Cutting the shadow economy and corruption discussed at video session

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On July 27, President of the Republic of Uzbekistan Shavkat Mirziyoyev held a videoconference meeting to address the works to reduce the shadow economy.

Uzbekistan is considered to have a high level of shadow economy. Therefore, measures have been taken in recent years to diminish its share in the national economy by making it easier to do business. In particular, the foreign exchange market was liberalized, a new tax system was introduced, and about 100 permitting and licensing procedures were reduced. As a result, the share of the informal sector in industry has dropped from 20 to 6 percent over the past 5 years.

The session served to deliberate on the work carried out in this direction and determine new tasks. The President instructed to devise, with the engagement of experts from international organizations, a strategy to lessen the shadow economy.

The head of state insisted in the meantime that caution be observed in countering the shadow economy, so as not to harm economic activity, and noted the significance of working on this front together with business and the wider public.

The challenge is to keep consistently with tax reforms and introduce a system that would leave out shadow activities.

Shavkat Mirziyoyev instructed to develop the scheme “Conscientious Taxpayer” and test it by the end of year in the city of Tashkent.

Particular attention was paid to clearing corruption in public procurement and investment projects. In order to ensure transparency in these areas, to bolster competition and public control, the Ministry of Finance was ordered to launch an information portal of public procurement.

In accordance with the decision at the meeting, from now on, each project will undergo an anti-corruption expertise. The task has been set to apply this procedure from 2021 to all projects using centralized funds.

A system of compliance control against the shadow economy and corruption is also being introduced in government bodies. This work has begun, in particular, in the ministries of construction, health, higher and secondary specialized education, joint stock companies Uzbekneftegaz and Uzkimyosanoat. The head of our state noted that by the end of the year this system should be introduced in 14 more organizations and 10 banks with state share.

Shavkat Mirziyoyev urged the executives to elaborate “roadmaps” to combat corruption along spheres and sectors, including in public procurement and investment projects.

A methodology will be developed for calculating the rating of government agencies, enterprises and regions in terms of corruption and the share of shadow economy. From 2021, the results of this ranking is to be announced with an assessment of personal liability of all managers.

Customs and tax system were also discussed at the video session.

The head of our state indicated the need to get rid of the human factor in the customs system, strengthen customs control over cases of smuggling and artificially lowering the customs value of goods.

The State Customs Committee and the State Tax Committee were instructed to create a unified database on the imports, customs clearance and sale of imported goods. The task was set to introduce the information system “Customs Audit” from 1 January 2021.

The President pointed out that in order to trim down the shadow economy, one should help people work legally, to get them interested in this.

For example, as a result of the decision to simplify the self-employment system, 184,000 citizens switched to the formal sector in July alone.

However, the level of informal employment in the construction industry, trade and public catering, transport and other services is still high. Overall, only 4.9 million of the 10.5 million people employed in the economy pay income tax.

Shavkat Mirziyoyev noted the need for targeted work in these areas, withdrawing informal actors from the shadow economy through the use of incentive mechanisms. The head of our state proposed not to include payments through bank cards and other types of contactless payments in the taxable base when calculating the turnover tax of entities operating in trade, public catering, transport and consumer services.

Shavkat Mirziyoyev underscored the importance of simplifying tax administration for small businesses, of easing the permit and licensing procedures for entrepreneurial activity.

For example, it is possible to reduce 100 types of licenses and 34 types of permits with their transfer to a notification nature, to abridge a number of procedures, to halve the time for issuing 14 types of documents. Thanks to these measures, entrepreneurs can save 125 billion soums a year.

In addition, directives were given to critically examine the 270 oversight functions of 43 agencies and cut their powers that facilitate shadow economy and corruption.

At the same time, the need to strengthen the responsibility of unscrupulous entrepreneurs involved in corruption and shadow schemes was emphasized.

The President stated the low level of analysis of the shadow economy by industries and spheres. In this regard, it was indicated that it is necessary to maintain statistics of the shadow economy in each area with the engagement of international experts.

The main force in fighting corruption and the shadow economy is business and the general public. Therefore, it is important to form an intolerant attitude towards these negative phenomena in society, to cover their consequences in mass media and through social networks.

“Combating the shadow economy hardly implies punishing entrepreneurs, hindering their activities. This is especially important in conditions of pandemic. It is essential to take severe measures against routine corruption, consolidate public control at the local level,” Shavkat Mirziyoyev stated.

Each ministry and industry is tasked with achieving key performance indicators (KPI) by the end of the year as part of the implementation of measures identified at the video session.

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