Khojiakbar Abdusamadov

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As Oliver Wendell Holmes said, “Taxes are what we pay for civilized society”. Uzbekistan also has a rich history of taxation. Since the time of the Arab conquest, taxes such as “zhuzya”, “hirozh”, “wa-zifa”, “zakot” and others have been levied on the population. According to Article 63 of Constitution of the Republic of Uzbekistan taxes and fees must be paid by both organizations as well as individuals.

Filing taxes is a crucial aspect of running a small business. Even though giving money to the government is something no one enjoys to do, tax underpayment may have serious legal repercussions. Furthermore, tax evasion is a deliberate failure to pay one’s debts in taxes. It may lead to hefty penalties, imprisonment and the company’s demise. However, not all companies choose to pay taxes. This blogpost discusses the judicial practice in Uzbekistan, causes and effects of this issue and provides some feasible solutions to tackle it.

Analysis of judicial practice

According to analysis of 168 court sentences under Article 184 of the Criminal Code for 2020 from, it is clear that the vast majority of crimes are committed in sphere of retail trade and provision of services. Such businesses avoid paying income tax, value added tax and social tax by organizing activities without registration as a business entity, concealment of revenue (sale without a cash receipt, reduction of revenue in reporting or not including it in reporting), fictitious overstatement of expenses, hiring without registration of an employment contract, paying salaries “in an envelope” and spending company funds for personal needs.

According to preliminary data, the unjustified tax offset for dubious transactions identified from August 2020 to January 2021 amounted to about 1 trillion soums. At the beginning of February 2021, suspicious transactions were detected in more than 9.5 thousand household entities for a total amount of about 1 trillion soums, of which 476 billion accounted for wholesale trade organizations. For example, the company A.K. from Surkhandarya exported agricultural products worth 1,350 million soums. In the documents, they indicated that they bought it from a supplier from the Ferghana Valley, paying him 1,080 million, including 140.87 million soums of VAT. In accordance with the legislation, the company asked the refund from the budget. However, a desk check conducted by the tax authorities revealed that the supplier from the Ferghana Valley existed only on paper. The company was registered to an elderly woman, there was no production or purchase of agricultural products. All the documents were fabricated for only one purpose – not just to get away from taxes, but also to get money from the budget.

Causes of tax evasion in Uzbekistan

Companies mainly engage in tax evasion owing to:

 1. High Tax Rates: When faced with high tax rates, businesses may be motivated to avoid paying them because the financial burden can have a major negative impact on their earnings and ability to compete.  For example, according to Evidence from ‘Missing Imports’ in China (NBER Working Paper No. 8551), Raymond Fisman and Shang-Jin Wei,  who used data from 1998, Fisman and Wei found that on average a 1 percent increase in the tax rate results in a 3 percent increase in evasion in China

 2. Complicated Tax Codes: Tax laws that are intricate and complex might provide firms with opportunity to take advantage of loopholes or engage in aggressive tax planning, which can occasionally cross the line into evasion. For instance, in the USA “The Affordable Care Act” has become a tax-filing nightmare, but so have other parts of the code, such as the earned income tax credit. The IRS guide for the earned income tax credit is 37 pages long, and the rules are so complicated that the credit’s tax error rate is 27%, according to the IRS. That amounts to $18 billion of mistakes every year for just for this one credit.

 3. Corruption: Companies may use dishonest tactics, including bribery, to sway tax authorities and avoid paying taxes. An example of this, a survey of World Bank enterprises assessed a situation where 6% of Uzbek firms were offered to pay bribes for six different transactions, including paying taxes, obtaining permits or licenses, and connecting to utilities. In the world, this figure is 17% and in the region of Europe and Central Asia – 11%.

 4. Informal Economy: Companies in this sector may purposefully avoid paying taxes in order to stay out of trouble with the law and cut expenses. According to the Agency for Strategic Development in 2022, the share of the informal economy in various sectors of the Uzbekistan’s economy ranged from 48% to 62%. Meanwhile, in October 2023, UzLiDeP (Uzbekistan liberal democratic party) announced that the share of the informal economy in Uzbekistan is about 40%. In addition, the main drivers of the development of the informal economy in the country were such areas as the secondary housing and motor transport market, informal trade, provision of services and others.

Effects of tax evasion in Uzbekistan

 1. Loss of Services: Tax evasion can have a negative effect on both individuals and businesses by reducing or eliminating access to public benefits and services.

 2. Economic Instability: Government budgets may be strained by a lack of tax revenue, which could result in economic instability and make it difficult to meet societal demands.

 3. Diminished Infrastructure: A lack of funding can prevent the development of infrastructure, which would impair public service availability and quality as well as slow down economic expansion.

 4. Social Inequity: Insufficient tax revenue may make it difficult for governments to pay for social welfare programs, which would exacerbate social inequality and deprive disadvantaged groups of essential assistance.

Policy options

  1. Reducing the number of illegal trade transactions, in particular in the field of purchase and sale of cars and real estate by notary offices. This may be achieved by checking the integration of the automated unified information system “Notary” with an up-to-date database of taxpayers and the availability of a declaration on the total annual income of the seller and recipient in the process of drafting contracts. In case of a discrepancy between income and tax payments, it must be mandatory to require the tax inspectorate to submit a declaration of total annual income (certificate of compliance with tax legislation). A tax amnesty could be implemented for taxpayers in case of detection of overdue and unpaid taxes (the possibility of paying taxes at a preferential rate and in installments for 6 months).
  2. Civil society is suggested to take control over companies in terms of tax evasion via cash back system which has been implemented in Uzbekistan by Presidential decree to increase tax revenues and prevent deliberately under-reporting or omitting income. If people regularly demand receipts, companies will not be able to hide the revenue.
  3. Another efficient method of addressing atax avoidance problem is the execution of third-party due diligence. It is particularly crucial to make sure companies are not doing business with anyone who might be involved in tax avoidance for clients and third parties. This needs to be in line with the degree of risk involved. To put it simply, greater information or due diligence is needed when the level of risk is high
  4. Companies should be able todistinguish between tax evasion and tax avoidance. While the former is legal, the latter is not. Companies must know the difference. Tax avoidance is when a person or company legally exploits the tax system to reduce tax liabilities, such as establishing an offshore company in a tax haven. Tax evasion is when a person or company escapes paying taxes illegally. Typically, individuals or companies commit this illegal action by concealing the true state of their affairs from tax authorities.


In conclusion, there are significant issues because tax evasion is common in Uzbekistan’s retail and service industries. Businesses evade taxes due to factors, say, high tax rates and corruption, which have a negative impact on social fairness, public services, and economic stability. Proactive steps like the cash back system and third-party due diligence are suggested as solutions to these problems. Businesses must cultivate a culture of moral financial practices by differentiating between lawful and unlawful tax avoidance. By putting these suggestions into practice, Uzbekistan’s economy can grow and its tax structure will have become more equitable and long lasting.

Cite as:  Khojiakbar Abdusamadov, “Why do businesses evade taxes? Analysis of judicial practice in Uzbekistan”, Uzbekistan Law Blog, 30.06.2024.