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Issue # 4 (March 2013)
Effectiveness of fiscal stimulus
for modernization
The Government of Uzbekistan provides a wide range of fiscal (tax and custom duties) incentives for
modernization, technical and technological re-equipment of production. Particularly, companies have
been granted with incentives from income tax, property tax, unified tax payment, as well as the import
of technological equipment by the special decree of the President of Uzbekistan «On additional
measures to stimulate the modernization, technical and technological re-equipment». Under this decree
the amount of tax and customs benefits in 2011 amounted 847.9 billion Uzb. soums or 1.1% of GDP.
The effectiveness of incentives for modernization.
Efforts to promote the modernization of production are re-
flected in the high rates of investment and economic growth.
Total volume of attracted investments in the economy ex-
ceeded 70.3 trln. Uzb soums in 2011 prices or $ 40.8 billion
cumulatively for 2007-2011. The average annual growth of
investment was 21%. During this period the average annual
GDP growth and industrial growth reached 8.7% and 9.7%
respectively. The share of industry in GDP rose from 21 to
24%.
However, the potential effects from fiscal benefits are
much higher than the actual results. Despite high volumes
of investments a depreciation of fixed assets in the machin-
ery industry is quite high (60.5%). The level of depreciation
is increasing in the construction materials industry, light
and food industries.
In 2009-2011 labor productivity in industrial sector in-
creased by only 3.8%. The low level of productivity growth
is tracked in construction materials industry (0.8%), light
industry (2.2%) and fuel industry (3.3%). At the same time
a productivity fell in electricity production by 4.8% and non-
ferrous metallurgy - by 9.7%.
Table. Elasticity coefficients show low efficiency of
modernization
Sectors
Industry
Transport
Communication
All sectors
Economic efficiency
(by revenue)
2010 г.
1,9
0,6
1,6
0,9
2011 г.
0,3
0,8
0,9
0,7
incentives for
Social efficiency
(by salary)
2010 г.
2,1
0,6
1,5
0,9
2011 г.
0,4
1,0
0,8
0,8
Effectiveness of fiscal incentives quantitative approach.
Effectiveness coefficients calculated as the ratio of growth in
modernization incentives volumes and revenue from the sale
of goods in 805 enterprises that used modernization incen-
tives are less than one (the amount of incentives grows faster
than revenue volume) which by definition indicates low ef-
ficiency of these incentives. Additionally, the elasticity coef-
ficients between the amount of revenue and tax benefits for
large companies lie within 0.27-0.29, and for small enterprises
- 0.53 that also shows ineffectiveness of the incentives.
The main reason for the low efficiency of incentives for
modernization is that the tax and customs exemptions pro-
vided on an unconditional and irrevocable basis. Recipient
of benefits does not undertake any obligation to demon-
strate the improvement of qualitative indicators of produc-
tion, increase in production or exports. In addition, there is
no monitoring by the state authorities for the usage of the
benefits.
Analysis shows that there is low demand for tax incentives
for modernization by companies. For example, in 2010 only
66 companies used the benefits of income tax, which is only
0.5% of all tax payers. The reason of non-popularity is an
existence of considerable incentives provided for selected
enterprises in the form of full tax exemption by the Gov-
ernment decisions, while tax incentives for modernization
involve only partial relief. In this regard, many enterprises
involved in modernization do not need the tax incentives
for modernization.
In the legislation there is not clearly definition of the term
of «modernization». Existing explanation is not accurate
enough. As a result, even companies modernize the produc-
tion process do not know it and therefore do not claim the
tax incentives.
Source: Calculations based on data from the Tax Committee of Uzbekistan. If the ratio is greater than 1 - effective, less than 1 - not
effective, equal to 1 - neutral.
Center for Economic Research
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Tashkent 100070, Uzbekistan
Tel: +99871 150-02-02,
281-45-56/57/58/59;
Fax: +99871 281-45-48
www.cer.uz
UNDP Country Officer in Uzbekistan
4, Taras Shevchenko str.
Tashkent 100029, Uzbekistan
Tel: +99871 120-34-50, 120-61-67;
Fax: +99871 120-34-85
www.undp.uz