September 21, 14:22

The mechanism of the royalty tax in Uzbekistan: how it determines superprofit despite rising raw material prices

The question of why high global prices for raw materials such as copper or gold do not always guarantee superprofit for a specific deposit, as well as the need to introduce a special royalty tax alongside profit tax and subsoil use tax, is discussed in a column for 'Gazeta'. Dilshod Sultanov, Deputy Director of the Institute for Reducing the Share of the Shadow Economy, Improving Tax and Customs Administration, and Fiscal Analysis at the Ministry of Economy and Finance, explains the principles of this tax in Uzbekistan, emphasizing that it takes into account not only the income received but also the costs incurred by the project.

} , 2. {

Subsoil resources differ from standard production assets. Although the investor assumes risks related to exploration, construction, and operation, a successful deposit can generate income significantly exceeding cost recovery and expected rate of return. Part of this excess income is classified as resource rent, which is linked to the uniqueness and scarcity of the natural resource.

Normal profitability is defined as the minimum level of profit sufficient to compensate the investor for the invested capital, taking into account the project duration and associated geological, production, and market risks. This profitability makes investments economically viable but does not guarantee profit and does not have a universal meaning for all deposits.

When global prices for minerals rise, it is natural to assume that royalties (subsoil use tax) should simply be increased. However, a high price itself does not mean that every deposit will generate superprofit. Therefore, the task of the tax system in the mining sector goes beyond simple collection of profit tax; it must ensure the state's share of resource rent, including that arising during periods of high global prices.

Accounting profit does not coincide with rent because it includes the normal return on capital, depends on depreciation and financial structure, and is usually calculated for a legal entity, not for an individual project. Furthermore, limiting each project is critical to prevent the erosion of the tax base due to other types of activities or the inclusion of costs from other deposits.

How the royalty tax functions

In an ideal symmetric model, the state participates in both positive and negative financial flows of the project. In practice, the budget rarely reimburses expenses directly. Instead, the negative balance is carried over to future periods and increased by an established surcharge. Capital and operating costs form the negative balance of the project, and the tax arises only when subsequent revenues cover this balance, including the accrued surcharge. Thus, the project does not pay the royalty tax while it is recovering its initial investments.

The essence of the royalty tax is to provide the state with a share of the income remaining after covering the allowable project costs. Capital and operating expenses reduce the accumulated result, and the uncovered negative balance is transferred to the next period with a surcharge. It is important to note that financial expenses do not reduce the rent base. The longer the costs remain unrecovered, the larger the amount that the project must cover before generating rent income.

International experience and Uzbekistan's approach

In its report 'Analysis of Cash Flows in Mining Tax Regimes,' IMF experts point to the significant advantages of combining three instruments for many countries: moderate royalties to generate revenue from the start of mining, profit tax to tax ordinary profits, and a royalty tax to extract part of the superprofit.

The OECD report on critical raw materials in Central Asia notes that Uzbekistan has a special royalty tax on mineral extraction at a rate of 25%. The OECD recommends maintaining this tax, testing its parameters on economic models, and considering limiting the deduction of historical costs to which the surcharge is applied.

The rent nature of the tax is determined not by its name or high rate, but by whether the tax base considers the accumulated result of a single project, cost recovery, the investor's normal return, and the time factor of income generation. This is what distinguishes the special royalty tax from royalties and profit tax. In Uzbekistan, as of January 1, 2022, the taxation system for mining projects was transformed into a three-tiered structure, including profit tax, subsoil use tax, and a special royalty tax.

The special royalty tax applies to certain categories of mining projects. For subsoil areas where mining began between January 1, 2024, and December 31, 2025, full exemption from this tax is provided for the entire development period. For other projects, the obligation to pay arises only after the accumulated costs are covered, including the established surcharge. This structure was created to maintain the investment attractiveness of projects while ensuring the state's share of resource rent and price superprofits.

Conditional example of liability for the special royalty tax

According to the given example, the obligation to pay the special royalty tax arises only in the fifth year of the project implementation. During the first four years, project revenues are directed towards covering the accumulated rent loss, which includes incurred costs and the uplift charged on the uncovered balance. After fully covering this accumulated loss, only in the fifth year does the accumulated result become positive in the conditional example—about 60 units. At a rate of 25%, the amount of the special royalty tax will be 15 units.

It is important to understand that this does not mean that the funds from the first four years are physically transferred to a separate account to cover the loss. It is about tax calculation: as long as the accumulated base remains negative, the special royalty tax is not levied. A feature of the special royalty tax is that capital investments are accounted for in determining the tax base all at once, not incrementally through depreciation. Since the cost of capital investments has already reduced the special royalty tax base, depreciation in subsequent years is not deducted again, which excludes double counting of expenses.

The size of the indexation of the uncovered negative result is determined annually. The basis for calculation is the yield of a US dollar-denominated international bond of Uzbekistan maturing in 2031, as of December 31 of the relevant year, plus two percentage points. Thus, the indexation coefficient accounts for the change in the value of money but depends on the market yield of government securities.

In the conditional example, at the end of the first year, the investor's capital investments amounted to 250 units. With an international bond yield of 5.5%, the indexation coefficient is 7.5% (5.5% plus two percentage points). Consequently, the accumulated rent loss of approximately 268.75 units is carried over to the next year. For calculation simplicity in this example, the indexation coefficient was set at 7.5% for all years, although in practice it is recalculated annually and may change depending on the bond yield.

The surcharge established by law is not a guaranteed investor return; it performs a normative function of transferring unrecovered costs and only partially accounts for the time value of money.

Why a high price does not yet mean superprofit

Some countries use two main methods to tax additional income of mining companies: increasing royalties when global raw material prices rise or introducing an additional profit tax. An increased profit tax takes into account company expenses, but it is usually calculated for each financial year and does not show whether a specific project has paid off considering past losses and investments. Therefore, a high profit tax rate itself does not transform it into a royalty tax. In contrast, the royalty tax assesses the result of the deposit over a longer period and arises only after achieving payback.

Another way to increase budget revenues when global prices rise is to increase the tax rate calculated based on the volume or value of mined raw materials. The advantage of this approach is that the budget receives additional funds immediately, without waiting for the company to make a profit. Nevertheless, it has a limitation: such a tax hardly differentiates the profitability of deposits if the value of the sold raw material is the same.

Consider two deposits selling metal at the same price and receiving the same revenue. In the first deposit, the ore is richer, and infrastructure (roads, electricity, processing) is already available. In the second deposit, the ore is deeper, requires complex processing, and more expensive transportation. The royalty for both projects will be the same, although their actual profits may differ significantly. For the first project, the increased tax may extract part of the superprofit, whereas for the second, it may take part of the ordinary profit or even funds needed to return investments.

This is especially relevant for new, capital-intensive, and geologically complex deposits, where the superprofit may be insignificant even with high raw material prices. Therefore, increasing royalties in line with global prices does not provide an accurate assessment of superprofit, as such a tax ignores costs, project payback, and deposit complexity. The higher the royalty rate, the higher the risk that developing expensive reserves will become unprofitable. This does not mean that royalties should be abolished; a moderate tax ensures revenue for the budget from the beginning of the deposit's operation, before profit is made, but royalties should not be the sole method of extracting superprofit.

What is required for effective administration

The special royalty tax determines superprofit more accurately, but its administration is more complex than a regular mining tax. The state must check not only the volume of raw materials and their selling price but also the company's expenses. When administering such a tax, several key risks must be taken into account, including the possible inflation of costs, since the more declared expenses, the later the moment the tax arises. Therefore, tax authorities must have the ability to analyze and compare the cost of construction and equipment in detail.

podrobno.uzSeptember 17, 06:30

EBRD: Uzbekistan needs not only a factory but also the formation of an internal production base for economic growth

It is not enough for Uzbekistan simply to attract foreign investment, acquire modern equipment, and open new production capacities to achieve the status of a high-income country. Analysts from the Eurasian Development Bank (EDB) assert that for sustainable development, it is critically important that alongside domestic production, technologies are preserved, local suppliers, engineers, standards, and proprietary developments are developed.

The EDB has presented a new concept for industrial transformation for developing economies. Currently, 108 middle-income economies, with populations of approximately 6 billion people, are classified in this group, yet only 34 of them have managed to transition into the category of wealthy countries since 1990. Furthermore, during the period 2021–2023, 95 out of 143 developing economies remained dependent on raw materials, which accounted for over 60% of their merchandise exports. Although high prices for natural resources can ensure rapid growth, they do not guarantee a transition to a stably wealthy economy.

The Bank emphasizes that increasing investments and purchasing modern equipment do not solve the problem by themselves. External technologies must be transformed into internal production capacity, including the development of engineers, technologists, supplier networks, standardization, service, repair, design, and process efficiency improvement. At the same time, economic openness and attracting foreign investors remain necessary, but success should be measured not by the number of imported machines, but by the degree of increase in local added value and knowledge transfer through imports and participation in global supply chains.

The significance of industry is due to the fact that, according to data from the new report, the manufacturing sector was linked to 64% of economic growth cases over the last five decades. Moreover, one industrial job supports an average of 2.2 jobs in related fields such as logistics, construction, education, and services.

Uzbekistan's Transformation within the Regional Model

Within the regional model, the EDB classifies Uzbekistan and Kazakhstan as 'resource-scale transformers.' These are countries possessing both resource and energy bases, as well as agricultural potential and significant domestic demand. Their task is to transition from raw materials and primary processing to creating more complex products, such as chemical products, high-quality metals, electronics, machinery, and components.

According to the sectoral map, Uzbekistan received the highest scores in the chemistry and polymers, as well as industrial machinery sectors (scoring 4.71). Following these are the food industry and deep agro-processing (4.62), transport components (4.61), agricultural and irrigation equipment (4.58), fertilizers and agrochemicals, and light industry and technical textiles (4.55). Electrical engineering and pharmaceuticals scored 4.50.

It is important to note that these assessments do not define a single stage of development for the entire country. Chemistry and mechanical engineering are assigned to the second stage, where suppliers, engineering competencies, standards, and project financing become key. The food industry, agritech, fertilizers, and textiles fall between the first and second stages. Pharmaceuticals are positioned between the second and third stage, which implies adding proprietary research and commercialization of solutions to the production base. Thus, an economy can host basic production, mature industrial platforms, and innovative niches simultaneously.

The EDB recommends choosing development directions based not on prestige, but on a combination of factors: demand, availability of resources, current competencies, technological proximity, infrastructure, and project financing capability. For example, a complex factory lacking engineers, suppliers, and testing facilities in the country may show good investment statistics but have a weak impact on the overall economy.

Differences in the Tasks of Neighboring Countries

The EDB report does not compare neighboring countries based on who is 'better'; each country plays its role in the overall regional industrial system. Russia and Belarus are defined as the industrial core because they possess higher initial competencies in complex machinery, components, engineering, and several technological areas. Kazakhstan, similar to Uzbekistan, must deepen the processing of its own raw material base. Armenia, Kyrgyzstan, and Tajikistan are viewed as niche and cooperative hubs capable of specializing in specific segments, services, and components.

Figures demonstrate these differences: Russia leads in industrial machinery (4.97 points), transport components (4.94 points), and chemistry and polymers (4.91 points). Belarus leads in mechanical engineering (4.93 points), followed by agricultural and irrigation equipment (4.84 points) and transport components (4.83 points). Kazakhstan has the highest score in chemistry and polymers (4.87), as well as in high-grade metallurgy (4.84 points) and critical materials (4.83 points).

The profiles of smaller economies differ. In Armenia, pharmaceuticals and medical devices are rated highest (4.49 points), as are electronics and components (4.47 points). Kyrgyzstan leads in light industry and technical textiles (4.40 points), as well as in food and agro-processing (4.29 points). Tajikistan achieved the highest score in metallurgy and metalworking (4.27 points), followed by light industry (4.21 points) and critical materials (4.15 points).

A Three-Step Model Instead of a Quick Leap

The model proposed by the EDB is based on three sequential stages. The first stage is the creation of a basic production foundation, for which the country requires reliable energy supply, transport, water resources, industrial space, warehouse infrastructure, basic standards, and mass professional skills. The main goal of this stage is to ensure stable product output and form the first supplier networks.

The second stage represents the industrial platform. At this level, simple production is insufficient; deeper processing, mechanical engineering, metallurgy, certified suppliers, engineering centers, long-term financing, and the ability to adapt imported technologies to local conditions emerge. For many priority industries in Uzbekistan, this second stage is currently key.

The third stage is the knowledge economy, which includes applied research, pilot lines, intellectual property, and the development and commercialization of new products. However, analysts caution: attempting to skip to this stage without establishing an industrial platform is extremely difficult. Although individual technology companies may appear earlier, the massive complication of the economy requires personnel, suppliers, standards, and financing.

The practical application of this model for Uzbekistan dictates that a new factory should not operate in isolation. Around it, programs for staff training, local suppliers, engineering support, testing laboratories, certification, service, and access to long-term financing and sales markets must develop simultaneously. The EDB considers a full industrial transition project only complete if it includes four mandatory elements: human resources, technology adoption, quality infrastructure, and funding for pilot work followed by scaling up.

This changes the understanding of localization. Assembling a finished product from imported parts is only the initial step. A more valuable stage begins when local enterprises start producing components, repairing and modernizing equipment, redesigning production processes, complying with international standards, and selling products outside the domestic market.

Similar principles apply to foreign investment. Between 2016 and the first half of 2025, the total volume of mutual direct investment in the Eurasian region reached $48.4 billion, of which $9 billion, or 18.4%, went to manufacturing industry. The EDB advises attracting investors not only through tax incentives but also through a comprehensive offer that includes a site, infrastructure, local partners, personnel, future suppliers, financing, and an export market.

Another important principle is market validation. Large programs and broad subsidies should not be launched solely based on perceived industry prospects. A pilot project with private co-financing must first be conducted to confirm demand and competitiveness. If the project fails market validation, its scaling risks creating expensive facilities supported by continuous financial aid.

For some complex productions, the Uzbek market may be too small. The combined market of the EAEU and Central Asia is estimated at approximately 180–220 million people, and currently, about 59% of sales of second-level processed products go to this region. This is where the division of specialties becomes evident: Uzbekistan and Kazakhstan can focus on chemistry, metallurgy, electrical engineering, and equipment manufacturing; Russia and Belarus—on supplying more complex components, technologies, engineering, and standards; and smaller economies—on highly specialized niches.

The EDB formula boils down to the idea of a 'unified industrial system based on diverse competencies,' which allows national enterprises to access a wider market. The Bank highly values the potential of such a model: a previous study predicting the scenario development of four interconnected clusters—chemistry, mechanical engineering, high-grade metallurgy, and food industry—forecasted an additional annual output exceeding $510 billion at 2019 prices.

Main Conclusion

The republic's industrial base is recognized as the foundation for growth, but the mere introduction of production capacity is only the beginning of the process, not its completion. If an enterprise remains a 'technological island' after launch, dependent on imported parts, external service, and foreign engineers, its contribution to long-term development will be limited. Much more complex and less visible work begins after the workshop opens: training local specialists in servicing and improving technologies, developing dozens of suppliers around a large enterprise, bringing their products up to required standards, etc.

uzdaily.uzSeptember 15, 08:30

Insurance premiums grew unevenly across regions in Uzbekistan in the first half of 2026

In the first half of 2026, insurance contributions in Uzbekistan showed uneven growth across various regions. According to data from the National Agency for Advanced Projects (NAPP), the most significant increase was recorded in the Samarkand region, where growth reached 43.1%. At the same time, the Republic of Karakalpakstan experienced a decrease in insurance premiums by 19.6%.

The total volume of insurance premiums nationwide reached 8.019 trillion soms for the reporting period, which is higher than the figure of 6.235 trillion soms a year earlier, reflecting an overall growth of 28.6%.

Tashkent region maintained the largest share of premiums, collecting 6.577 trillion soms, accounting for 82% of the national total. In the capital, premiums increased by 33.2% compared to the same period last year.

Besides Samarkand, notable premium growth was observed in the Fergana region, where they rose by 29.3% to 172.0 billion soms; in Tashkent region—by 29.1% to 163.4 billion soms; in Khorezm region—by 18.1% to 102.6 billion soms; and in Andijan region, where growth was 16.5%, reaching 119.5 billion soms.

In addition to the Republic of Karakalpakstan, premiums decreased in Jizzakh region by 11.3%, amounting to 65.4 billion soms, and in Navoi region, where the drop was 1.8% to 62.2 billion soms. In Syrdarya region, premium volumes remained almost unchanged, decreasing by only 0.2% to 61.9 billion soms. Bukhara region also remained at last year's level, with premiums increasing by only 0.1%, reaching 131.3 billion soms.

Across the country, insurance payouts increased by 80.9%, reaching 2.253 trillion soms. In Tashkent, the growth in payouts outpaced the growth in premiums, increasing by 130.2% to 1.989 trillion soms, indicating a faster increase in settled claims in the capital compared to the rest of the market.

Thus, although Tashkent continues to dominate the market in terms of premium volume, the insurance markets of Samarkand, Fergana, and Tashkent regions demonstrated the strongest growth in the first half of 2026. Meanwhile, insurance premiums decreased in the Republic of Karakalpakstan and Jizzakh region.

gazeta.uzSeptember 8, 13:07

Uzbekistan reduces initial payment for state assets to 15% and extends installment period to seven years

Updated rules are being introduced in Uzbekistan for the sale of state assets and land plots. These new procedures are established by a presidential decree aimed at accelerating the privatization process and reducing the state's share in the economy.

According to this document, when purchasing state assets or unoccupied land plots not intended for agriculture through online auctions, the buyer must pay 15% of the total cost within 30 days. Previously, this initial payment was 30%. The remaining amount can be paid in agreed-upon terms without interest accrual.

For assets valued at at least 20 thousand basic calculation units, additional options are provided. If full payment is made within six months, the buyer receives a 25% discount. There is also an option where 50% of the cost is paid within six months, and the remainder is paid off interest-free over seven years. A third option allows for a 35% payment within three months, with the balance repaid interest-free over five years.

Buyers who pay at least 50% of the state asset's value are entitled to reconstruct, repair, demolish, or rebuild it even before all financial settlements are completed.

Mechanisms for Unsold Assets

The decree also establishes a special procedure for assets that could not be sold through open electronic auctions or exchange trading. If an object is not sold within three months, its starting price will gradually decrease by 10%. This reduction may continue until the price reaches 10% of the object's initial book value.

If the asset remains unsold for two months, the State Assets Management Agency has the right to either divide it into smaller parts or combine several objects for re-listing in tenders. In a subsequent auction, if only one participant submits a bid, they may acquire the lot at the announced price.

Hybrid Auction

The concept of a hybrid auction is introduced for the sale of state assets, combining principles of both descending and ascending price bidding. Initially, the object's price gradually decreases until a participant expresses a desire to purchase it. Following this, there is a phase of price increase among interested parties. According to the document, the initial step for both price reduction and increase is set at 2%.

A mechanism is also provided for selling property for which only one offer has been received. In such situations, the potential buyer may be offered the asset at a price no lower than its net value.

Extension of Rules to State Bank Assets

These new rules apply not only to traditional state enterprises. The decree permits their use when selling the property of commercial banks where the state stake is 50% or more, as well as the property of investment companies transferred to them for debt repayment. For such property, sales at market value through open tenders using the new payment conditions and price reduction mechanisms are permissible.

If property received by a bank in lieu of debt repayment does not find a buyer within a year, it can be transferred to the State Assets Management Agency for further disposal.

The implementation of new norms occurs parallel to the expansion of the state asset sale program. By 2026, the plan includes listing shares in 84 business societies, 1242 real estate objects, and about 8 thousand hectares of land for privatization. The total estimated value of the assets and land designated for sale is approximately 100 trillion UZS, with a minimum expected revenue from their realization set at 14 trillion UZS. Furthermore, the liquidation or reorganization of 85 state-participating enterprises is planned, and a number of previously unsold objects will be put up for auction again.