The authorities of Tajikistan have introduced amendments to the legislation on free economic zones (FEZs) with the hope of expanding the activities of SEZ entities and enhancing the attractiveness of these zones. Will it work?
Presenting the bill to lawmakers, First Deputy Minister of Economic Development and Trade Ashurboy Solehzoda noted that the draft amendments were prepared in accordance with the president's directive to strengthen the activities of these zones. Entrepreneurial activities in these zones, regardless of ownership forms, are exempt from all types of taxes except for social tax and personal income tax.
Mr. Solehzoda emphasized that the draft amendments aim to increase the inflow of investments, create new enterprises, maintain existing ones, and create new jobs. Additionally, the amendments seek to strengthen the export potential of FEZs, thereby reducing the country’s dependence on imports.
Specifically, he mentioned that the amendments propose introducing the concept of a “servicing company,” which will provide various services within the FEZs, including: security and cleaning of the territory and facilities; loading and unloading of goods and products; repair, construction, and maintenance of buildings and structures; providing electricity, water, sewage, and transportation to FEZ entities; leasing out territories, warehouses, and other facilities; and promoting the zone to attract capital.
Currently, FEZ Administrations provide these services using budgetary funds. The amendment envisions attracting a private company, which will manage these activities based on a public-private partnership and using its own funds, creating the necessary infrastructure if needed.
The law on free economic zones will also be supplemented with the concepts of a “unified registry of FEZ entities” and the “one-stop-shop principle”, which, according to Solehzoda, are aimed at simplifying the procedures for providing government services to FEZ entities, reducing the time required for these procedures, and ensuring transparency.
The bill reportedly also aims to minimize direct contact between entrepreneurs and government representatives during the preparation and submission of documents, facilitating electronic document exchange between officials and FEZ entities.
Additionally, the first deputy minister of economic development and trade noted that a new fifth type of FEZ, the comprehensive zone, has been added to the law. This type of zone allows multiple types of activities to be conducted within the same zone.
Previously, the law included the following types of FEZs: 1) industrial (production of industrial goods); 2) trade and commercial; 3) service-oriented; and 4) innovative, research, and development.
The duration of all five FEZs in the country has also been increased from 25 years to 50 years. Most of the free economic zones, except for the FEZ Kulob, were created in 2008-2009, and thus 15-16 years have already passed, leaving only 9-10 years of their initial duration remaining. FEZ Kulob was established relatively later in 2019.
Furthermore, the amount of initial capital required to operate within an FEZ has been reduced. Previously, potential FEZ entities needed to invest at least US$500,000, but now they can register with an investment of US$300,000.
The amendments reportedly also reduce the early operation period for imported production and technological equipment from three to two years, which Solehzoda stated is “to attract advanced technology.”
Five free economic zones now operate in Tajikistan: FEZ Sughd (Sughd province); FEZ Panj (Khatlon province); FEZ Danghara (Khatlon province); FEZ Kulob (Khatlon province); and FEZ Ishkashim (Gorno Badakhshan Autonomous Region, or GBAO).
The free economic zones provide preferential terms for economic, financial, trade, information, and other activities for investors. The FEZs offer incentives to investors, including preferences on taxation and customs procedures.
In the early 2000s, foreign direct investment has remained low because of political and economic instability, the poor domestic financial system, and Tajikistan’s geographic isolation. To attract foreign investment and technology, Tajikistan has offered to establish free economic zones in which firms receive advantages on taxes, fees, and customs. In 2004, the parliament passed a law on free economic zones. The zones offer customs and tax incentives to qualified investors.
According to data of the Agency for Statistics under the President of Tajikistan, a total of 88 corporate residents have been registered with five FEZs operating in Tajikistan; only 33 of them (37.5 percent) were operational last year.
