Tashkent, Uzbekistan (UzDaily.com) - A draft joint resolution of the State Tax Committee and Central Bank “On the procedure for electronic transfer of bank account information to the State Tax Committee by the Central Bank and commercial banks of the Republic of Uzbekistan” was posted on the Discussion Portal for draft regulatory documents of the Republic of Uzbekistan, which caused wide public response.

The State Tax Committee of the Republic of Uzbekistan presents its position on this issue.

In many foreign countries, AML (Anti-Money Laundering - “Anti-Money Laundering”) and KYC (“Know Your Customer” - “Know Your Customer”) systems operate in commercial banks. In the process of their use, commercial banks analyze suspicious transactions and, if signs of illicit cash flow are detected, report them to the tax authorities and bodies for combating economic crimes.

Currently, the tax authorities of Uzbekistan do not receive such information from commercial banks. The lack of control is one of the main factors in the emergence and development of the “shadow economy”.

Only in January 2020, when analyzing 185 enterprises whose revenue from sales decreased, the fact was revealed that the turnover was worth 6.3 billion soums through payment cards of individuals. In total, they completed 27,519 transactions. This amount has not been documented anywhere; evidence of tax evasion is evident.

President of the Republic of Uzbekistan Shavkat Mirziyoyev in a message to the Parliament on 24 January 2020 noted: “Until we eradicate the  shadow economy” that seriously impedes our reforms, there can be no talk of creating healthy competition and a favorable investment climate.”

Considering the above, a draft joint resolution of the State Tax Committee and the Central Bank “On the procedure for the electronic transfer by the Central Bank and commercial banks of the Republic of Uzbekistan of information on bank accounts to the State Tax Committee” has been developed.

What is this document designed for?

The main goal is for entrepreneurs to carry out legitimate activities without evading taxes.

The uncontrolled presence of “businessmen” who have not legitimized their activities and who carry out monetary transactions by means of P2P (from card to card of individuals) gives them competitive advantages, including those related to the price of the final product.

This, in turn, infringes on the rights of bona fide taxpayers who regularly fulfill their tax obligations.

According to the document, the tax authorities upon request will receive information from the Central Bank and commercial banks on the accounts of legal entities, individual entrepreneurs and on the implementation of P2P money transfers (from card to card of individuals).

The information received will be used to segment taxpayers by risk criteria without human intervention. Based on the information provided, trade will be detected that are carried out without state registration, which is illegal business activity.

Moreover, such information will not be publicly available for all tax service employees - the data will be analyzed by an automated system and only in the State Tax Committee.

What does the Tax Code say about this?

It is worth noting that the provision by banks of information on customer accounts (both legal entities and individuals) is enshrined in the Tax Code of the Republic of Uzbekistan (Article 134).

In accordance with this article, the bank is obliged to inform the tax authority at its location of information about opening (closing) an account, changing account details of any legal persons or individuals (hereinafter referred to as the client) in electronic form within three days from the date of the relevant developments.

The procedure and forms of communication by the information bank are established by the Central Bank of the Republic of Uzbekistan in agreement with the State Tax Committee of the Republic of Uzbekistan.

At the request of the tax authority to provide information regarding the client, the bank is obliged, within three days from the date of receipt of the written request, to issue to the tax authorities:

1) a certificate of the presence of customer accounts in the bank;

2) a certificate of cash balances on the client’s accounts;

3) statements of operations on customer accounts;

4) other information related to the fulfillment of tax obligations of the taxpayer.

With regard to the issue of compliance of these standards with the Law on Bank Secrecy, Article 11 of this law provides:

“Information constituting bank secrecy shall be provided to the state tax service in cases relating to taxation issues of the bank’s client (correspondent), in accordance with the law.”

This information directly relates to taxation, therefore, the decision does not contradict the above law.

It is worth noting that in preparing this document, foreign experience was studied. For example, in countries such as Russia, Kazakhstan, Belarus, Poland, Latvia, Lithuania, a system has been established for the exchange of information between banks and tax authorities.

Digitalization and the “shadow economy”

With the development of digitalization, electronic commerce has flourished in our country today. Through Telegram channels, Instagram, Facebook, without leaving your home, goods and services are sold.

The range of such online stores is often no different from the average outlets registered as business entities. When paying for a product or service, such "sellers" in most cases ask to transfer money to an individual’s card (P2P).

As practice shows, most of these "entrepreneurs" did not pass state registration. This income is not declared and, therefore, is not taxed, which leads to the flourishing of the “shadow economy”.

So, in accordance with the document, at the request of the STC, within 3 days, banks will provide the tax authorities with information about the received funds to all cards of those individuals, the total amount transferred (P2P) per month, which will exceed the threshold of 30 million soums. Moreover, the number of transactions should also be more than 10. This information will be transmitted through special secure communication channels.

In each case, after receiving information, the tax authorities will conduct a study on the subject of registration of each individual subject as an entrepreneur.

At the same time, the very fact that a large amount was received on a plastic card of an individual is not at all a reason for collecting tax, especially in an indisputable manner. It is worth noting that the STC will not request information from commercial banks regarding customer deposits, dividends and salary information.

If a fact of illegal business activity is revealed, the necessary measures will be taken to register such entities.

Thus…

The proposed procedure establishes a mechanism for electronic exchange of information between STCs, the Central Bank and commercial banks. This will provide:

- legalization of electronic commerce by timely registration as business entities;

- creation of a reliable tax base;

- systemic tax risk management;

- the eradication of the “shadow economy” and the creation of a favorable business climate.

This document envisages the creation of equal competitive conditions for all business entities that receive income. Paying taxes is everyone’s obligation, as enshrined in the Constitution, and any bona fide taxpayer is entitled to fairly count on the absence of the electoral principle in taxation.