Uzbekistan: Traders Unimpressed by Tax Cuts

The government's move to lower its controversial import taxes may not be enough to stop the republic's traders going under.

Many have already gone out of business since May, when the authorities introduced duties of up to 90 per cent on imported goods.

Tashkent has come under fire from the International Monetary Fund, IMF, for its decision, and has faced a number of protests from shuttle traders - who travel back and forth across the border.

Now it has announced a drop in the duties from 90 to 70 per cent for industrial and imported goods, and from 50 to 40 per cent on food products. All taxes are now to be paid in Uzbek sums rather than US dollars, as originally proposed.

The concession hasn't impressed many traders, who argue the new duty level is still far too high. They say a 25 per cent tax would be fairer and more practical. Others were not even aware of the changes until IWPR told them.

In the meantime, many are going out of business or being driven underground. "I've been sitting here all day and I haven't sold a thing because my prices have almost doubled after paying all the customs duties," said one young woman trader in the capital's Yunus-Abad market.

Many traders stuff their goods into bags and run if the police show up. Others hover around the market gates asking quietly what you are looking for. They keep their goods at home or in lock-ups and take would-be customers there to do business.

"We trade illegally," said a woman at the Parkent market in Tashkent. "We're like partisans - if tax officers come along, the entire bazaar will scatter."

The merchants argue that the present system is forcing people into tax evasion, and Tashkent is therefore losing money that they would otherwise be willing to pay. An increase in bribery at the customs posts is also creating a culture of corruption among Uzbek officials.

"There are two roads open to us - meet the government's demands and be ruined, or bribe the customs officials," said one trader.

The situation is causing concern at the IMF, which visited Uzbekistan in September to review progress on economic reform. After talks with the government, the delegation's head Jules Erik de Vrier argued that the former's policies were damaging the economy. "We should think about ways and measures which will be less destructive," he said.

Under an accord Uzbekistan signed with the IMF at the beginning of the year, the authorities agreed they would introduce several economic reforms in exchange for credits.

In an attempt to fulfil one of its pledges, the government increased import duties to try to bring the illegal exchange rate into line with the official one.

The policy appears to have worked. The Central Bank rate is currently 820 sum to the dollar compared to 1,100 sum on the black market, bringing the target 20 per cent differential set by the IMF tantalisingly close.

But the cost to Uzbeks could be severe. In a country with few shops, little manufacturing industry and limited food production, markets play a vital role in keeping the population supplied with the goods they need.

Tens of thousands are dependent on the shuttle trade have now lost their livelihoods, the markets are empty, and ordinary people may soon be left with nowhere to buy winter clothing, food and other essential goods.

Denis Krylov is the pseudonym for an independent journalist in Tashkent.