Uzbek Institute Proposes Changes to Bank Taxation

Tashkent, Uzbekistan (UzDaily.uz) — The Institute for Reducing the Shadow Economy, Improving Tax and Customs Administration and Fiscal Analysis under Uzbekistan's Ministry of Economy and Finance has proposed reducing the corporate income tax rate for selected organisations from 20% to 15% while changing the taxation of financial services. The proposal was presented during a fiscal dialogue on 30 July.

According to the presentation, the reduced corporate income tax rate would apply to banks, mobile network operators, polyethylene pellet manufacturers, markets and shopping centres. Implementing the proposal would require amendments to Article 337 of the Tax Code.

The institute estimated that the lower tax rate would reduce budget revenues by 859 billion soums. It proposed offsetting the shortfall by introducing value-added tax (VAT) on commission-based financial services.

The proposal would divide financial income into commission income and interest income. Under the proposal, fixed fees charged for financial services would be subject to VAT, while interest (margin) income would remain exempt from taxation.

VAT would apply to services whose fees are charged as fixed amounts. These include account and bank card maintenance, cash settlement services, merchant acquiring and payment acceptance, commissions on bank guarantees, sureties and letters of credit, foreign exchange commission services, bank card transaction processing, depository, registrar and stock exchange services, payment system fees, and the service component of factoring and forfaiting.

The proposal would retain the VAT exemption for services whose charges are not separately specified.

These include deposit-taking, the provision of loans and credit, interest on loans, repurchase agreement (repo) transactions, the interest component of financial leasing, the discount component of factoring and forfaiting, transactions involving shares, units, securities and derivatives, and the assignment of creditors' claims.

The presentation said the proposed approach is consistent with international practice.

As justification, it cited recommendations by the International Monetary Fund and the Organisation for Economic Co-operation and Development, under which commission-based financial services are subject to VAT while interest (margin) income remains exempt from such taxation.