Special seminar and exposition dedicated to main areas of tax policy for 2012, as well as changes and additions to tax laws was held last week in Tashkent. At the end of each year the President of Uzbekistan approves the forecast of key macroeconomic indicators and parameters of the state budget for the next year. This document becomes a kind of roadmap for financiers, entrepreneurs, bankers and economists. It defines the main guidelines for economy’s further development and gives new impetuses for the growth of particular sectors. Therefore, it has become tradition, for the State Tax Committee, to meet at the beginning of each year with entrepreneurs in order to discuss their current problems, to study public opinion about the tax system, explain the benefits of innovations in tax legislation and to talk about tax benefits and preferences.

One of the most noticeable changes, discussed at the seminar, was the reduction of the lower scale of the tax rates on personal income, from 10 to 9%. This measure has been taken to increase the population's purchasing power and stimulate domestic demand.

Although the rate of compulsory contributions to state trust funds, levied from the volume of sold products and services, have been retained, the rates of mandatory contributions to the Republican Road Fund were unified. As a result, a single base rate of 1.4% was established.

In addition, since 2012 the country has diverse minimum for a rent per one square meter of leaving area. Thus, the cost of rental housing in Tashkent has become 3,000 soums per square meter, in the other cities 2,000 soums, in settlements it makes 1,000 soums per square meter.

Changes and amendments into national legislation have become another noticeable topic discussed by the experts. In particular, the Code of Administrative Liability of Uzbekistan has been supplemented by new article, according to which the absence of lease contract on building, structure or on parts of a leaving area between citizens, or infraction of mandatory notarization of the lease agreement, becomes punishable by a fine ranging from five to ten times of the amount of the minimum wage in the republic.

There have been changes and amendments in some articles of the Tax Code. The lump-sum bonuses, additional payments for vacation, cost of meals and tickets or refund of their cost as well as paid vacations taken beyond the established norms of labor law and monetary compensation for them, now are being included to labor costs, deducted in calculating income tax. Previously these costs were provided by the Article 147 and were not deducted in calculating income tax.

The amendments made into Article 164, 271 and 300 establish a single time limit for current payment of income tax, legal entities property tax, charges on the development of social infrastructure and landscaping. The payment terms for individuals on land charges and property taxes were also changed - until 15 December of each accounting year.

Last year, particular emphasis in the tax policy has been made to support small business and entrepreneurship, providing them with a wide range of benefits. These efforts have fully justified themselves. More than 610,000 job seats out of 1 million new jobs, or 64%, created in the country during 2011 were opened by small businesses and entrepreneurships. In times of instability in global economy our country is among the few states in the world with high GDP growth; it has over 8% rate. And what is most important is that small business and entrepreneurship have become the main component of the GDP structure, because now more than 74% of country’s employed population work in this segment.

World economy and international market relations are changing rapidly. According to the prognosis of many leading experts, the continuation of the global financial crisis which began three years ago could lead to even more negative consequences. In such circumstances, small business due to its high mobility, flexibility and fast adaptability to market conditions is able to move the economy forward and create new jobs. That’s why, last year, the country has created new opportunities, privileges and preferences for small business; its development has been raised to a qualitatively new level.

In urging this sector, an important role was played by the decision to prolong from two to three years the term of the first scheduled tax audits of small businesses starting from the moment of their state registration, and the ban to conduct inspections in business entities who show stable growth and profitability. In addition, the single tax rate for small business and entrepreneurship was reduced from 7 to 6%. The registration procedures for newly created small businesses were simplified.

According to experts, the support to small businesses and private entrepreneurship, and facilitation to their tax burden will also continue in 2012. For example, the rate of single tax payment for micro-firms and small enterprises of the industrial sector has been reduced from 6 to 5%. It should be noted that in 2005 the single tax rate was 13%.

 Investment oasis

One of the main facts of the effectiveness of tax incentives was the success of Navoi Free Industrial Economic Zone (FIEZ).

Today, when there are a number of high-tech projects and new production facilities opened by leading manufacturers, it is difficult to imagine that the FIEZ was launched just a few years ago. The project was initiated by a decree of President Islam Karimov on establishing the Free Industrial-Economic Zone in Navoi region.

The Uzbek government has provided foreign investors opening their businesses in the FIEZ  a special tax, customs and foreign exchange regimes, as well as a simplified procedure for obtaining work permits to non-residents. In particular, entities are exempt from land tax, property tax, tax on profit improvement and development of social infrastructure, single tax (for small businesses), compulsory contributions to the Republican Road Fund and Republican School Fund in the amount of direct investments from 3 million to 10 million Euros for 7 years, from 10 million to 30 million euros for 10 years, more than 30 million Euros for 15 years.

The results of tax privileges and preferences have quickly yielded its fruit as the world’s leading technology companies interested in the ‘Uzbek Silicon Valley’ began to work on creation of new facilities there. On the eve of the 20^th anniversary of Uzbekistan's independence investors launched there five new companies.

The taxation system of Uzbekistan continues its dynamic growth, relying on the introduction of advanced software solutions. Rigging tax authorities with advanced information technologies is an important aspect in improving the entire tax policy. Because novelties enable to significantly raise the effectiveness and efficiency of collection and processing tax information.

According to plan it is expected to convert the current system of tax and financial reporting by small businesses to electronic methods before the end of 2014. Key benefits for taxpayers: the reduction of total time spent on preparation and delivery; higher efficiency; minimization of errors through the use of software tools that provide verification and control of output documents.

The interaction of business entities with governmental institutions, tax and regulatory structures will reach new level of openness and transparency. With a phased transition to electronic system the whole process of accounting and reporting to financial, tax and statistical authorities will be drastically simplified.

Last year, all state tax inspections of the republic were provided with the software system "Tax inspector’s workstation," which enables to carry out with automation the record-keeping tax liabilities of taxpayers, the reflection of their relationship with the budget and off-budget trust funds, receipt of reports and statistics. Also in 2011, Uzbekistan introduced the system of issuing electronic collection orders, moreover allowing to exercise control over their execution. With putting into practice of these systems, the paper work will reduce considerably, resulting in reduction of paper consumption by 30-40 tons per year. They will save up to 250 million sums, annually spend on the preparation of collection letters.

Another important direction in technological development is the creation of the data processing center and storage of tax information of the state tax service. It will help to optimize the information flows, accelerate the exchange and processing of information relating to taxation and tax administration.

According to the tax authorities, it is also planned to expand in 2012 the range of interactive services and to bring their number up to twenty. Taxpayers will be presented with an electronic calculator to count the property tax; they will have the opportunity to obtain information about the counterparty; individual entrepreneurs will be able to submit their reports electronically.

On the eve of the New Year domestic media, publishing and printing companies have received an indicative gift from the state. The resolution of the President of Uzbekistan gave them a number of benefits and privileges, designed to increase further the quality of country’s mass media.

In particular, since 2012 the editorial board of mass media and publishing houses are exempt, for a period of five years, from income tax and tax on the improvement and development of social infrastructure on profits earned from the sale of socio-political and children's literature, literature for persons with disabilities.

Moreover, editorial board, publishing and printing houses were exempted from compulsory contributions to the Republican Road Fund and Fund of Reconstruction Refurbishment and Equipping of educational and medical institutions in terms of revenue from the sale of media products, books and services for their replication.

Another impetus for the development will be the release, for a period of five years, of mass media editorial stuff, publishers, broadcasters and printing organizations from customs duties on paper, printing materials and data mediums, equipment imported for the production. The delivery services of the media and books become free from value-added tax.

The document also approved the proposal to increase since January 1, 2012, the overall annual average number of employees from 50 to 100 people for media editors, publishers and printers registered as small businesses. The rate of single tax payment has been reduced from 6 to 5% for the editorial offices, publishing houses, printing organizations and broadcasters regarded as micro-firms and small enterprises.

New opportunities will help to ensure greater independence of the media and will strengthen its role in the development of information sphere. The preferences will also play an important role in strengthening public control over activities of public institutions and officials, and will enhance their transparency and openness.

Experts emphasize that in current situation it is very important to focus and direct the released funds on some pressing issues. Now the state provides mass media with opportunities to improve their financial position and stimulate the further development of the media content on their own. On the other hand it leads to financial independence and stability.

Many leading publications, television and radio stations have already announced that the additional funds will be allocated to financial incentives for journalists, on the improvement of their professional level, on modernization and introduction of new technologies. The founders of the mass media will create all conditions for efficient and successful work of media entities and thus will contribute to the qualitative growth of the final product, which under the present conditions of development must be in line with international standards.

In 2012, the government continues the tax policy aimed at business development. The reduction of tax rates and tax burden will allow companies to release considerable amount of funds, which can be directed on the expanding of the production and promotion of employees.

Thus, to support small business and entrepreneurship, the single tax rate for companies in industrial sector in 2012 has been reduced to 5 per cent, previously it was 6 percent. The minimum tax rate on personal income has lost 1 percent, earlier it had 9 percent; the average and maximum rate on personal income remained at the same level of the last year.

Particular attention is paid to encourage self-employed entrepreneurs. Thus, the fixed-rate tax levied for services such as hairdressing and other similar services was reduced on average by half. The tax rates for businesses engaged in carriage of goods by automobile vehicles were unified and reduced.

In addition, the government has extended some benefits, granted earlier to individual entrepreneurs, members of Hunarmand association engaged in home production of crafts and applied arts, to micro-firms and small enterprises in the sphere of services, as well as to medical facilities.

During the process of deepening the democratic reforms Uzbekistan pays special attention to the development of national journalism, freedom of information, transforming the media into a platform for citizens’ free expression of their opinions, ideas and attitudes toward ongoing developments.

The new benefits will certainly create broaden opportunities for independent media. In addition to the rise of workers’ salaries and increase of their material well-being they will also make a great impact on the development of other sectors and industries. It requires greater responsibility from journalists, deep understanding of their public duties, to protect the interests of the country and the people, bringing to the fellows and to the general public objective and timely information about the nature and significance of the processes on updating the country.

I am engaged in the production of traditional Uzbek national clothes. In 2008, the Decree of the President of the Republic of Uzbekistan introduced tax incentives for individual entrepreneurs engaged in folk crafts and applied arts. Today I make payments only to the Pension Fund and to Hunarmand Association.

This year the privileges granted previously were extended to 2014. Everything is clear and very simple. Now we are provided with all necessary conditions to do our work, which plays an important role in the preservation and continuation of centuries-old traditions and customs of the Uzbek people, in the promotion of our culture abroad. Our products are in demand not only among locals but also among tourists. Our culture is our calling card, which makes our country recognizable in all continents and countries over the world.

Our company works on the confectionery market since 2009. From the beginning we set before ourselves a goal - to produce competitive products on the latest technology that meets the highest requirements. To create new production we have to purchase foreign equipment, which costs money. We could not afford to buy all at once. Therefore, we have elaborated business plan for phased development. First of all we acquired the equipment needed to produce the chocolates. The problem of packing was solved by the help of homework women. By the way, the government encourages establishing home-based jobs by exempting companies that create them from the payments to the Social Insurance Fund. This allowed us to get on our feet. Today, we are preparing for the acquisition of modern packaging equipment. To do this we set aside the funds released from the reduction of the single tax, which was made this year. There will always be a job for our home-working employees in our growing company.

The tax benefits, exempting from paying property taxes and taxes on profits, helped to establish at our company modern production of components for Nexia assembled by GM-Uzbekistan. Our workshops have modern injection molding equipment necessary for the production of plastic cladding panels for the baggage rack and side panels. Another tax relief followed this year. The released funds will be directed on the production development. Now we work on a project of setting up the production of components for Lacetti.

The tax credits and exemptions, consistently provided by the state, contribute to the increase of purchasing power. In particular, for our small company that produces fruit juice drinks and mash, this year’s tax cuts will help us to reduce production costs. This means that we will have additional funds to promote our products on the market, increase the volume of production and develop the company. I think that we will work harder and better.

We are a medium-sized enterprise, this year’s tax innovations apply to us only in terms of contributions to the Pension Fund. Last year it was a novelty for us to report to the tax office electronically, via the Internet. This way is convenient and prompt. In general, the country has established very simple and convenient system of tax reporting. It doesn’t overload accountants with difficult tasks and at the same time keeps the financial activities of companies transparent and open to the tax inspection bodies. All this, also plays an important role in the development of both the production and the country as a whole.

In recent years, in the country priority attention is given to the development of leather and shoe industry. Our company manufactures shoes and enjoys tax benefits provided by the state. The released funds allowed us to begin modernization of the production equipment. Some equipments were renewed last year, we plan to continue the process during this year also. Moreover, we intend to accelerate the pace of modernization process and to complete it within two or three years. As the results we will have lower production costs, increase of the level of labor mechanization and get final products with raised quality. We plan to increase production volumes.