High Taxes and Red Tape Encourage Grey Economy
High Taxes and Red Tape Encourage Grey Economy
Excessive government interference in business and heavy taxation and are helping ensure much of Tajikistan’s economy stays in the shadows, say NBCentralAsia analysts.
The recent 2007 Human Development Report found that more than 60 per cent of the Tajik economy is in the informal sector. The report was produced by the Sharq research centre for the United Nations Development Agency in Dushanbe.
Sharq concluded that the persistence of the grey economy was attributable to inefficient, bureaucratic and incompetent government institutions.
The Tajik government has attempted to reduce the size of the illicit economy by launching a campaign to legalise capital in 2003, followed in 2007 by a similar drive to register property.
Experts polled by NBCentralAsia say that the government needs to comprehensively overhaul its taxation policy and improve administrative systems so that legitimate businesses can develop.
A source in the ministry of economic development and trade who asked to remain anonymous explained that excessive taxation and government interference in business are major contributory factors to the large informal sector.
One major component of the shadow economy, he said, consists of smallholders who produce and sell foodstuffs, but are reluctant to register as a business and thereby fall foul of high taxes.
Income tax in Tajikistan stands at 13 per cent, value added tax is 20 per cent and customs duty averages 26 per cent. The taxation system is progressive so that more someone earns, the more they pay.
Economist Rustam Babajanov agrees that administrative barriers should be broken down and the tax laws completely overhauled so that there are clear methods of catching tax dodgers while rewarding those who operate within the law.
“Taxpayers need to be encouraged by providing benefits such as tax exemption for the first three years of production, as happens in developed countries,” said Babajanov.
Last year, the economic development and trade ministry surveyed 600 officially registered joint ventures found that three quarters of them went out of business because they could not survive the high taxes and customs duties.
The director of a major consulting company who asked to remain anonymous agreed that the tax structure is “confused” and not conducive to legitimate business activity. He said taxpayers contribute a great deal to the government budget, but none of this revenue is reinvested in things that would make it easier to do business, such as providing an uninterrupted electricity supply, roads and other basic infrastructure.
“The taxpayers pay their dues but get nothing back in exchange… so they withdraw into the shadows,” he said.
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
The recent 2007 Human Development Report found that more than 60 per cent of the Tajik economy is in the informal sector. The report was produced by the Sharq research centre for the United Nations Development Agency in Dushanbe.
Sharq concluded that the persistence of the grey economy was attributable to inefficient, bureaucratic and incompetent government institutions.
The Tajik government has attempted to reduce the size of the illicit economy by launching a campaign to legalise capital in 2003, followed in 2007 by a similar drive to register property.
Experts polled by NBCentralAsia say that the government needs to comprehensively overhaul its taxation policy and improve administrative systems so that legitimate businesses can develop.
A source in the ministry of economic development and trade who asked to remain anonymous explained that excessive taxation and government interference in business are major contributory factors to the large informal sector.
One major component of the shadow economy, he said, consists of smallholders who produce and sell foodstuffs, but are reluctant to register as a business and thereby fall foul of high taxes.
Income tax in Tajikistan stands at 13 per cent, value added tax is 20 per cent and customs duty averages 26 per cent. The taxation system is progressive so that more someone earns, the more they pay.
Economist Rustam Babajanov agrees that administrative barriers should be broken down and the tax laws completely overhauled so that there are clear methods of catching tax dodgers while rewarding those who operate within the law.
“Taxpayers need to be encouraged by providing benefits such as tax exemption for the first three years of production, as happens in developed countries,” said Babajanov.
Last year, the economic development and trade ministry surveyed 600 officially registered joint ventures found that three quarters of them went out of business because they could not survive the high taxes and customs duties.
The director of a major consulting company who asked to remain anonymous agreed that the tax structure is “confused” and not conducive to legitimate business activity. He said taxpayers contribute a great deal to the government budget, but none of this revenue is reinvested in things that would make it easier to do business, such as providing an uninterrupted electricity supply, roads and other basic infrastructure.
“The taxpayers pay their dues but get nothing back in exchange… so they withdraw into the shadows,” he said.
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
