Tajik Entrepreneurs Struggle to Stay Afloat

IWPR Central Asia

Institute for War & Peace Reporting

Monday, 12 August, 2019

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For more than ten years, entrepreneur Zainiddin Karimov owned a chain of clothing shops in the city of Khujand. He supplied the Shaparak stores with goods from Turkey, employing 21 local people.

But Karimov is now closing the retail chain, complaining that a lack of government support and unreasonable tax conditions has made it untenable to continue.

“It has become difficult to do business in our country; the tax office alone has the right to conduct ten types of inspections,” he explained. “In addition, there are more checks from other departments. Employees of the tax committee conduct their inspections under various pretexts and impose heavy fines.

“How can an entrepreneur develop a business under conditions of such chaos?” Karimov asked.

He said that various state bodies made excessive demands and provided few services in return. The firefighting service, for instance, required entrepreneurs to pay for annual inspection to certify that the business was compliant with regulations.

 “In ten years of work, the firefighting service has never offered or installed modern equipment for us,” Karimov said. “However, it is necessary to pay up to 2,000 somoni annually (about 200 US dollars) for one order for a store area of ​​45 square metres.”

According to official figures, Tajikistan’s private sector is thriving, with dozens of small and large enterprises created each year. As of January 1, 2019, the State Register recorded 315,800 economic entities operating in Tajikistan, an increase of 14,580 units from the same date last year.

However, in reality many businesses also fold each year, with entrepreneurs bemoaning excessive taxation, constant financial and regulatory inspections – which increases the likelihood of corruption – as well as high rates on bank loans and a general lack of state support.

Economist Shamsiddin Jalolov said that small and medium businesses were one of the main drivers of economic development in developed countries across the world and thus supported and encouraged by government. This did not happen in Tajikistan, he continued.

 “In Tajikistan, there is no healthy atmosphere of entrepreneurship and the activities of entrepreneurs cannot be called transparent,” Jalolov said.

He said that complex bureaucracy leading to multiple inspections and heavy fines, rather than high taxation, were the main problems.

“If an entrepreneur is free to conduct his business, high taxes cannot be an obstacle, because he knows that as a result of free activity he will receive a good income and will pay state taxes without any problems.”

Aziz Timurov, an economic expert based in Dushanbe, said that entrepreneurs were keenly aware of the restrictive atmosphere in which they operated, and as a result were reluctant to take investment risks.

 “The entrepreneurial atmosphere in the country is not the best… there is no transparency and it changes all the time. For this reason, both foreign and domestic investors do not believe in the business system of Tajikistan. Business here is conducted using connections with politicians, family ties, bribes. It is very difficult to conduct business strictly within the law.”

Another issue is tax prepayment. Mirzo Salimpur, chief editor of the Akhbor.com news website, said that it was common practice across Tajikistan for entrepreneurs to have already paid tax for 2020 and even 2021 so as to comply with regional financial planning.

 “They still do not know whether they will receive a profit next year or not, but they have already paid taxes,” he continued. “Most entrepreneurs work on bank loans that have high interest rates, but they have to pay the money received at interest to the tax authorities.”

Businesses could not truly thrive until tax legislation was revised massively and the power to collect such revenue severely limited, he argued, adding, “The tax department employees, unfortunately, remind us of the guards of the times of the Emirate of Bukhara, for whom the entrepreneur is a cash cow, which they milk without pause.”

The chief accountant of a company making dairy products, who asked not be identified, said that this comparison was particularly apt.

“During inspections, representatives of the tax authority determine the rate of production for our company for the next six months or year and calculate taxes based on this indicator, regardless of whether this many products will be produced at all,” he said.

Experts argue that a whole package of reforms are needed, including more transparent legislation, better access to banking services and guarantees of protection.

Tajik economist Abdumalik Kadirov emphasised that supporting small and medium enterprises was “the only salvation for a ‘non-industrial’ country like Tajikistan. Otherwise, catastrophe awaits the country”.

He noted that falling remittances from labour migrants in Russia had seriously hurt the budget, with mounting bureaucracy and what he described as tax “raids” further limiting development.   

Kadirov said that neighbouring Uzbekistan provided a good example of effective policy.

“There, efficient mechanisms were developed, including tax reforms and programmes for supporting businesses. Even if something does not work as planned, we can learn from their experience, with much effort.”

There also needed to be the political will to stamp out corruption and introduce legislation.

“New, good laws should be adopted, ones that follow the logic of the market economy; efficient mechanisms for their implementation should be created,” he continued. “What is most important is that people should not be interrupted in their work. This will allow small and medium enterprises to be profitable and increase the budget.”

But for some, such as clothing retailer Karimov, it is already too late.

“I no longer want to engage in business in Tajikistan,” said Karimov. “Now I plan to leave for another country and do business there. It is very difficult to conduct business in Tajikistan, since the life of an entrepreneur is spent resolving issues with taxes and fines.”