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26SCIENTIFIC PROGRESS VOLUME 2 I ISSUE 1 I 2021
ISSN: 2181-1601
WAYS TO ATTRACT FOREIGN INVESTMENT IN THE DEVELOPMENT OF
THE REGIONS
O. A. Nuraliev
Academy of Public Administration under the President of the Republic of Uzbekistan
ABSTRACT
This article discusses the problems of attracting foreign direct investment and includes the recent reforms employed on increasing investment atmosphere in the Republic of Uzbekistan. The article also studies the foreign practices and inconsistency of international standards into national level for further development of business environment.
Keywords: Uzbekistan, investments, reforms, business, index INTRODUCTION
Uzbekistan today made huge changes to create favorable business environment for foreign investors than it has ever been in the past 2 decades. Since his election as a head of the country, President Shavkat Mirziyoyev executed deep reforms in every sector of the economy in order to improve the quality of life of each person living in Uzbekistan. He successfully managed repositioning Uzbekistan policy on the road from "control economy" dictated by the public sector into a "competitive market economy" dominated by the private sector.
The government's Action Plan enacted 2017 as a National Development Strategy (a road map) for 5 years also reflects much reformations on core matters including "liberalizing the economy", "implementing social reforms", "reforming public administration" as well as "strengthening the rule of law".1
Gradually, the Government of Uzbekistan upgraded its policy to create the most favorable business atmosphere in the region by introducing innovative, online registration procedures for new business entities, preventing corruption and increasing transparency. President eliminated barriers on entry visa procedures for investors to extend residence permits for their best convenience. At the same time, he challenged all regional governments to boost the FDI inflow into the region and mandated reporting FDI progress quarterly.
The newly updated Tax Code significantly decreased income taxes for both corporate and individuals and created more sound and friendly taxation procedures for private entities. Notwithstanding the above transformations, many investors are still staying in an "observer" position waiting for continuing outcomes of the reforms. Thus,
1 Decree of the President of the Republic of Uzbekistan, On the Strategy for the Further Development of the Republic of Uzbekistan, February 2017, No. 6, Article 70, mfa.uz, https ://mfa.uz/ru/press/news/2017/02/10244/
the Government of Uzbekistan is still facing further reformation on several important economic sectors like banking and finance, insurance as well as improvements in public governance, development of strong private property rights, transparency in public procurements, licensing and permits.
At the current stage of market reforms, the issues of raising the efficiency of foreign investments in our country should be considered as one of the most important priorities. Therefore, one of the most urgent problems, in my opinion, is the development of scientifically sound conclusions and recommendations on increasing the effectiveness of entrepreneurship, not only in domestic and foreign investments.
LITERATURE REVIEW
Attracting the FDI into domestic economy will boost not only the economy but also develop hi-tech and know-hows of the host country accordingly. Therefore the topic was always in the center of attention of many scholars and scientist. Particularly, Chinese and Korean scholars made good effort to study the opportunities to attract the investment more widely (Yushu Feng, 1997).
As stated by OECD FDI Regulatory Restrictiveness Index (RRI), Korea offers interesting arguments and case studies to define its reforms to attract FDI as it was the main reformer of its policies on investment attraction among 1997s and 2010s comparing to other developed countries (Françoise Nicolas, Stephen Thomsen, Mi-Hyun Bang (2013).
Besides that many researchers have attempted to distinguish factors that control FDI (Pathan, Wisniewski, 2014; Yang, Lu, 2007,) and to analyze methods would increase favorable investment environments (Ustinovichius et al., 2017). Whereas, some scholars reviewed the impact of public governance and transparency matters on attracting foreign capital (Li, 2007; Pathan, Wisniewski, 2014).
Particularly, fundamental reviews made on attraction and promote FDI and highlighted its favorable characteristics on host country, considering the policies on tax incentives and banking reforms (Elena CHIRILA DONCIU, 2013; Kate Mallinson, 2020).
Nonetheless, recent studies in national level focused on problems of attracting Foreign Investments in Entrepreneurship (Y.Nikonova, N.Victorova, A.Ivatsenko, G.Velyaminov K.Gusev, E.Orlova, 2018) have done research in their works. Uzbek scientists such as (N.Karimov & N.Haydarov, 2018) Scientists have done research on the problems of attracting investments, particularly foreign investments, and their elimination.
Reform process analysis
Uzbekistan in recent years has employed numerous reforms, involving currency exchange liberalization, simplification of business registration and foreign trade
procedures, and formation of the "business Ombudsperson" The laws, which were developed over the years with the support of the UNDP, ease the regulatory environment for foreign investors.
The first step of the reforms commenced in 2017s focusing on barriers to investment which stressing basic infrastructure problems and improving Uzbekistan's position in the world bank's doing business rankings. Based on the records of Doing Business ratings, Uzbekistan admitted as the top 20 reformers in 2020 and rose its positioning 7 times from 76th to 69th place in just 12 months. Furthermore, Uzbekistan had a strong enthusiasm to be in the top 20th by 2030 through mandated strategy attempts.
The government of Uzbekistan has launched the activity of reassessing the role of large state-owned monopolies, particularly in the transport, banking, energy, and cotton segments. In 4th quarter of 2019, President Shavkat Mirziyoyev approved four legislations intended to further improvement of the investment climate: "on investment in the banking sector", "on clarifying the tasks of a Foreign Investors' Council", "on a revision of the tax code", and definitely on "investment and investment activities".
Tax incentives to foreign investors
The recently drafted and "more friendly" Tax Code prepared by The Ministry of Finance, together with the State Tax Committee, with the assistance of the International Monetary Fund, the World Bank, international and national experts which the application of tax legislation has been simplified as much as possible which aimed at strengthening the protection of the rights and legitimate interests of bona fide taxpayers. The new version of the Tax Code introduced numbers of privileges and certain exemptions from payment of customs duties for foreign investors and also for particular business fields to develop the industry. Nevertheless, benefits for certain taxes, obtainable by the President of the Republic of Uzbekistan only in the form of reduction of the established tax amount up to 50% and for the period of 3 years (PwC Uzbekistan, Corporate - Tax credits and incentives, 2021). As for friendly tax regime, the free economic zones (FEZ) are discharged from land, property & water usage tax, including customs payments (excluding Value Add Tax & processing fee) for construction materials not produced in national market and imported for implementation of projects as per the investment agreement for the period of construction. Above exemptions offered by
2 World Bank, Doing Business 2020, October 2019, https://www.doingbusiness.org/en/reports/global-reports/doing-business-2020
the newly introduced Tax Code that eliminates individual preferences for foreigners whereas, illuminates the whole group of investors' interests both local and foreign. Another advantage of the tax code is the Members of FEZ are also enabled for late payment of VAT on import of goods for a period of no more than 4 months, which gives additional breathing time for investors funding the project.
Moreover, Business entities attracting FDI are allowed by tax exemptions for specific periods, which vary on investment amount as shown in the graph above.
CONCLUSION AND RECOMMENDATIONS
The government of Uzbekistan still considering to further development of its lawmaking strategy for better protection of private property rights, create favorable business climate by removing barriers and limitation, restrict the role of government in the business activities, regionalization of the public administration system as well as improve public cooperation.
It is not easy to acknowledge the fact that Uzbekistan is not a member for any international financial organizations including WTO, Eurasian Economic Union (EEU), International Monetary Found (IMF), etc. Besides, the government of Uzbekistan often claims that its regulatory system is inconsistent with the best world practice. It is important to note that even if Uzbekistan a member of CIS Free Trade Zone Agreement since 2013, it dose not mean an economic bloc with international trading tariffs regulation requirements. As many investors believe, thus makes some limitations to further implementation of international standards into national level and even interrupts execution of foreign independent court decisions in practice.
In order to create favorable and more friendly business environment within the nation, government need to act "out of box" and need to change its position from "observer" to "performer" then welcome best international practice derived from developed nations.
REFERENCES
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SCIENTIFIC PROGRESS VOLUME 2 I ISSUE 1 I 2021
ISSN: 2181-1601
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