities, packing).
Transport and communication.
Tourism (4000 architectural monuments, many of them are under the protection of
UNESCO;. world famous cities Samarkand, Bukhara, Khiva; tourism infrastructure
is a potential area of investment).
Financial and monetary. Create a network of banks and insurance institution.
Environmental Protection (degradation of the ecosystem of the Aral Sea,
irrational use of water resources).
Guarantees and privileges granted to foreign
subsequent legislation of the republic of Uzbekistan impairs investment
conditions, then the legislation which was valid at the time of making the
investment shall apply for a period of time not exceeding 10 years.
Companies= profit tax shall be reduced
C20%, for an export share of 5-10% of the total
C30%, for an export share of 10-20% of the total
C40%, for an export share of 20 to 30% of the total
C50%, for an export share of 30% or above of the
purpose here is encourage export oriented manufactures and producers. "The
great success stories of economic development in the last decade have been the
newly industrialized countries of East Asia, especially the so-called "Four
Tigers" (South Korea, Taiwan, Hong Kong, Singapore) and, increasingly,
Thailand and China. In these countries, rapid growth of manufactured exports
has produced dramatic increase in income. NICs have undertaken a host of
interventionist measures to create incentives for export-oriented manufacturing
firms, often in particular targeted industries at particular stage of
heritage of the old socialist system - exports of primary commodities and raw
materials (cotton and cotton products in case of Uzbekistan)- has to be
gradually replaced by exports of manufactured goods. "It makes a
difference not only because of the recurring problem of gluts resulting in
falling process in commodity markets but also because of the greater potential
for raising technological capabilities".17
Receipts in hard currency earned by a company due to increase in export
production (product, jobs, services) shall be exempt from profit tax.
4. A 25% profit tax
shall apply to the profits of Joint Ventures with a foreign capital of above
Joint Ventures with a foreign capital investing into projects in priority
industries included in the Investment Program of Uzbekistan shall be exempt
form taxation for the first five years of operations.
Joint Ventures which specialize in agricultural products and the processing
thereof (except for wines and strong alcoholic beverages), consumer products,
and construction materials, medical equipment, machines and equipment for
agriculture, light and food industries, recycling of waste materials are exempt
from taxation for two years from the date of registration.
The profit tax base is decrease by 30% of the expenses for environmental
Dividend on governmental bonds are exempt from taxation;
Joint Ventures in which the foreign investor=s share accounts
for a least 50% shall be exempt ofprofit tax provided that whole tax amount is re-invested into the
development and expansion of production of consumer goods.
Exporting companies are exempt of VAT for materials resources used in the
production of exported goods (jobs, services)
Beginning July 1994 through December 31, 1997 all commercial banks including
those with foreign capital, as well as the branches and subsidiaries of foreign
banks operating in Uzbekistan are exempt from profits, property, land and
V. Intergovernmental Financial Relationship
Statute of the Republic of Uzbekistan "About Taxes on Enterprises and
sources of the State budget of the Republic of Uzbekistan, State budget ofthe Republic of Karakalpakstan18 and local budgets for the
CSocial Security Payments;
CStabilization of the foreign currency circulation;
CStimulation ofextraction of mineral resources; and
has a unified statewide tax policy for all layers of government. Local
governments are entitled to levy taxes within the format of the state wide tax
revenue is transferred to the budget of Uzbekistan, budgets of the Republic
ofKarakalpakstan, regions, Tashkent
city (the capital) and local budgets according to the norms established
annually during the process of budget approval for the respective fiscal year.
Local governments impose local taxes in their
jurisdictions in full accordance with the Uzbek laws and based on the general
tax policy of Uzbekistan.
authorities levyinga specific type of
Cthe tax base;
Cthe tax rate;
Cthe procedure of calculation and payment;
Cexemptions and privileges;
Clife time of the tax.
most transition countries proposals to reform social security have included the
establishment of minimumretirement
benefits, compulsory employment‑related benefits, unification of treatment
across occupations, increases in the retirement age, and steps to reduce access
to benefits by younger working pensioners. It is important that pension and
social security reforms help to insure adequate levels of protection without
overburdening contributors to the system. This will require better collection
of private sector contributions and improvedtargeting of benefits, including tying future eligibility of pension
benefits to past contributions.
part of the transformation process, most transition countries have introduced
unemployment insuranceschemes. In
Uzbekistan unemployment benefits were roughly 80 percent of the average wage in
1993, although the generosity of the scheme was matched by onerous
administrative procedures, which ensured that few individuals qualified.19
Richard.The Economies of Central
Asia.Copyright 1995 by Princeton
of its Destiny.BISNIS - Uzbekistan
report. 10 August 1995.