Uzbekistan Quality Job Creation as a Cornerstone for Sustainable Economic Growth

Uzbekistan Quality Job Creation as a Cornerstone for Sustainable Economic Growth
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The tax reform is commendable and should boost employment creation in 
Uzbekistan. Before the reform, small and large enterprises were subject to 
different tax regimes. The standardized system applied to large companies, and 
a simplified system applied to small firms, where the distinguishing factor was 
the number of employees. Once a firm exceeded the employee threshold, the 
tax burden, including a VAT, increased substantially. The old tax system thus 
generated adverse incentives for enterprises to create formal sector jobs. In 
2017, Uzbekistan had about 350,000 firms only 8,000 of which were subject 
to the standardized tax system. Other side effects were a broken value chain 
GDP = gross domestic product.
Source: Author’s calculations based on data from the Ministry of Finance of the Republic of Uzbekistan 
(2018).
GDP = gross domestic product, VAT = value-added tax.
Source: Author’s calculations based on data from the Ministry of Finance of the Republic of Uzbekistan 
(2018).
Figure 1.6: Total Fiscal Revenue and Expenditure (Budget), Uzbekistan, 
2013–2018
(% of GDP)
Figure 1.7: Tax and Expenditure Items (Budget), Uzbekistan, 2013–2018 
(% of GDP)
GDP (%)
Total revenue
Total expenditure
0
5
10
15
20
25
30
2013
2014
2015
2016
2017
2018
GDP (%)
VAT
Excises
Education expenditure
Health expenditure
Mining tax
2013
2014
2015
2016
2017
2018
0
1
2
3
4
5
6
7

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 Macroeconomic Performance, Opportunities, and Challenges
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system in that small enterprises that were exempt from paying VAT did not do 
business with large companies and vice versa. The tax system also hindered 
benefiting from economies of scale. 
The reform will also broaden the tax base, which promises to provide several 
important benefits. First, will be additional funds for physical, social, and 
administrative infrastructure. Second, the broadened tax base will cushion the 
government’s revenue against drops in commodity prices in the future. Both 
factors will contribute to better economic and employment growth outcomes 
in the long run. Finally, the reform is also likely to lead to more cooperation 
and competition between small and large enterprises, which will boost their 
productivity levels. 
Despite its expected overall positive impact, the tax reform is not without 
challenges and shortcomings. While the elimination of preferential treatment 
for small businesses leads to a more equitable tax system, the proposed flat 
income tax (12% for both corporate and private) may effectively increase the 
tax burden of households at or around the poverty level, and thus hurt the 
poor. The compulsory VAT is also likely to lead to additional price increases 
amid the already high prevailing inflation rates. At this stage, it is also not 
clear to what extent small firms will be able to deal with the VAT and other 
administrative burdens associated with the new tax system. An appropriate 
grace period would thus be useful, especially for small businesses, so they can 
adjust their administrative capacities to the new taxation regime.
1.4. External Sector
This section reviews Uzbekistan’s recent trends and patterns in export 
performance, and then assesses the degree of export diversification as well as 
the current external position.
1.4.1. Export performance
Uzbekistan’s post-independence export performance can be broken into two 
episodes: from the mid-1990s to 2008, and from 2009 onward. During the 
first period, exports expanded rapidly from $1.6 billion in 1995 to $7.0 billion 
in 2008 (Figure 1.8), which represents an average annual growth rate of about 
12.5%. During that time, there was a major shift away from agricultural to 
manufactured goods. The latter increased from a mere $127.8 million in 1995 
to $2.5 billion in 2008, whereas the former remained virtually unchanged. 
Consequently, the export share of manufactures increased from 8% to 36%, 

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