EurasiaNet.Org
February 28
eforms in Uzbekistan appear to have succeeded in easing the burden on high-earning taxpayers. However, the changes don't seem to be having the desired effect of encouraging greater compliance with tax laws. Business-minded Uzbeks complain that the system still does not encourage entrepreneurial activity.
A law adopted in late 2001 bases income taxes on a multiple of the minimum wage that shifts according to an individual's income. The change helped lower tax rates for many taxpayers. However, it also arrived at the same time as a new tax on gas consumption. Now that most Uzbek workers have received their first monthly paychecks since the changes went into practice, many are doing what they did under the old tax regime: resort to evasion.
At present, the official minimum monthly wage in Uzbekistan is 3,430 soms, which is about $2 at the black market exchange rate. Under the new scheme, people who earn less than 15,720 soms per month pay 13 percent of their income as taxes. Those who earn between 15,720 and 31,140 (or eight times the minimum wage) pay the base 13 percent on the first 15,719, and 23 percent on the rest. A 33 percent tax rate applies to earnings above 31,140 soms.
Pulat Ergashev, a bank employee, says the present system of taxation leaves little incentive for an individual to work. Ergashev [names in this article have been changed to protect those interviewed from possible retribution] says he falls under the first taxation category and pays 13 percent of his 12,000-som salary. But in January, he received a 50 percent bonus for overtime, so he actually received 18,000 soms, pushing him into a higher tax category. "It is better to have a second source of income and not declare it, though tax evasion is illegal," he says.
According to Ergashev, the changes have induced many people to do just that. He claims that because of high tax rates most people operating private enterprises conceal their income and keep two books of salaries paid to staff. The first one is for official use, and reports low salaries. The real amounts of the salaries are reflected in the other book that is only for internal use. "If one declares the real size of salaries to the [tax] authority, then both the enterprise and the individual will have to pay 60 soms out of each 100 in taxes," Ergashev said.
Ergashev added that because tax rates seem punitive for entrepreneurs, they have no incentive to expand their business activities.
Government officials dispute this assessment. According to an official at Uzbekistan's Taxation Methodology Improvement Directorate, the new system of taxation is much simpler and more affordable for workers. "Besides, this year the tax rates have been decreased," the official said. "Last year people falling under the second category had to pay 25 percent of their income as taxes and the third category, 36 percent of the income."
According to a tax directorate official, Uzbekistan's government decreases the number of taxes and tax rates for individuals. As an example, he cited the fact that starting this year, people will not have to pay taxes on vehicles. He claims this measure helps ease the burden of those who have cars but do not use them. People having cars used to pay taxes regardless whether they used them or not.
But this year, in order to compensate for lost revenue in other areas, the government has introduced a new 20-som tax on each liter of gas. This new tax indisputably raises the tax burden on drivers. Sergey Abdurasulov, an electrician for a construction company, howled about the new gasoline tax. "Under the previous tax, I had to pay about [about] 7,000 soms a year for my Lada [automobile]," he says. "Now every day when I buy gasoline, I have to pay 100-150 soms as I buy 5-7 liters daily."
According to Mr. Abdurasulov, in January alone, he had to pay almost 4,000 soms in gasoline consumption tax. It means about 50,000 soms a year. Taxi drivers say the new taxes have forced them to increase their prices - and lose customers. "There were few clients. But now there are none," says a disappointed Rashid Sayfulin. He buys at least 20 liters of gasoline in a day's work and pays 400 soms in taxes. In January 2002, he claims, the new taxes cost him 15,000 soms.
A government official, speaking on the condition of anonymity, says that last year the state received 3 billion soms from the vehicle tax. This year, the government projects that it will gather about 20 billion soms from the new gasoline consumption tax. "We have to think where to cut, and where to add to make it easier for the people and ensure that the state treasury is not empty," he says.