March 14, 2017
The Economy of the Small
Nowadays, small business is an integral component of any healthy economy. It not just fills the gaps that are inaccessible to large businesses and the state, but also makes the national economy more flexible and most effective in facing external challenges in the conditions of global instability.
Examples abound: the countries whose governments take integrated measures to support the private sector and create an enabling business environment for small business development rank among the world’s most successful economies - Germany, Japan, South Korea, the United States and Great Britain. This is the reason why Uzbekistan assigns maximum support for the economy’s high-speed drive as a key goal for the near future.
Today, Uzbekistan assigns special part to the implementation of integrated measures to simplify the business-related procedures like obtaining licenses, ensure their transparency as part of further liberalization of the business environment and reduction of government regulation.
Private entrepreneurship scarcely existed in Uzbekistan in the early years of independence, while today more than half of the country's gross domestic product is produced by small businesses. Nine of the ten economic entities are representatives of small business. Over 45% of industrial production and 98% of agricultural production accounts for small business today.
In 2016, the share of small businesses in GDP increased to 56.9% (against 56.5% in 2015), investments - up to 40.3% (36.3%), in construction - up to 70.7% ( 68.4%), in the retail commodity turnover - up to 89.6% (87.1%). Ongoing measures on building business environment, full support and further stimulation of development of small business and private entrepreneurship have been contributing to the establishment of nearly 32,000 new small business entities in the current year.
Within the framework of support for entrepreneurial activity and establishment of small manufactures in 2016, small business entities received 15.9 trillion soums (currency rates of CB RU from 14.03.2017, 1$= 3500.01 soums) of loans, which is 1.3 times more YOY, including 3.3 trillion soums of microcredits, and $206.7 million of credit lines of international financial institutions.
Big Contribution of Small Business
Experts point out to the key role of private entrepreneurship in provision of employment and raise of the incomes of the population. 78% of the employed population is engaged in small business sector. Over 52% of the income structure of the population falls to entrepreneurial activity, suggesting the increasing importance of this sector in raising the level and quality of life.
Consistent efforts on creation of favorable business climate, ensuring of priority of private property, elimination of barriers and obstacles to the development of entrepreneurship have largely ensured the success of ongoing structural reforms in Uzbekistan.
Over the past four years alone, Uzbekistan has adopted more than 15 laws that are called to enhance the role and protection of private property, further improve the business environment and conditions for doing business. The business related regulatory and legal framework has been almost completely renewed. Hundreds of permissive and licensing procedures for entrepreneurial activities were abolished.
Active measures have been taken to introduce a simplified and transparent tender-based procedure of granting plots of land to business entities, their turnkey connection to engineering and communication networks. Financial support and loaning have been significantly expanded.
The follow-up of reforms on further strengthening of protective guarantees for private property, eliminaiton of barriers and obstacles to the development of entrepreneurship, ensuring of inevitability of liability of government officials for obstruction and unlawful interference in business activities has become a priority direction of the new leader in structural transformations in the economy.
This is the reason why the Decree ‘On additional measures to ensure accelerated development of entrepreneurship, full protection of private property and quality improvement of business environment’ of October 5, was among the first documents signed by Shavkat Mirziyoyev on the post of president.
The document approved a program of 42 integrated specific measures in five priority areas, including legal regulation of business activities, reduction of audits and prevention of unjustified interference in business activities, further liberalization of the responsibility of business entities, improvement of the financial system, taxation and customs, as well as improvement of the conditions for doing business, enhancement of investment attractiveness and international rating of the republic.
The Decree drew particular attention to a fundamental revision of the system of control of entrepreneurial activity. It was decided to cancel all types of unscheduled audits of business entities, as well as counter checks, including those related to criminal cases that limit the legitimate rights and interests of entrepreneurs.
Development of a draft law on the institution of a business ombudsman under the country's Parliament is another important initiative. Far not all democratic countries in the world run such a supreme institution, so it is worth recognizing that Uzbekistan has made a radical step in strengthening legal guarantees for the development of entrepreneurial activities and representing the interests of business structures in their interaction with the government, law enforcement and supervisory bodies.
Along with measures on protecting private property and supporting the development of small business, the Government attaches importance to the creation of favorable conditions for attracting private foreign capital. As part of creation of advantageous environment for foreign investors, Uzbekistan approved a provision that stipulates remaining of tax rates and other mandatory payments for five years unchanged for enterprises with foreign investments, as of the date of their registration in Uzbekistan. According to the World Bank's Doing Business 2017, the level of tax burden in Uzbekistan is lower than in most OECD countries, the USA, Japan and China.
It is worth to mention that Uzbekistan has been retaining the high 25th position in the ‘Enterprise Registration’ rating of Doing Business 2017 report as a result of recent measures on dramatic simplification of business registration procedures, introduction of a ‘single window’ system and online state registration.
The above-featured measures will undoubtedly be promoted by the ongoing reformation of the state services system based on the ‘single window’ approach. In early February, a resolution of the President of Uzbekistan Shavkat Mirziyoyev transferred urban and rural unified state services centers for business entities from the structure of local municipalities to the jurisdiction of the Ministry of Justice.
Experts say that such a step will allow establishing vertical management of these structures, define a system-based approach to the organization of their functioning and interaction with other government bodies.
At the same time, the state registration of all business entities, with the exception of banks and credit bureaus, their branches and representative offices, is entirely entrusted to ‘single window’ centers. This measure is aimed at creating a unified mechanism for state registration and registration of business entities instead of the current disparate system.
Today, the ‘single window service’ offers processing of 16 kinds of licensing documents for business activity. In pursuance of further expansion of the positive practice, it is planned to gradually introduce another 86 types of the most popular licenses and permits by 2020.
In order to obtain certain licenses and permits, business entities can directly contact ‘single window’ centers and get them in accurately defined terms without visiting other structures. Moreover, ‘single window’ centers are assigned to coordinate the approval of all the documents with other agencies without involving a business entity.
The head of state has canceled as of January 1, 2018 the requirement for mandatory processing of licenses and permits that are issued through the ‘single window’ on specific paper forms.
The mechanism will be replaced by a specialized information electronic system ‘License’, which is scheduled for launch in the first quarter of 2017. It will allow businessmen obtaining government services in electronic form through ‘single windows’ without visiting other agencies, monitoring the progress and results of consideration of applications for permits and licenses, regardless of the place and kind of application.
This kind of a portal will help to build a centralized system of issuing licenses and permits, independent of government agencies. After commissioning, it will provide 40 types of licenses and permits. It is expected that by 2019, the service will provide all types of licenses and permits available in Uzbekistan.
Another interesting initiative comes to the establishment of specialized innovative technology parks for small businesses in Tashkent, and across the country in the long term. The first two are scheduled for Yashnabad and Almazar districts of the capital city. The draft resolution on their organization was developed by the Ministry of Economy of Uzbekistan.
The Technopark in Yashnabad district will be established for research and organization of small innovative manufactures in the field of materials science, electronic devices and controllers, food and biologically active additives, medicines. In turn, the technopark in the Almazar district will be responsible for the development of metal processing technologies, energy saving, alternative energy sources and electronic measuring instruments, robotics, engineering and electronics.
The list of major tasks includes the conduct of innovative research, organization of pilot industrial and small innovative enterprises for the production of high-tech, competitive, domestically and internationally marketable products. In addition, they will have to introduce up-to-date foreign technologies and adapt them for domestic producers, involving domestic and foreign investors with the experience of organizing high-tech and innovative industries.
Among other things, technoparks are entrusted with the establishment of close cooperation between higher educational institutions, academic science and industries to make research and innovation projects more effective, and engage scientists, highly qualified specialists, practitioners, and students in these processes.
At the same time, technopark participants will be exempt from land tax, profit tax, legal entity property tax, improvement and social infrastructure development tax, a single tax payment for microfirms and small enterprises, as well as mandatory contributions to state target funds.
It is also planned to provide them with privileges for customs payments for imported equipment, raw materials, materials, reagents and components they need for their own production and construction needs. Another incentive for participants of technology parks will come to privileges in obtaining concessional loans for a period of not less than seven years and a grace period of two years with an interest rate not exceeding the refinancing rate of the Central Bank. The status of the technopark participant will be provided for up to 10 years.
A Credible Pillar
Banks have actively got into the development of small business and involvement of new enterprising and enterprising citizens in the process. Today, absolutely all credit and financial organizations of Uzbekistan are running their own programs on extensive lending and involvement of the population in entrepreneurial activities.
Speaking at a joint meeting of both chambers of the Parliament last December, the President of Uzbekistan Shavkat Mirziyoyev noted that commercial banks should change their approach to work. The head of state entrusted the financial institutions with a specific mission to create optimal conditions for citizens to get involved in entrepreneurship through communication with each family.
The banks did not delay the task in the long box. In particular, the employees of one of the largest credit institutions in the country - Agrobank - intend to visit nearly 1.3 million homes in 813 settlements. The bank even established a special unit for that purpose. Specialized departments have also been opened in the bank's offices in Karakalpakstan, provinces and 176 branches.
Bank employees detail the residents on the opportunities of starting a business, and take measures to allocate credit funds in a short time. To date, thousands of qualified specialists have been recruited to the new departments and units of various banks.
Distribution of registered letters with specific questionnaires in residential houses is another common way of bankers to draw citizens’ interest in entrepreneurship.
The recently established Small Entrepreneurship Guarantee Fund will render financial help to new business entities. The State Committee for Demonopolization and Development of Competition, along with other shareholders - Association of Banks of Uzbekistan, Chamber of Commerce and Industry, as well as a several major banks and insurance companies, are major founders of the fund.
The Fund, according to experts, was established with the purpose to further improve the business climate and accelerate the development of entrepreneurship. It is called to secure banks in providing loans for small businesses in the part not covered by a mortgage up to 50% of the loan amount, but not more than $100,000.
Experts of the State Committee for Demonopolization and Development of Competition rank the lack of collateral among the main obstacles to obtaining a bank loan by small business entities, which is the most frequent reason for loan rejection.
The Guarantee Fund will contribute to the solution to this problem, as it is called to secure banks in providing loans to small businesses, in the part not covered by collateral. The Guarantee Fund will also provide consulting assistance to small business entities on the terms of allocation of bank loans, as well as assist them in establishing high-tech and innovative industries.
(Source: «Uzbekistan Today» newspaper)
FREE INDUSTRIAL ECONOMIC ZONE
Free Economic Zone Angren utilizes $56.7mn investments
The Free Economic Zone Angren has summed up its results for 2016 and has outlined the main tasks for the current.
I. Implementation of investment projects
Over its period of existence, FEZ Angren carried out the implementation of 17 investment projects worth $225,3mn., including through attracting foreign direct investments in the amount of $158mn. from such countries as China, Korea, Austria, Singapore, Russia, UK and Bulgaria.
The implementation of these projects allowed to create over 1,600 new jobs, which were employed primarily by graduates of schools and colleges of Akhangaran and Angren.
For January-December 2016, FEZ Angren utilised investments for the sum equivalent to $56.7mn., or 6.1% more compared to the same period of 2015.
7 new productions were put into operation in 2016, the total value of them exceeded $43.5m, including $24.1mn. of foreign direct investments.
II. Manufacturing and increasing competitiveness
In January-December of 2016, the companies-participants of FEZ Angren produced goods totaling more than 929,0bn. Soums (currency rates of CB RU from 14.03.2017, 1$= 3500.01 soums), or 45.6% up against last year.
The export of products with high added value made up more than $13mn, with 1.9 time increase year-on-year.
III. Main goals and objectives for 2017
FEZ Angren will continue work on ensuring the commissioning of 9 new productions, including processing of leather, production of steel seamless pipes and fittings, electrical hand drilling and grinding machines, decorative ceramic tiles and sanitary ware, conveyor belts, agricultural and automobile tires, porcelain tiles, electric pumps and other popular products.
The total preliminary cost of these projects is more than $300mn., including $40.35mn. in the form of foreign direct investments.
The completion of all 9 projects will create more than 2,300 new jobs.
IV. Development of utilities and transport infrastructure
In the framework of the implementation of Government programme of priority development of engineering-communication and transport infrastructure of the Free Economic Zone Angren, the period January-December 2016 saw the completion of 7 projects totalling over 5.7bn. soums. Another 13 ongoing projects drew some 12.8bn. soums of resources of state and local budget funds.
(Source: «Business partner.uz» newspaper)
The system of the state registration of business is reformed
According to the Government resolution dated February 9, 2017 №66 About enhancement of system of the state registration and registration of subjects of the entrepreneurship of October 28, 2016 No. PP-2646 aimed at improving the system of state registration of business entities, a conceptually new system of state registration of businesses, both legal entities and individual entrepreneurs is established. What will change when the new mechanism of new business registration is implemented?
So, since April, 2017 changes are being made, and 62 normative legal acts regulating the order of the state registration of subjects of business by the approval of the uniform document which discloses in details the business registration mechanism are deemed to be null and void. Starting February 2017, "single window" centers will become authorized institutions for registration of all business entities, other than banks and credit bureaus. Functions of the State Statistics Committee on firm name reservation, of the State Tax Committee on registering individual entrepreneurs importing goods intended for sale, as well as of the Ministry of Justice for registering of companies with foreign investments, insurance companies and insurance brokers, audit firms, tax consulting organizations, exchanges, pawnshops, investment funds, markets and other business entities transferred to 194 “single window” centers.
Starting April 2017, business registration procedure will be carried out in a real-time mode within 30 minutes of submission of the electronic application, with the exception of two cases – when raising the statutory capital of the entity and when registering transfer of a share of founders, registration of which will be implemented within 16 hours.
An application for state registration and re-registration of the business can be submitted either through the automated registration system functioning 24/7 and integrated with my.gov.uz, or if applicant chooses to do it in person – submit an application to the “single window” center of the district, where the business is or will be registered. “Single window” centers are available in all districts and cities of the country and are open from Monday to Friday from 9:00 to 18:00 without a break for lunch.
Number of documents required for registering a legal entity (business) reduced from 6 to 2, i.e. only application form and company’s constituent documents are required (except for merger, spin-off and splitting the company, where applicants are required to submit scans of transfer of assets or split balance sheet), for individual entrepreneur, number of required documents reduced from 7 to 1 i.e an applicant needs to submit only application form.
It is important to note that the registration procedure via the single portal - my.gov.uz, through an automated system has several advantages compared to registering in person. In particular, firstly, there is no need to submit to registration authority of originals of documents in paper form, so applicants do not have to visit the registering authority in person, as well as a cash office of a bank to pay the state fee for registration, which also reduces the indirect costs of the applicants;
secondly, the state fee schedule for registration, including business re-registration when applied via the Internet is twice lower, compared to registering in person; thirdly, an applicant can start, pause and continue registration process at any time convenient for the applicant.
The convenient feature is that application form is filled on-line by selecting field values from the drop-down menu, including automatic check for availability of the selected company name, that eliminates inaccuracies, standardizes the values of application fields, and simplifies their processing. Also, use of electronic digital signature is not required when business registering, provided that applicant is a user registered in the single interactive online services portal by one of the offered ways. Applicants can either use template forms of constituent documents generated automatically by the system, based on the application data, or attach scans of constituent documents prepared by themselves..
For the first time it is possible to pay state registration fees through electronic payment systems operating in the country and commission of payment system will make 1% of the state fee rate.
Individual entrepreneurs will be able to submit online applications for temporary suspension or resumption of their activities via the automated system, making it possible to mitigate risks due outstanding taxes.
Business entities can inform all relevant authorities , including registration bodies, etc., with a single online notice, on change of their addresses (address of operation, mailing address), eliminating the need to send separate notices to each state authority.
Also, it is no longer required for businesses to publish a notice on reorganization in the printed media, provided that such notice for creditors is posted on the Single portal reducing the compliance cost for businesses.
An exhaustive list of grounds for refusal of registration of business is approved. The system performs automatic check of the information in the application with information in relevant databases in course of filling application form.
The practice of issue of the paper-based certificate of registration of the legal entity of individual entrepreneurs on special forms, or their duplicates is abolished, reducing annual cost of form printing for registering authorities. Entrepreneurs can print out necessary copies of registration certificates and constituent documents by themselves, whenever they need those.
So, the mechanism for obtaining access to registration certificate and (with permission from the business entities) constituent documents in the electronic form from the Repository of electronic documents on the Single portal for all public authorities through the automated system not requesting such documents from applicants, including licenses or permits, opening bank accounts and provision of other public service is established. All electronic documents related to business registration and hyperlinks to scanned documents stored in the automated system will be available in the repository of electronic documents, ensuring information security and convenient access to them.
Business entities are able to inquire the system on requests from public authorities to access documents and data related to them, except for the case when access to such information is limited in accordance with the legislation.
Improving transparency and accessibility of up to date information handled by Unified state register of business entities (USRBE), which is a centralized electronic database, is important aspect. Minimum required list of data to be accessible on the Single portal and updated on an hourly basis in process of their change is established. Thus, open data on legal entities should contain the following fields: name, Taxpayer ID, status (in operation, under liquidation, termination of activity, etc.), legal form, type of ownership, amount of the statutory fund, information on issued securities, address, etc., and for the individual entrepreneurs – name, surname, taxpayer ID, activity types, gender, etc.
In order to avoid discrepancy of registration information, rules of determining their precedence are approved. Thus, if there is a discrepancy in information in constituent documents, documents held by registering entities prevail. When there is discrepancy between information in constituent documents and records in the Unified state register of business entities, the latter ones prevail. When there is discrepancy between records in the Unified state register of business entities and other registers maintained before April 1, 2017, records in the Unified state register of business entities prevail. Business entities themselves eliminate discrepancies in registration data by modification or additions made to constituent documents.
In addition a separate document – a regulation on interoperability, data exchange and cross-checking of data between registering and authorized authorities is approved, making it convenient both for staff of relevant authorities and business entities - eliminating the need to understand internal procedures that are irrelevant for entrepreneurs.
Implementation of the complex measures on reforming the business registration system, approved with the Resolution of the President, sufficiently improves accessibility, transparency and quality of the “business registration” public service.
It should be noted Action Strategy of Uzbekistan development for 2017-2021, approved with the Presidential Decree dated February 7, 2017 sets improving the international ranking of the country in the World Bank’s “Doing Business” report as one of the targets.
So, experts of the “ Business forum of Uzbekistan” ( phase III)” project are expecting that new mechanism of state registration of business entities will improve the ranking of Uzbekistan in the upcoming report of the World Bank “Doing Business 2018” under the “Starting a business” indicator.
Under new mechanisms, state registration of business entity will take two steps (first – online registration, with fully automated registration procedures, second – opening of a bank account, with reduced requirement for submission of paper documents).
Procedure for opening a new company, including all formalities, related to starting a business activity (which includes reserving company name, paying the state registration fee, obtaining registration certificate and registered constituent documents, making a company stamp, registering with the tax authorities, statistics authorities and People’s bank, and opening a company’s bank account), will take less than one day.
It should be reminded that as of January 1, 2017, there are 285.3 thousand registered legal entities (excluding farms and small hold farms), of them 268.4 thousand or 94.1% of total number of registered legal entities are currently in operation.
According to the results of 2016, 32.7 thousand new legal entities were registered in Uzbekistan, and 31.7 thousand of them fall within the small business category.
Majority of new registered businesses and legal entities are in Tashkent (23.7%), Tashkent region (9.1%), Ferghana region (8.0%) and Samarkand regions (7.3%).
(Source: «Business partner.uz» newspaper)
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