The proposals were presented on July 30 during a fiscal dialogue hosted by the ministry. They are not yet law and would require amendments to the Tax Code before taking effect.
Under the proposal, the corporate income tax rate for banks, mobile network operators, polyethylene granule manufacturers, markets and shopping complexes would be reduced from 20% to 15%.
According to the institute, the resulting budget shortfall, estimated at UZS 859 billion, could be offset by applying VAT to commission-based financial services that are currently exempt.
Distinguishing commissions from interest
The proposed reform would draw a clear distinction between two types of financial income.
Commission-based services, where customers pay a fixed fee for a specific service, would become subject to VAT. These include charges for maintaining bank accounts and payment cards, settlement and cash services, merchant acquiring and payment processing, bank guarantees, letters of credit, foreign exchange commissions, payment system services, securities depository and exchange services, as well as the service component of factoring and forfaiting.
By contrast, interest-based (or margin-based) financial services would remain exempt from VAT. These include deposit-taking, lending, interest on loans, repurchase (repo) transactions, the interest component of financial leasing, the discount component of factoring and forfaiting, transactions involving shares, securities and financial derivatives, and the assignment of creditors' claims.
According to the presentation, the proposed approach reflects international practice endorsed by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD), under which explicit fees charged for financial services are generally subject to VAT, while interest income remains exempt.
What could change for consumers?
If adopted, the proposal would most directly affect the cost of financial services that involve fixed commissions rather than interest payments.
For example, fees for maintaining bank accounts or payment cards, processing payments, issuing bank guarantees or charging commissions on foreign exchange transactions could become subject to the standard VAT rate. If financial institutions pass the tax on to customers, these services could become more expensive.
At the same time, the proposal would not impose VAT on interest earned from bank deposits or paid on loans. Borrowers would therefore not face VAT on loan interest, while depositors would continue to receive interest free from VAT. However, this is separate from another proposal unveiled at the same fiscal dialogue, which would introduce a 5% income tax on interest earned from bank deposits.
Potential impact on businesses
For banks and several other industries covered by the proposal, the reduction in the corporate income tax rate would lower their tax burden on profits.
However, the overall impact would depend on how businesses respond to the new VAT rules. Financial institutions could pass the additional VAT costs on to customers through higher service fees, absorb part of the cost themselves to remain competitive, or adopt a combination of both strategies.
Companies that rely heavily on fee-based banking services – such as payment processing, bank guarantees or foreign exchange operations – could also face higher operating costs if VAT is ultimately reflected in service charges.
Part of a broader tax reform debate
The institute argues that separating commission income from interest income would bring Uzbekistan's tax treatment of financial services closer to international practice while allowing the government to compensate for revenue lost through lower corporate income tax rates.
For now, however, the measures remain proposals. Any changes would need to be approved through amendments to the Tax Code before they could take effect.
