A Country Report and Profile - Republic of Uzbekistan

                        A 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  Republic  of  Uzbekistan  to  the  market
economy consists of  five  principles  formulated  by  its  President  Islam

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  of   no
social shocks.

3. Along with economic reforms it is necessary to create a system of  social
 protection  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 been met..

[1]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  Karimov
was first elected President in 1990 by the  Supreme  Soviet  and  later  was
reelected by a popular vote in  1991.

      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  “Eastern  Democracy.”   He  stresses  the
importance of stability of eastern democracy over it’s western  counterpart.
 The  stability 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 independence.   Karimov  proclaims  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.

      [2]Policy  makers  still  remain  suspicious  of  unregulated   market
mechanisms,  although  Karimov   officially  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.

      2Karimov gives 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,
“preparation, 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 “women-mothers”  and  presses  for  better  child  care  provisions.


      3At independence, 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 products.

      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 available.

      6The general 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.

      7Privatization in 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

                 1989        1990       1991       1992       1993

Total(Rb m)

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

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 population estimates.

      Budget Deficit

      Uzbekistan’s government 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)

                                  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-budgetary accounts.

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 their profits from all sources worldwide.

Foreign Entities - taxed on profits from the entrepreneurial  activities  of
their establishments in Uzbekistan.

Foreign 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.

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

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

Social charges

Employers 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:

Fund                   Rate

Social insurance       36%

employment             2%

Trade union (if applicable)  2%

Individual Taxation

A 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.

Taxable income for 1995 and 1996 is taxed at the following rates:

Taxable income (less annual non-taxable minimum)

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 Social Insurance Fund.

Deductions and Exemptions

All income  is taxable in Uzbekistan unless it is specifically  exempt.  The
list of specifically exempt income includes  alimony,  gift,  severance  and
pension income.

Capital gains

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

Other taxes and fees

Value Added Tax  ("VAT")

VAT was introduced in Uzbekistan on February 15, 1991. The current  rate  is

VAT 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  place   where  the  benefits  are  used  are
considered, only that the purchaser is a foreign person (entity).  It  could
be argued  that 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".

Effective January 1 1996, the exemption on exported goods  and  services  is
only applicable  if 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.

The VAT legislation of Uzbekistan allows a credit  for  VAT  incurred,  when
such goods or services are "charged to the cost of production".

Excise taxes

Excise 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 goods.

Property tax

The 2% rate tax is based on the historical cost  of  fixed  assets  used  in
production.  Legislation   specifically   includes   buildings,   machinery,
equipment and  vehicles.  Accumulated  depreciation   does  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;

- agricultural equipment;

- transportation networks (including roads and pipeline);

- communication and power transmission lines (including

- maintenance structures);

- communication satellites; and

- automobiles.

Profit tax is deductible for profits tax purposes.

Subsurface use tax

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

Land tax

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

Vehicle fees

A 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

In 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

All 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

There 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 use limits.

Local taxes

There are numerous different taxes, though  most  are  insignificant  except
for the administrative burden.  Example  of  more  significant  local  taxes

Tax on advertising costs. In Tashkent the rate is 5% of total expense.

Fee for cleaning the local territory, payable by  entities  and  individuals
conducting entrepreneurial activities. In  Tashkent  the  rate  is  0.5%  of
gross receipts.

Fee 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

High tax rates on modest tax bases reduced not only by economic  contraction
but also  by various exemptions.

Weak tax administration compounded by corruption.

The 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.

Corruption and abuse of authority by  poorly  paid  tax  administrators  are
serious problems.

Another  major  cause  of  poor  tax  revenues  is  dollarization   and  the
continued use of barter, payment in kind.

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  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

4. 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).

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  network  of  banks  and  insurance

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

Guarantees and privileges granted to foreign investors15

1.  If  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

2. Companies’ profit tax shall be reduced by:

20%, for an export share of 5-10% of the total production;

30%, for an export share of 10-20% of the total production;

40%, for an export share of 20 to 30% of the total production;

50%, for an export share of 30% or above of the total production.

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 development."16

The 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

3. 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 30%.

5. 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.

6.  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

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

8. Dividend on governmental bonds are exempt from taxation;

9. Joint Ventures in which the  foreign  investor’s  share  accounts  for  a
least 50% shall be exempt of  profit tax provided that whole tax  amount  is
re-invested into the development and expansion  of  production  of  consumer

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

11. 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 vehicle taxes.

 V. Intergovernmental Financial Relationship

The Statute of the Republic of Uzbekistan "About Taxes  on  Enterprises  and
Entities"  establishes revenue sources of the State budget of  the  Republic
of Uzbekistan, State budget of  the Republic of Karakalpakstan18  and  local
budgets for the following expenditures:

Social Security Payments;

Businesses regulation;

International payments;

Stabilization of the foreign currency circulation;

Stimulation of  extraction of mineral resources; and

Environmental protection.

Uzbekistan 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 policy.

Tax revenue is transferred to the  budget  of  Uzbekistan,  budgets  of  the
Republic of  Karakalpakstan, 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

The authorities levying  a specific type of tax establish:

the taxpayer;

the tax base;

the tax rate;

the procedure of calculation and payment;

exemptions and privileges;

life time of the tax.

IV. Social Insurance

In most transition  countries  proposals  to  reform  social  security  have
included the  establishment  of  minimum   retirement  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  improved   targeting  of
benefits, including tying future eligibility of  pension  benefits  to  past

As a part of the transformation  process,  most  transition  countries  have
introduced  unemployment  insurance   schemes.  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


                        A Country Report and Profile

                                Presented By:

                  Alfiya G. Mirzagalamova amirz@indiana.edu
                     Jason C. Holman jholman@indinanaedu
                   Dmitri Maslitchenko dmitri@mailroom.com
      [1]Pomfret, Richard.  The Economies of Central Asia.  Copyright 1995
by Princeton University Press.

      [2]Uzbekistan:  Master of its Destiny.  BISNIS - Uzbekistan report. 10
August 1995.

      3The Economist Intelligence Unit.  Country Profile.  1995-1996

      4Pomfret, Richard.  The Economies of Central Asia.  Copyright 1995 by
Princton Universtiy Press.

      5The Economist Intelligence Unit.  Country Profile.  1995-1996.

      6The Economist Intelligence Unit.  Country Profile.  1995-1996.

      7The Economist Intelligence Unit.  Country Profile.  1995-1996.

      8The Economist Intelligence Unit. Country Profile. 1995-1996.

      9The Economist Intelligence Unit. Country Profile. 1995-1996.

      10The Economist Intelligence Unit. Country Profile. 1995-1996.

      11The Economist Intelligence Unit.  Country Profile.  1995-1996.

      12"A Tax Guide to Europe. Uzbekistan", Arthur Andersen, April 1996

      13 IMF, World Economic Outlook, May 1996

      14The Investment Guide for Foreign Companies, National Bank for
Foreign Economic       Activity of the Republic of Uzbekistan

      15 Guarantees and Privileges granted to Foreign Investors by the
Legislature of the Republic of Uzbekistan, Appendix to Presidential Decree
as of May 31,1996

      16 Stephen C.Smith, "Industrial Policy and Exports Success: Third
World Development Strategies reconsidered"

      17 Stephen C.Smith, "Industrial Policy and Exports Success: Third
World Development Strategies RECONSIDERED".

      18An autonomous republic within the Republic of Uzbekistan

      19 IMF, "World Economic Outlook", May 1996, p.77