A survey released by the World Bank in December 2021 notes that revenue losses due to noncompliance of value added tax (VAT) and corporate income tax (CIT) in Tajikistan were substantial in 2018.
Tajikistan Public Expenditure Review says their combined revenue loss reportedly amounted to 6,639 million somonis (TJS), or 9.34 percent of GDP. The highest revenue loss was found for VAT, estimated at TJS 5,040 million, or 7.09 percent of GDP. The main factor behind the VAT gap is the collection of VAT on domestic transactions, as the model shows that only a third of potential VAT revenue from domestic transactions is collected. The difference between the collection of VAT on imports and its estimated revenue potential is small. Collection performance is particularly poor in the services and agriculture sectors and among state enterprises, including the utility companies. The total revenue loss for the services sector is estimated at TJS 3,258 million, or 4.6 percent of GDP. While the relative gap of the CIT is larger—only 50 percent of its potential is collected, the corresponding revenue loss in absolute terms is lower than that for VAT, amounting only to TJS 1,599 million, or 2.25 percent of GDP.
Tajikistan’s State Committee on Investment and State-owned Property Management (GosKomInvest) has conducted a detailed sector-wise study of the tax base and revenues lost due to various incentives and exemptions. It concludes that an amount equal to TJS 3.29 billion was forgone in 2018 due to tax incentives, excluding tax exemptions on import, and that main beneficiaries included the mining and banking sectors, industrial enterprises, dealers and ticket sales, services, and transport and construction sectors. The committee also found that, currently, a significant portion of tax expenditures is accounted for by the exemption from domestic VAT, while the other exemptions account for only nominal portion of tax expenditures.
The total tax gap comes to more than 14 percent of GDP, and if reduced by even just half, would significantly help Tajikistan towards its tax collection target of 30 percent of GDP.
Tax administration reforms implemented in Tajikistan during the last decade reportedly led to improved levels of tax collections, enhanced degree of voluntary compliance, and improved quality of taxpayer services.
Meanwhile, according to the private sector’s feedback, the main challenges commonly faced by ordinary taxpayers included massive tax exemptions favoring some groups of taxpayers, lack of clarity in tax legislation, frequent and lengthy tax audits, requests for advance payments of taxes, and other shortcomings. The report notes that excessive tax exemptions to certain taxpayer groups make the playing field uneven. This has an adverse impact on voluntary compliance and becomes a major challenge for tax administration. Another problem is frequent changes to tax policy provisions and tax administration rules, without conducting due assessments or consultations with businesses and taxpayers. The proposed draft tax code offers an opportunity to rectify these various issues.
