Reports of some sole proprietors and self-employed individuals in Uzbekistan with annual turnover below UZS 1bn ($80,000) have been moved onto the value-added tax (VAT) regime have raised concern among small business owners. The State Tax Committee said the practice complies with current legislation and follows amendments to the Tax Code effective from 2026.
Business representatives say the transition to VAT in some cases occurred automatically and without prior notice, exposing entrepreneurs to additional reporting requirements, electronic invoicing, complex accounting rules, and the risk of penalties. Small business owners warn that the added compliance burden could reduce profitability and disrupt operations.
The issue stems from amendments to Article 462 of the Tax Code, adopted in December 2025. Under the revised rules, VAT and profit tax liability for newly registered sole proprietors and self-employed individuals is determined on a proportional basis, calculated from the registration date to the end of the calendar year.
According to the Tax Committee, the UZS 1bn ($80,000) threshold is divided by 365 days and multiplied by the number of days remaining in the year after registration. If income earned during this period exceeds the calculated control amount, the taxpayer becomes subject to VAT and profit tax from the start of the following year.
For example, a sole proprietor registered on October 1, 2025, whose income reached UZS 300mn ($24,000) by year-end, exceeded the prorated threshold and therefore transitioned to VAT and profit tax from January 1, 2026. By contrast, a business registered on November 1 with income below the adjusted limit remains outside the VAT regime. The Tax Committee said the rule applies only to newly registered taxpayers, while previously registered sole proprietors are assessed based on full-year turnover.
The Tax Code also stipulates that entrepreneurs who voluntarily opt into VAT but later fail to reach the UZS 1bn ($80,000) threshold must remain VAT and profit tax payers for at least 12 months, delaying any return to turnover-based taxation.
Economist Islombek Niyozmetov criticised the approach during his interview with Daryo, arguing that applying VAT and profit tax mechanisms to sole proprietors and self-employed individuals conflates labour income with business turnover. He said such taxpayers should be subject to personal income tax rather than turnover-based or value-added taxes.
Niyozmetov also warned that the current framework could increase the tax burden on small operators, complicate compliance, and push some activity into the informal economy. He added that VAT applied without proper input tax deductions effectively functions as a 12% turnover tax, contradicting the core principles of value-added taxation.
Official data show that as of January 1, 2026, Uzbekistan had 284,400 registered sole proprietors, while 5.5mn individuals were registered as self-employed by mid-2025. The Tax Committee maintains that the revised rules are intended to standardise tax administration, while concerns raised by businesses and experts continue to be debated.
