Uzbekistan is moving forward with its efforts to streamline tax and customs exemptions. However, making high-quality decisions requires more than just knowing the total volume of these incentives.
It is essential to distinguish between exemptions that serve as direct state support for specific industries and those that form the core structure of the tax system itself. Without this distinction, there is a serious risk of overestimating potential budget revenues, according to Abbosbek Zhuraev, Director of the Institute for the Reduction of the Shadow Economy and Fiscal Analysis under the Ministry of Economy and Finance.
If exemptions worth 178 trillion soums were to be repealed, the budget would not automatically gain an equivalent amount in revenue. A significant portion of these so-called exemptions are structural elements of the tax system itself and cannot be viewed as direct revenue losses.
This stems from the dual nature of tax incentives. On one hand, they act as a tool to stimulate economic growth; on the other, they are effectively a form of government spending, executed through the tax system rather than through direct public financing.
Consequently, establishing a comprehensive tracking system for tax exemptions is vital. This will enable the state to monitor the entire volume of resources redistributed through the tax system and clearly understand who receives support and for what purpose.
Such a framework will provide an objective assessment of how effective these tax support measures are and gauge their true impact on socio-economic development.
Let us look closer at value-added tax (VAT) exemptions as an example to see which can truly be classified as tax expenditures and what revenues the budget could realistically recover if they were eliminated.
2025 Exemptions Overview
The total volume of tax and customs incentives—encompassing full exemptions, partial deductions, reduced rates (including a zero percent VAT rate), duty-free imports under international treaties, and other measures tracked by tax and customs authorities—reached 178.2 trillion soums by the end of 2025.
Value-added tax (VAT) relief accounted for the largest share at 64%, or 114.7 trillion soums. Customs duty waivers came in second at 34.2 trillion soums (19.2%), followed by corporate income tax incentives at 15.8 trillion soums (8.9%).
Out of the total 114.7 trillion soums in VAT relief, approximately 91.7 trillion soums were administered by the tax authorities, while 23 trillion soums fell under the jurisdiction of the customs authorities.
Preliminary assessments indicate that roughly 76% of these reported VAT exemptions are actually structural components built into the design of the tax itself.
From an economic perspective, not every declared incentive constitutes a true exemption; many are fundamentally part of the tax framework. Consequently, it is vital to establish a benchmark or "standard tax model," against which any deviations can be formally identified as a genuine exemption.
A measure is officially classified as a "tax expenditure" if it grants an advantage to specific categories of taxpayers, supports targeted industries or activities, or results in foregone budget revenues for the benefit of specific recipients.
For instance, exempting IT Park residents from VAT qualifies as a tax expenditure because it was explicitly introduced as a targeted sectoral support measure.
When dealing with tax expenditures, it is critical to accurately evaluate potential "revenue losses." We must understand what revenues the budget could realistically recover if an exemption were eliminated. In other words, revoking incentives across different tax categories will not automatically yield revenue matching the exact amounts reflected in tax reporting.
At our Institute, the work to fully evaluate these tax expenditures has only just begun. According to preliminary estimates, it will take about three to four months to define the benchmark tax system. Once established, we can conduct a deeper analysis and estimate the actual amounts the budget could recover by removing specific categories of exemptions.
The volume of VAT exemptions administered by the tax authorities can be broadly broken down into three core blocks.
Zero-Rated Tax Operations
In 2025, the total volume of such operations reached 44 trillion soums, accounting for 48% of all VAT exemptions. This mechanism was utilized by 8,677 business entities.
The zero percent rate applied to exports or similar operations is fundamentally part of standard tax architecture, rather than a targeted tax incentive, even though it is formally categorized alongside reduced rates.
Specifically, 6,595 exporters utilized the zero percent rate for export operations, totaling 19 trillion soums.
The zero percent rate safeguards the competitiveness of domestic manufacturers. Upon entering the destination country, these goods are taxed locally, which ensures compliance with the destination principle of international taxation.
Conversely, applying a zero percent rate to domestic transactions is generally not considered part of the core tax architecture and is instead classified as a direct tax expenditure.
a) Domestic deliveries of precious metals by producers to the authorized state agency, taxed at a zero percent rate, exceeded 18.5 trillion soums. Only two enterprises utilized this mechanism—the Navoi and Almalyk Mining and Metallurgical Combines (NMMC and AMMC). A detailed breakdown of these top recipients and their sectoral distribution requires separate data processing and can be presented in a subsequent analysis. In this specific scenario, the zero percent rate can also be viewed as an inherent part of the tax architecture, since the authorized state agency ultimately exports these precious metals.
b) International transport services, where the point of origin or destination is within the republic, accounted for 5.8 trillion soums. This specific zero-rate provision was utilized by 2,279 business entities. Much like standard exports, this measure can be classified as a structural element of the tax system.
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