Реферат: A Country Report and Profile - Republic of Uzbekistan

Country Report and Profile

Presented By: 

Alfiya G. Mirzagalamova amirz@indiana.edu

Jason C. Holman jholman@indinanaedu

Dmitri Maslitchenko dmitri@mailroom.com


The concept of transition of the Republicof Uzbekistan to the market economy consists of five principles formulated byits President Islam Karimov:

1. Economy should have priority overpolitics. Economic reforms should not follow the lead of political processes.

2. The State is the main reformer. Therepresentatives of legally elected authorities have to determine priorities andpursue balanced policy of  no social shocks.

3. Along with economic reforms it isnecessary to create a system of social  protection of the Republic populationespecially of most vulnerable groups.

4. Superiority of Law and Constitution.

5. Stage by stage movement to the marketeconomy. The transition to next stage only after the current stage targets havebeen met..




[1]I.  Politicaland Economic Background


To understand the politics ofUzbekistan it is important to delve into it=s most recent history.  The leader from1959-1983 was Sharaf Rashidov, who ruled in a quasi-feudal fashion, much likethe newly elected leader.  Rashidov kept the USSR content through a combinationof patronage, corruption, and repressive behavior.  Once Mikhail Gorbachev waselected, Rashidov was the prime target for his drive to eliminate corruption. Although there was an upsurge of national identity among the Uzbeks and afeeling of victimization by the thousands of corrupt officials who where soonimprisoned, incredibly through more repression the elections for new leaderswould go unopposed.      The Republic of Uzbekistan declared its independencefrom the former Soviet Union on August 31, 1991.  Although it was notrecognized by the United States until December 25, 1992.  Uzbekistan is amember of the United Nations and the Commonwealth of Independent States (CIS). Although Glasnost led to many open media discussions of the environment andethnic issues, the elections held in 1990 were one-sided.  The main oppositionparty was not allowed to stand, therefore leaving many communist candidates tobe elected.   Islam Karimov  was first elected President in 1990 by the SupremeSoviet and later was reelected by a popular vote in  1991. 

In 1995 Karimov held anational referendum which would extend his term into the year 2000.  He had 99%of the electorate=ssupport.  Karimov proclaims he is a supporter of AEastern Democracy.@  He stresses the importance of stabilityof eastern democracy over it=s western counterpart.  The  stability that Karimov suggests manybelieve is just a ploy for Karimov to use his dictatorship power to cling tothe old world status.  Karimov is one of the strongest supporters of continuedcooperation among the Soviet Republics.  Karimov supported the new Union Treatyin spring of 1991 and did not oppose the August 1991 coup in Moscow.   Once thecoup collapsed Uzbekistan declared independence.  Karimov proclaims Uzbekistanis a multiparty system, yet the Erk (Freedom) Democratic Party, the Birlik(Unity) People=s Movement (BPM) and the Islamic rebirthParty (IRP) have been banned. 

[2]Policy makers still remain suspicious ofunregulated market mechanisms, although Karimov  officially commits to amarket-oriented reform.  Prices were slowly liberalized and the new tradepolicies are less harmful toward exports.  The import tariffs proposed in 1993are preferential toward CIS communities and extra low tariffs toward CentralAsian countries.   It is going to be very difficult for him to explain why manyof the neighboring Central Asian countries are becoming richer throughliberalization and privatization while Uzbekistan continues to stay stable, butpoorer then the other nations.  Karimov stresses stability as a reason whyUzbekistan has not seen the high inflation rates characteristic to other CIScommunities in transition.

2Karimov gives little mention to humanrights.  He believes that economic stability is necessary for socio-politicalstability.  In his new book, Along the Road of Deepening Economic Reform, Karimovstates, Apreparation, discussion and adoption offundamental laws regulating and providing guarantees of human rights andfreedoms, rights and freedoms of public organizations and freedom of conscienceand religion have been something principally new in practical law making inthis country.@  He also briefly mentions the women=s rights and acknowledges their specialrole as Awomen-mothers@ and presses for better child careprovisions.       


3At independence, the economy was dominatedby cotton production.  Uzbekistan hoped to benefit from this by selling thecotton on the international market, but the early 1990s were a time ofdepressed prices on world cotton markets.  This created a dispute with Russia,which responded by seeking to purchase cotton on the world market. Uzbekistanlost a considerable amount of revenue due to this conflict with Russia. Eventually the two countries reached an agreement to barter Uzbek cotton forRussian petroleum products. 

Other important agriculturalproducts include grain, fruit, vegetables and natural silk from cocoons.  Themain problem of Uzbekistan is that about three-fifths of the country is desertor semi-arid desert: almost all cultivated land must be irrigated.  This hasresulted in the gradual drying up of the Aral Sea.  By the 90's the availablewater supply had been exhausted to the point that there was no possibility ofincreasing the amount of land used for agricultural purposes.  Grain productiononly covers a quarter of Uzbekistan=s total consumption.  Therefore Uzbekistan reliesheavily on imports from countries such as the United States to support theirsupply of grain.  Uzbekistan complains that the USSR destroyed it=s grain-growing capacity in order to createthe cotton monoculture.  This has remained a very difficult obstacle forUzbekistan and grain continues to be a major import. 

4Uzbekistan=s other primary product exports include gasand minerals.  Uzbekistan has few energy sources besides gas and untapped hydropower.  Although a major oil field was recently discovered in the FerganaValley 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 venturesare bringing foreign technology to exploit Uzbekistan gold mines.  Othermineral deposits include silver, lead, copper, zinc, and tungsten.  Uzbekistan=s minerals have a low ore content, whichsuggests that it would not be as valuable on the world market.

5After World War II, Soviet resources wereconcentrated on rebuilding industrial enterprises in European areas.  With lessinvestment the growth rate of Uzbekistans industry declined. There was a longtrend of falling industrial growth rates.  Manufacturing industry in Uzbekistanwas originally developed in close relation to its primary product base which ofcourse was cotton and fruits and vegetables.  Machinery for the cotton sectorwas a major output and food processing industries were also important.  Theseare the only two substantial forms of manufacturing in Uzbekistan.  This issomewhat disturbing considering the large amounts of resources that areavailable. 

6The general problem was of lack technicalability and low standards of quality.  The main approach to correct thisproblem was to encourage joint ventures.  Many joint venture agreements weresigned in 1992 and 1993, but there was little actual foreign investment.  Therewas also a problem with Uzbekistan=s communication capabilities.  In 1993 a joint venturewas formed with the Turkish company, Teletas,to install seventythousand lines.

Uzbekistan also would like tobecome the hub of Central Asia.  When the Aeroflot fleet was shared out afterthe dismemberment of the USSR, Uzbekistan utilized its share of the planesproductively to earn vast amounts of hard currency.  It created aninternational network in the spring of 1993 with the goal of making Tashkent ahub for budget and travel between Europe and Asia.  Flights would beestablished to Karachi, Delhi, Kuala, Lumpur, Bangkok, Beijing, Frankfort, andLondon.  Israel provided training assistance to Uzbekistan Airways, and theairline raised its credibility by purchasing several Airbuses.

Economic reform in Uzbekistanhas been very slow.  Until 1994 Mr. Karimov opposed reform.  Since then he hashad to start some reforms to obtain IMF backing for his stabilization programand to get World Bank financing.  Uzbekistan has been officially committed toeconomic reform since independence.  The government has favored gradual change,and the pace has become increasingly slower as the years have went on.  Labormarket and enterprise reform have been limited, and indeed the ultimate reasonbehind Uzbekistans slow price liberalization has been to maintain the value ofreal wages and subsidies.  The government has promised to keep wage and benefitincreases ahead of future price rises. 

7Privatization in Uzbekistan has progressedextremely slow.  Karimov dominates economic policy; he has issued a raft ofdecrees that are on occasion contradictory, but aim to convince themultilateral institutions that reform is taking place. The first form ofprivatization took place in 1994.  The process lacked transparency, was corruptand resulted in Mr Karimov=s allies owning the viable firms.  Other obstacles are that landliberalization ahead of establishing a guaranteed water supply would bemeaningless for the irrigation-based agricultural sector.  In industry, notonly has privatization of state enterprises been slow but there was also verylittle privatization created from many small-scale entrepreneurs. 

8II.  Budgetaryand Monetary Conditions

Uzbekistan=s statistics are notoriously inaccurate andin small quantities.  The government views economic data as a state secret, andcirculation of the more informative data is restricted.  All figures fromUzbekistan must be treated with a degree of caution as the government is tryingshow that the country is handling the post Soviet government better then itsneighbors.  The country is attempting to switch from the old communist nationalaccounting method using National material product (NMP), which excludes mostservices and depreciation, to the standard System of National Accounts (SNA).

What is clear is thatUzbekistan=s economy has been in decline since thecollapse of the Soviet Union.  After a 3.7 % fall in 1991 National materialproduct 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, withnational material product down by 3.5% mainly due to continued governmentsubsidies.  The IMP initially estimated that, due to tighter policies, GDPcontracted by 10.1% in 1994.  However, the Uzbek authorities claim that despitea severe credit crunch and a confiscatory change of currency, GDP shrank byonly 2.6%, the figure that the IMF now accepts. 


9Net Material Product

1989                1990                1991                1992                1993


Total(Rb m)

At current prices         21,588 23,402 49,636 386,071           3,686,800

Real Change ( %)        3.1                   11.3                 -3.7                  -14.4                -3.5


/>Per Head (Rb)

At current prices         1,091               1,157               2,407               18,287 170,622

Real change (%)          0.8                   8.9                   -5.5                  -16.4                -5.7


/>*Derived from the World Bank mid-year populationestimates.

Budget Deficit

Uzbekistan=s government budget has suffered from largedeficits since the collapse of the Soviet Union.  The IMF has put the 1993fiscal deficit at 12% of GDP, while the governments figure released through theWorld Bank was 2.5%.  The main reason for the deficits is lost revenuesubsidies from the Soviet Union.  Uzbekistan had one of the largest subsidyshare of revenue compared to many of the other (CIS) countries.  During the1980s 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 to19.5% of GDP by 1991.    

10III.  Expenditure Policies and Assignments

Although Uzbekistan is nowengaged in the necessary fiscal and revenue-raising reforms demanded bymultilateral institutions, very little revenue is received from taxes.  Corruption, weak institutions, economic recession and poor tax compliance havehindered revenue collection severely.  The government claims that actualrevenue to GDP has risen in recent years from 26.4% to 41%in 1993.  Givencontinued state control of the economy, tax compliance among state enterpriseswould tend to be greater than in countries with a growing private sector,although figures may be overstated.  On the expenditure side, increased outlayson defense and security, welfare payments,  and subsidies to industry have beenthe most important developments since 1991.  Increased expenditure was financedthrough huge expansion of domestic credit, montised by courtesy of the RussianCentral Bank until 1993 when this tactical trend was eliminated once it wasfound to be unsustainable.  The government then went to the IMF.  The figureson the preceding page show this information

11State Budget (Rb bn)

1988    1989    1990    1991    1992    1993


Revenue                                                         9.7       11.8     15.1     30.2     139.8   1,814.5

of which:

Turnover Tax                                                   3.3       3.8       4.0       6.1       3.3       n/a

VAT                                                                0.0       0.0       0.0       0.0       38.4     477.1

Excises                                                            0.0       0.0       0.0       0.0       9.5       44.9

Company income Tax                                     1.7       1.3       1.5       3.8       23.9     382.9

Personal Income tax                                        1.1       1.5       1.3       1.8       11.4     145.3

Grants from Union Budget                             2.3       3.6       6.4       11.4     0.0       0.0


Expenditure                                                   10.1     11.0     14.9    32.4     193.9   1,923.4

of which:

Economy                                                         4.6       5.0       8.1       5.9       20.9     392.7

Defense and Public Order                              n/a       n/a       n/a       0.2       11.7     n/a

Social and Cultural                                         5.2       5.5       6.2       9.2       70.8     n/a


Balance                                                           -0.4      -0.8      -0.2      -2.4      -54.1    -108.9

% of GDP                                                       -1.4      -1.0      -1.2      -3.6      -12.1    -2.5


* 1993 data are from the World Bank. They exclude non-budgetaryaccounts.

Sources: IMF, Economic Review: Uzbekistan;World Bank, Statistical Handbook: States of the Former USSR, 1994

IV. Tax Structure and Administration12

Corporate Taxation

Profit Tax

Uzbek entities ‑ taxed on theirprofits from all sources worldwide.

Foreign Entities ‑ taxed on profitsfrom the entrepreneurial activities of their establishments in Uzbekistan.

Foreign entities receiving income fromUzbek sources other than through Permanent Establishments are subject towithholding tax on the gross amounts of the income without reduction for anyexpenses.

The general profit tax rate is 37%. Thisrate is reduced to 25% for entities with foreign investment of 30% or greater.

A tax return and activity report should befiled with the tax authorities by February 15. An audit opinion or an agreementfor audit services should  also be submitted by the appropriate deadline.

Social charges

Employers must make social insurance andemployment fund contributions, as well as contributions to a trade union ifapplicable. The total amount payable, which is deductible for profits taxpurposes,  is 38% to 40% of each employee's gross salary, made up as follows:

Fund                                        Rate

Social insurance                      36%

employment                            2%

Trade union (if applicable)      2%

Individual Taxation

A resident is defined as an individual whois physically present in Uzbekistan for 183 days or more in a calendar year.Residents are taxed on their worldwide income, while non‑residents aretaxed only on their Uzbek sources income.

Taxable income for 1995 and 1996 is taxedat the following rates:

Taxable income (less annual non‑taxableminimum)

Up to 2 annual minimum wage                       15%

2 to 5 annual minimum wage                          25%

5 to 10 annual minimum wage                        35%

Over 10 times annual minimum wage 40%

Social security contributions

1%  of the gross salary  to the SocialInsurance Fund.

Deductions and Exemptions

All income  is taxable in Uzbekistan unlessit is specifically exempt. The list of specifically exempt income includesalimony, gift, severance and pension income.

Capital gains

Capital gains in the disposal of shares areexempt for taxation. Capital losses are not deductible.

Other taxes and fees

Value Added Tax  («VAT»)

VAT was introduced in Uzbekistan onFebruary 15, 1991. The current rate is 17%.

VAT is levied on turnover from the supplyof all goods and services (including barter transactions), unless they arespecifically exempt. Imports are exempt. Though, VAT is levied on the Uzbekseller's markup of imported goods. Exported goods and services are specificallyexempt from VAT. Exported goods are defined as having cleared customs. Exportedservices are defined as being supplied to a «foreign person». For thedetermination of whether services are exported, neither the place of providingthe services not the place  where the benefits are used are considered, onlythat the purchaser is a foreign person (entity). It could be argued  that UzbekVAT legislation allows representative offices of foreign legal entities (whichare non‑resident), paying for services in foreign currency throughauthorized Uzbek banks to also be classified as «foreign person».

Effective January 1 1996, the exemption onexported goods and services is only applicable  if the importing country doesnot impose VAT on exports to Uzbekistan. This restriction is especiallyimportant with respect to some members of the CIS as VAT is charged on exportsto member states.

The VAT legislation of Uzbekistan allows acredit for VAT incurred, when such goods or services are «charged to thecost of production».

Excise taxes

Excise taxes are payable by domesticproducers and importers of excised goods. The list of excised goods isdetermined by the Cabinet of Ministers and includes tobacco, jewelry, gasoline,liquor and other goods. Exported goods are exempt. Tax rate vary from 5% to75%. The amount of excise tax is determined by the taxpayer, based on thevolume of goods sold and established tax rates on such goods.

Property tax

The 2% rate tax is based on the historicalcost of fixed assets used in production. Legislation specifically includesbuildings, machinery, equipment and vehicles. Accumulated depreciation  doesnot reduce the taxable base.  The following assets are specifically excludedfrom he taxable base for property tax purposes: 

‑ housing, social and culturalfacilities;

‑ environmental protection assets;

‑ agricultural equipment;

‑ transportation networks (includingroads and pipeline);

‑ communication and powertransmission lines (including

‑ maintenance structures);

‑ communication satellites; and

‑ automobiles.

Profit tax is deductible for profits taxpurposes.

Subsurface use tax

Taxes on the mining, and oil and gasindustries. Subsurface uses tax is deductible for profits tax purposes.

Land tax

A fee on land owners is imposed at a fixedrate per hectare.

Vehicle fees

A minimal fee on motor vehicle owners isimposed at a fixed rate per horsepower. Individuals must also pay this fee,though only at half the corporate rate. Only vehicles registered for road useare subject to this tax (e.g. not those used for production which would besubject to property tax).

In addition there is a fee on the purchaseof vehicles, defined as a percentage of the purchase price of the vehicleexcluding VAT or duties, 5% for cars and 10% for trucks, buses, trailers andsemi‑trailers.

Road use tax

All entities are subject to road use taxwhich is applied to gross sales, excluding VAT and excises. For transportationcompanies a rate of 2% and for all other companies a rate of 1% applies. Thetax is deductible for profits tax purposes.

Water use fee

There is a nominal charge for the use ofwater resources at a fixed rate per cubic meter of water consumed. For mostcompanies, the rate is 0.09 soum per cubic meter. The fee is deductible forprofits tax purposes within statutory water use limits.

Local taxes

There are numerous different taxes, thoughmost are insignificant except for the administrative burden. Example of moresignificant local taxes include:

C  Tax on advertisingcosts. In Tashkent the rate is 5% of total expense.

C  Fee for cleaning thelocal territory, payable by entities and individuals conducting entrepreneurialactivities. In Tashkent the rate is 0.5% of gross receipts.

C  Fee for the right totrade, payable by entities and individuals conducting retail trade. In Tashkentthe rate is two minimum monthly wages per month.

Revenue collection problems13

C  High tax rates onmodest tax bases reduced not only by economic contraction but also  by variousexemptions.

C  Weak tax administrationcompounded by corruption.

C  The effective taxburden on those who comply with the tax code is increased since large numbersof taxpayers successfully evade taxes ‑ equity and efficiency problems.

C  Corruption and abuse ofauthority by poorly paid tax administrators are serious problems.

C  Another major cause ofpoor tax revenues is dollarization  and the continued use of barter, payment inkind.

The Investment Policy of Uzbekistan

 Priority areas14

 1. Gold‑mining and non‑ferrous(Uzbekistan ranks 4th in the world in terms of gold reserves).

2. Power engineering.

3. Processing of cotton (40% of the grossagricultural production is cotton, however only 10% of produced raw cotton isprocesses in Uzbekistan, the rest is exported as raw material. The existingtextile industry is obsolete).

4. Processing of vegetables and fruits (Theproduction makes up 60% of the total fruit and vegetables production of theformer USSR; agricultural infrastructure development needed ‑ processing,transportation, storage facilities, packing).

5. Transport and communication.

6. 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).

7. Financial and monetary. Create a networkof banks and insurance institution.

8. Environmental Protection (degradation ofthe ecosystem of the Aral Sea, irrational use of water resources).

Guarantees and privileges granted toforeign investors15 

1. If subsequent legislation of therepublic of Uzbekistan impairs investment conditions, then the legislationwhich was valid at the time of making the investment shall apply for a periodof time not exceeding 10 years.

2. Companies= profit tax shall be reduced by:

C  20%, for an exportshare of 5-10% of the total production;

C  30%, for an exportshare of 10-20% of the total production;

C  40%, for an exportshare of 20 to 30% of the total production;

C  50%, for an exportshare of 30% or above of the total production.

The purpose here is encourage exportoriented manufactures and producers. «The great success stories ofeconomic development in the last decade have been the newly industrializedcountries of East Asia, especially the so-called „Four Tigers“ (SouthKorea, Taiwan, Hong Kong, Singapore) and, increasingly, Thailand and China. Inthese countries, rapid growth of manufactured exports has produced dramaticincrease in income. NICs have undertaken a host of interventionist measures tocreate incentives for export-oriented manufacturing firms, often in particulartargeted industries at particular stage of development.»16

The heritage of the old socialist system — exports of primary commodities and raw materials (cotton and cotton products incase of Uzbekistan)- has to be gradually replaced by exports of manufacturedgoods. «It makes a difference not only because of the recurring problem ofgluts resulting in falling process in commodity markets but also because of thegreater potential for raising technological capabilities».17

3. Receipts in hard currency earned by acompany due to increase in export production (product, jobs, services) shall beexempt from profit tax.

4. A 25% profit tax shall apply to theprofits of Joint Ventures with a foreign capital of above 30%.

5. Joint Ventures with a foreign capitalinvesting into projects in priority industries included in the InvestmentProgram of Uzbekistan shall be exempt form taxation for the first five years ofoperations.

6. Joint Ventures which specialize inagricultural products and the processing thereof (except for wines and strongalcoholic beverages), consumer products, and construction materials, medicalequipment, machines and equipment for agriculture, light and food industries, recyclingof waste materials are exempt from taxation for two years from the date ofregistration.

7. The profit tax base is decrease by 30%of the expenses for environmental protection.

8. Dividend on governmental bonds areexempt from taxation;

9. Joint Ventures in which the foreigninvestor=s share accounts for a least 50% shall beexempt of  profit tax provided that whole tax amount is re-invested into thedevelopment and expansion of production of consumer goods.

10. Exporting companies are exempt of VAT formaterials resources used in the production of exported goods (jobs, services)

11. Beginning July 1994 through December31, 1997 all commercial banks including those with foreign capital, as well asthe branches and subsidiaries of foreign banks operating in Uzbekistan areexempt from profits, property, land and vehicle taxes.

 V. Intergovernmental FinancialRelationship

The Statute of the Republic of Uzbekistan«About Taxes on Enterprises and Entities»  establishes revenuesources of the State budget of the Republic of Uzbekistan, State budget of  theRepublic of Karakalpakstan18 and local budgetsfor the following expenditures:

C  Social SecurityPayments;

C  Businesses regulation;

C  International payments;

C  Stabilization of theforeign currency circulation;

C  Stimulation of extraction of mineral resources; and

C  Environmentalprotection.

Uzbekistan has a unified statewide taxpolicy for all layers of government. Local governments are entitled to levytaxes within the format of the state wide tax policy.

Tax revenue is transferred to the budget ofUzbekistan, budgets of the Republic of  Karakalpakstan, regions, Tashkent city(the capital) and local budgets according to the norms established annuallyduring the process of budget approval for the respective fiscal year.

 Local governments impose local taxes intheir jurisdictions in full accordance with the Uzbek laws and based on thegeneral tax policy of Uzbekistan.

The authorities levying  a specific type oftax establish:

C  the taxpayer;

C  the tax base;

C  the tax rate;

C  the procedure ofcalculation and payment;

C  exemptions andprivileges;

C  life time of the tax.

IV. Social Insurance

In most transition countries proposals toreform social security have included the establishment of minimum  retirementbenefits, compulsory employment‑related benefits, unification oftreatment across occupations, increases in the retirement age, and steps toreduce access to benefits by younger working pensioners. It is important thatpension and social security reforms help to insure adequate levels ofprotection without overburdening contributors to the system. This will requirebetter collection of private sector contributions and improved  targeting ofbenefits, including tying future eligibility of pension benefits to pastcontributions.

As a part of the transformation process,most transition countries have introduced unemployment insurance  schemes. InUzbekistan unemployment benefits were roughly 80 percent of the average wage in1993, although the generosity of the scheme was matched by onerousadministrative procedures, which ensured that few individuals qualified.19


ACountry Report and Profile

Presented By: 

Alfiya G. Mirzagalamova amirz@indiana.edu

Jason C. Holman jholman@indinanaedu

Dmitri Maslitchenko dmitri@mailroom.com

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