Uzbeks Squeeze Business to Replenish Taxes
Uzbeks Squeeze Business to Replenish Taxes
Falling demand for Uzbekistan’s main exports has forced the authorities to abolish tax breaks designed to encourage investment.
Amendments to the tax code which came into effect on September 11, make foreign investors in the oil and gas industry liable for taxes on profits, land and water and for welfare and health insurance contributions – in other words, the same obligations as local companies.
In addition, crude oil and natural gas are now subject to customs duties.
The new regulations apply to all investors whose production-sharing agreement, PSA, do not currently specify taxes and other contributions.
Natalya Shmakova, a head of department in the Uzbek tax service, says the changes are expected to substantially boost government revenues from the extraction sector.
Previously, firms involved in PSAs paid the government 9.35 US dollars on every 1,000 cubic metres of gas they extract. With the various taxes added on, this will now rise to 68 dollars per 1,000 cu m.
The royalty rate that foreign investors pay on oil and gas resources will also rise by 25 per cent.
The Uzbek economy depends heavily on exports of commodities – cotton, gas, non-ferrous metals and uranium. Revenues from these sectors earn the government around 15 billion dollars a year.
The global economic prices has led to falling commodity prices. Declining funds sent home by Uzbek labour migrants abroad have compounded the slump in in currency inflows.
This severe revenue shortfall appears to have prompted a search for extra tax income.
“The crisis is gradually engulfing the Uzbek economy, and the country is experiencing a shortage of foreign currency,” said Jahongir Shosalimov, an independent economist in Tashkent. “The government is trying to rectify the situation by abolishing the privileges enjoyed by foreign investors”.
Companies involved in oil and gas sector PSAs with Uzbekistan include Gazprom and Lukoil of Russia, Malaysia’s Petronas, and a number of Japanese and South Korean firms.
Some analysts have suggested that the authorities are hoping to reap large sums from Lukoil, in particular. The Russian firm has invested more than five billion dollars. It is already active on the Ustyurt plateau in northern Uzbekistan and is opening up the Kandim field in the southwest.
The press office of the subsidiary Lukoil Overseas has countered such speculation by saying its contract specifically excludes it from subsequent legislative changes.
Viktor Ivonin, an economist in Tashkent, believes the potential rewards from Uzbek oil and gas are high enough to prevent investors being deterred by higher taxes.
(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service has resumed, covering Uzbekistan and Turkmenistan.)
Amendments to the tax code which came into effect on September 11, make foreign investors in the oil and gas industry liable for taxes on profits, land and water and for welfare and health insurance contributions – in other words, the same obligations as local companies.
In addition, crude oil and natural gas are now subject to customs duties.
The new regulations apply to all investors whose production-sharing agreement, PSA, do not currently specify taxes and other contributions.
Natalya Shmakova, a head of department in the Uzbek tax service, says the changes are expected to substantially boost government revenues from the extraction sector.
Previously, firms involved in PSAs paid the government 9.35 US dollars on every 1,000 cubic metres of gas they extract. With the various taxes added on, this will now rise to 68 dollars per 1,000 cu m.
The royalty rate that foreign investors pay on oil and gas resources will also rise by 25 per cent.
The Uzbek economy depends heavily on exports of commodities – cotton, gas, non-ferrous metals and uranium. Revenues from these sectors earn the government around 15 billion dollars a year.
The global economic prices has led to falling commodity prices. Declining funds sent home by Uzbek labour migrants abroad have compounded the slump in in currency inflows.
This severe revenue shortfall appears to have prompted a search for extra tax income.
“The crisis is gradually engulfing the Uzbek economy, and the country is experiencing a shortage of foreign currency,” said Jahongir Shosalimov, an independent economist in Tashkent. “The government is trying to rectify the situation by abolishing the privileges enjoyed by foreign investors”.
Companies involved in oil and gas sector PSAs with Uzbekistan include Gazprom and Lukoil of Russia, Malaysia’s Petronas, and a number of Japanese and South Korean firms.
Some analysts have suggested that the authorities are hoping to reap large sums from Lukoil, in particular. The Russian firm has invested more than five billion dollars. It is already active on the Ustyurt plateau in northern Uzbekistan and is opening up the Kandim field in the southwest.
The press office of the subsidiary Lukoil Overseas has countered such speculation by saying its contract specifically excludes it from subsequent legislative changes.
Viktor Ivonin, an economist in Tashkent, believes the potential rewards from Uzbek oil and gas are high enough to prevent investors being deterred by higher taxes.
(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service has resumed, covering Uzbekistan and Turkmenistan.)
