Business calls for VAT relief as farming costs rise, but Tax Committee pushes back citing low existing burden

Chairman of the Tax Committee Sherzod Kudbiyev has spoken out against a proposal to reduce the value-added tax (VAT) on agricultural products. He made these remarks on July 18 during an open dialogue with fruit and vegetable exporters organized by the Chamber of Commerce and Industry.

The committee is currently examining the challenges in agricultural production, using the Kashkadarya region as a case study. One of the main discussion points is the sector’s tax burden.

“As for the idea of lowering VAT on agricultural products to 1%, in my view, it was raised without a deep understanding of the issue. If your goal is to bring products to the export stage, you should instead insist on applying the 12% rate. That indicates there are issues within the supply chain,” Kudbiyev stated.

He emphasized that the overall tax burden in agriculture remains low, and his office does not see it as a pressing concern. He pointed out that farmers are exempt from profit tax, most taxes are paid only twice a year, and VAT is paid monthly.

If businesses face difficulties claiming input VAT, he said, the issue lies not in the tax burden itself but in the mechanisms of VAT offsetting. Kudbiyev proposed that exporters form a working group to quickly analyze the problem and develop a solution to be discussed with the government’s economic team.

“We are aware of the shadow turnover [in agriculture], and we want to eliminate it. Major market players should encourage smaller ones to operate transparently. If you run your business honestly, margins may decrease, but life will get easier and many operational costs will disappear,” Kudbiyev said.

Last week, Bekzod Mamatkulov, Chairman of the Supervisory Board of BMB Holding, stated that the biggest burden in agriculture is the 12% VAT. He suggested temporarily reducing the tax on agricultural products to 1% for a period of 2–3 years.

Davron Vakhabov, Chairman of the Chamber of Commerce and Industry, noted that farmers are forced to pay 12% VAT on their entire turnover because they purchase goods in cash and cannot claim VAT offsets.

“We purchase around 90% of agricultural products officially via bank transfers. But I admit, the remaining 10% is paid in cash – because otherwise, it’s impossible to work with farmers. We transfer money, the farmers grow and deliver the goods, but when we collect them, they don’t provide any documentation,” the businessman explained.

Bekzod Mamatkulov added that the situation is exacerbated by the unprofitability of cultivating certain crops, citing potatoes and tomatoes as examples.