By: Eshqulova Dilorom Abduravupovna
Abstract: Uzbekistan faces the persistent challenge of a substantial underground economy, hindering its economic growth and sustainable development. This thesis examines the complex factors driving the informal sector, analyzing their impact on economic indicators, social well-being, and government revenue. It then proposes a comprehensive framework for mitigating the underground economy, grounded in the principles of transparency, accountability, and inclusiveness. By employing a combination of legislative reform, regulatory streamlining, and social interventions, the thesis argues that Uzbekistan can foster a more formal and vibrant economic environment. The research draws upon a diverse range of data, including economic statistics, case studies, and international best practices, to formulate a pragmatic roadmap for tackling this critical issue.
Keywords: Underground Economy, Informal Sector, Uzbekistan, Sustainable Development, Transparency, Accountability, Inclusiveness, Economic Growth, Poverty Reduction, Tax Revenue, Labor Market, Financial Inclusion, Regulatory Reform
Introduction
The underground economy, encompassing economic activities operating outside the formal regulatory framework, poses a significant impediment to achieving sustainable development in many nations, including Uzbekistan. Its presence signifies a lack of trust in government institutions, a complex regulatory environment, and a perceived lack of economic opportunities within the formal sector. In Uzbekistan, the underground economy is deeply embedded in various sectors, fueled by factors such as bureaucratic hurdles, high taxation, limited access to formal financial services, and a culture of informality. This thesis delves into the intricate web of causes and consequences of the underground economy, aiming to contribute to a more comprehensive understanding of the challenge and to propose a framework for its mitigation.
Bureaucratic Barriers:
The complex and time-consuming procedures for registering businesses, obtaining licenses, and navigating the tax system deter many individuals and small businesses from entering the formal sector.
High Taxation and Lack of Tax Compliance:
High tax rates, inconsistent tax policies, and a lack of transparency in tax administration discourage businesses from formalization, leading them to seek avenues for tax avoidance.
Limited Access to Financial Services:
The lack of access to affordable credit, financial literacy, and formal banking services forces many individuals and businesses to rely on informal lending systems, further perpetuating the underground economy.
Corruption and Weak Enforcement:
A culture of corruption and weak enforcement of laws and regulations discourages businesses from engaging with the formal sector, as they perceive it as a risky and costly endeavor.
Cultural and Historical Factors:
The legacy of a centrally planned economy, combined with a traditional reliance on informal networks and family-based businesses, has contributed to the persistence of the underground economy.
The Consequences of the Underground Economy:
Economic Growth and Development: The underground economy hinders economic growth by diverting resources from the formal sector, reducing investments, and creating a less competitive business environment.
Tax Revenue and Budget Shortfalls:The lack of formal taxation on informal activities leads to significant budget shortfalls, limiting the government’s capacity to invest in public services and social programs.
Labor Market and Inequality: The underground economy often involves exploitative labor practices, low wages, and limited access to social protection, exacerbating inequality and contributing to poverty.
Social Well-being: The informal sector often lacks safety standards, healthcare provisions, and other social benefits, negatively impacting the well-being of individuals and families.
Sustainability and Environmental Protection:The underground economy can contribute to environmental degradation due to the lack of regulatory oversight and environmental awareness.
Towards a Formal and Sustainable Economy:This section outlines a comprehensive framework for mitigating the underground economy, encompassing legislative reforms, regulatory streamlining, and social interventions.
Transparency and Accountability:
Open Government Data: Promoting open access to government data and information on regulations, licenses, and tax policies to enhance transparency and reduce opportunities for corruption.
Strengthening Independent Institutions: Enhancing the capacity and independence of institutions responsible for tax collection, anti-corruption, and regulatory enforcement.
Electronic Governance: Implementing online platforms for business registration, tax filing, and other bureaucratic procedures to streamline processes and reduce human interaction.
Regulatory Simplification:
Streamlining Business Registration: Reducing the number of requirements and simplifying procedures for registering businesses, including simplifying procedures for small and medium enterprises (SMEs).
Tax Reform: Introducing a simplified tax system with lower tax rates and a broader tax base, focusing on value-added taxes (VAT) and a progressive income tax system.
Regulation of Informal Activities: Implementing regulations for specific sectors within the informal economy, such as street vending, transport, and small-scale manufacturing, with the aim of formalization and tax compliance.
Financial Inclusion:
Expanding Access to Credit: Promoting microfinance institutions, credit guarantees, and other financial mechanisms to provide affordable credit to individuals and small businesses.
Financial Literacy Programs: Implementing financial literacy programs to educate individuals and businesses on responsible financial management, saving, and accessing formal financial services.
Mobile Banking and Financial Technology:Leveraging mobile banking and fintech solutions to expand access to financial services in rural areas and underserved communities.
Social Inclusion:
Targeted Social Programs: Implementing targeted social programs to alleviate poverty, improve access to education, healthcare, and social protection for vulnerable individuals and families.
Skills Development and Training: Investing in vocational training programs and skills development initiatives to equip individuals with the necessary skills for employment in the formal sector.
Promoting a Culture of Compliance: Fostering a culture of compliance through public awareness campaigns, highlighting the benefits of formalization, and promoting responsible business practices.
Conclusion
This thesis argues that the underground economy in Uzbekistan is a multifaceted issue requiring a comprehensive and coordinated approach. By embracing transparency, accountability, and inclusiveness, Uzbekistan can establish a more formal and vibrant economic landscape that promotes sustainable development, reduces poverty, and improves the well-being of its citizens. The proposed framework emphasizes the need for legislative reforms, regulatory streamlining, and social interventions to create an environment conducive to formalization and economic growth. By addressing the root causes and consequences of the underground economy, Uzbekistan can unlock its potential for a more prosperous and equitable future.
By actively engaging in further research, policymakers and researchers can refine strategies and policies, ensuring a more effective and sustainable approach to mitigating the underground economy in Uzbekistan.
Eshkulova Dilorom Abduravupovna
Termiz State University, Human Resources Management – 4th level student
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