Uzbek President Islam Karimov exempt commercial banks from tax on profit earned on long-term investment loans for the period until 1 January 2012.

According to the Presidential Resolution, published in local press last Friday, the banks are eligible for tax benefits allowing them to exclude from the taxable base the profits earned on the loans extended for the period of over 3 years for the investment projects on modernization, technical re-equipment and renovation of production in priority sectors of the economy (in accordance with the approved target programs).

The Ministry of Finance will annually appropriate funds to the Fund for Support of Mortgage Lending to compensate for the negative margin between the interest rate on the funds borrowed by the Fund in the interbank market and the rate charged on preferential credit lines provided by the Fund to commercial banks to support the programme of preferential mortgage lending.

According to the resolution, commercial banks will be exempt from the VAT tax and the tax on profit with the transfer of material values, earnings and other resources to their branches.

In 2005, the banks were exempt from the tax on profit received from the extension of long-term investment loans to local enterprises for the period until 2010 on the condition that these profits are directed back into the bank’s equity capital. The tax benefit coming in the form of the exemption from tax on earnings directed into the increase of the preferential lending fund and the earnings from extension of loans from this fund are kept.

The banking system of Uzbekistan currently consists of 28 banks, of which three are state owned banks, and five are banks with foreign capital. In 2007, 17% tax on profit was introduced for the commercial banks to replace the former rate of 12%.