Uzbekistan strengthens measures against shadow economy with stricter tax laws

Now, penalties for tax evasion may be increased and prison terms may be extended. The fact is that amendments are expected to be made to Article 184 of the Criminal Code on evasion of taxes and fees. Through this, it can be said that the state is stepping up the fight against the shadow economy and is seriously starting to restore economic discipline. According to the expected amendments, tax evaders will now be “awarded” not only with large fines but also with more serious measures. For example, the sanctions of this article, which is included in the category of crimes in the field of economics, are expected to increase the number of fines, change correctional labor to punishments of restriction or deprivation of liberty, and extend the terms of existing imprisonment.

What is happening to Article 184 of the Criminal Code?

According to the draft law currently being discussed by the deputies, Article 184 of the Criminal Code (Tax or Fee Evasion) may undergo the following changes.

Part One: Committing intentional concealment, understatement of profits (income) or other taxable objects, as well as intentional evasion of taxes or fees established by the state on a significant scale, if this occurred after the imposition of an administrative penalty for such an act, -

Current sanction: a fine of up to one hundred and fifty times the basic calculation amount or correctional labor for up to two years.

The amendment being introduced: restriction of liberty or deprivation of liberty for up to 3 years.

Part Two: Evasion of taxes or fees:

a) repeatedly;

b) if committed in large quantities, —

Current sanction: a fine of one hundred and fifty to three hundred times the basic calculation amount, or correctional labor for a term of two to three years, restriction of liberty for a term of one to three years, or imprisonment for a term of three years.

The amendment being introduced: the fine will start at 200 times; the term of imprisonment will be extended to 5 years.

Part Three: If evasion of taxes or fees is committed in large quantities, —

Current sanction: a fine of three hundred to six hundred times the basic calculation amount, or restriction of liberty for a term of three to five years, or imprisonment for a term of three to five years.

The amendment being introduced: restriction of liberty will be removed and imprisonment for a term of up to 7 years will be imposed.

What do the parties think?

Although the expected changes have not yet been approved, we were interested in the reaction of lawyers and entrepreneurs to this. According to an entrepreneur who spoke to QALAMPIR.UZ, who did not want to reveal his name, if taxes are paid by the full turnover, the entrepreneur may go bankrupt.

“An entrepreneur strives to make more profit, so the less tax I pay, the more profit I get. For this, I hide my turnover. The reason is that the amount of tax calculation directly depends on it. If I show the full turnover and pay taxes, the price of the products I sell will increase. As a result, I will not be able to compete with other entrepreneurs and will go bankrupt,” he says.

A QALAMPIR.UZ interviewee, who has worked in the tax system for 25 years and is currently engaged in entrepreneurial activities, answered the question of how the changes in the law may affect the activities of the private sector as follows:

“In my opinion, it will have almost no effect. The reason is that crime will not decrease by making the punishment more severe. The taxation system needs to be fundamentally changed.”

According to human rights activist and lawyer Ozod Juraboyev, imprisonment for non-payment of taxes and fees is wrong.

“Instead of making this article more severe, it should actually be removed from the category of crimes and included in the category of administrative offenses or removed from the category of offenses altogether. Because this is a civil relationship. Payment of taxes and other mandatory payments is an economic relationship between a citizen and the state. It is wrong to consider this as an object of a crime and a citizen as a subject of a crime. If a case of tax evasion is committed, economic responsibility or economic sanctions should be applied, but imprisonment for this is wrong,” he says.

The lawyer told QALAMPIR.UZ that the case of evasion of taxes and fees, which is reflected in Article 184 of the Criminal Code and is currently considered a crime, should be tried in a civil court, not in a criminal court.

“In such a situation, the other party should be brought to court only in a civil court for violating the tax obligation. Including it in a crime and further aggravating the sanctions is completely contrary to both logic and international law. This is only an economic relationship and is the subject of a civil court since it regulates the economic relations between a citizen and the state. If a citizen does not pay taxes, a tax debt arises, and debt is never a crime,” the lawyer says.

The changes are not only aggravating!

The press service of the Legislative Chamber of the Oliy Majlis informed QALAMPIR.UZ that the draft law under discussion contains not only aggravating but also mitigating changes:

• To strengthen the legal protection of entrepreneurs, a new norm is being introduced stating that additional funds accrued for tax offenses will not be considered a penalty until they are transferred from the deposit account of the investigative body to the budget.
• It is stipulated that when the owner's land plot is seized for public needs, the amount of compensation paid at the market value of the property shall not be included in the tax revenue.
• It is stipulated that if taxes and fees on deliberately hidden, understated profits (income) are paid in full, the penalty of restriction of freedom and deprivation of freedom shall not be applied.
• It is stipulated that a person who commits a crime for the first time shall be exempted from liability if he fully compensates the damage caused to the state in the form of taxes and fees, including penalties and other financial sanctions, during the pre-investigation inspection, investigation, and first instance court hearing.

The most pressing issue today is the shadow economy - Mirziyoyev

On January 16 of last year, the President spoke specifically about the shadow economy at a videoconference meeting on ensuring macroeconomic stability and economic development. According to the data announced by the Head of State, 140 trillion soums in services, 50 trillion soums in construction, and 40 trillion soums in the industry remain “in the shadows”. If they are in place, this could bring in 135 trillion soums to the gross domestic product and 30 trillion soums to the state budget.

“Are Hidoyatov (then First Deputy Minister of Construction and Housing and Communal Services; currently Minister Sherzod Hidoyatov) and the governors aware of the fact that 41 percent of 27,000 construction enterprises indicate only one employee as an official employee in their reports? Do they know about this?” the President said at a videoconference meeting.

Yesterday, February 7, President Shavkat Mirziyoyev, at a videoconference meeting held to discuss key tasks for the development of the service sector, which he chaired, again touched upon illegal economic activity and announced that control over entrepreneurs operating secretly in Uzbekistan and paying salaries "in an envelope" would be strengthened.

It can be said that analyzing the current situation, you can see that the country's policy is "calling to order" the tax system to increase budget revenues. The whole world is committed to strengthening tax control. The reason may be in the following information. According to the international non-profit organization Tax Justice Network, in 2024 the world lost $ 492 billion from global tax abuse. Two-thirds of it ($347.6 billion) was due to multinational corporations underpaying taxes by transferring profits to other countries. The remaining third ($144.8 billion) was lost due to wealthy individuals hiding their wealth in offshore territories.

According to the press service of the Legislative Chamber of the Oliy Majlis, the draft law containing this change is being initiated by not one, but several organizations. However, there are still several more stages of whether or not to adopt the law. Time will tell whether senators will approve these changes or not.