Although the percentage of VAT has been reduced, prices have increased instead of falling -Institute of Forecasting and Macroeconomic Research

In Uzbekistan, the reduction of the value added tax from 15% to 12% did not lead to a corresponding decrease in prices.  Experts of the Institute of Forecasting and Macroeconomic Research conducted a study on this.

It is noted that the analysis was based on the prices of supermarkets that pay VAT and are considered to be mostly official businesses, and 4-month statistics on 97 types of 3754 consumer goods were downloaded by data-scraping.

The price change in December and January for each product type (treatment group) was compared with the price change in November-December and January-February (control group).

“The results show that the reduction of VAT from 15 percent to 12 percent did not lead to a corresponding decrease in prices.  In particular, the price change in December-January was 0.3% higher than the price change in November-December and January-February.  This means that even if all other factors were excluded, the prices, which should have decreased by 2.6%, increased by 0.3%,” says the analysis.

Also, although VAT has decreased in Uzbekistan, the prices of 1,115 goods in these 46 groups have not been changed.  For example, baby food, ice cream, pasta, body care products, etc.

“The price of 1306 goods in 20 groups increased by 1%.  These are chocolate, sweets, hygiene products and others.  The prices of 585 goods in 12 groups – washing powders, fruits, meat products, and milk – have increased by 1-5%.  It was observed that the prices of 567 goods in 7 groups – stationery, sauces, coffee – decreased by 1.6%.

Earlier, PMTI experts determined that, based on the input-output model, the reduction of the VAT rate by 3% for 78 sectors of the economy will lead to a decrease in costs and, due to this, a decrease in prices in the real sector of the economy by 0.8%.

But at the moment, in practice, entrepreneurs do not make a decision to transfer the tax relief to the consumer.

The main reasons why the reduction of VAT did not affect the price level include:

• A large share of the secret economy in the market of consumer goods and the fact that tax cuts are aimed at increasing the relatively small profit margin of officially operating firms;
•  That the competitive environment has not yet formed in the markets;
•  Increase in the influence of other main factors affecting prices (dollar exchange rate, refinancing rate, money supply, etc.).

 Shavkat Mirziyoyev said that the value added tax rate will be reduced from 15% to 12% from 1 January 2023.