Uzbekistan is rolling out an innovative approach to combat its shadow economy through a comprehensive rating system that will rank local communities — known as mahallas — based on their tax compliance performance. This groundbreaking initiative emerged from a high-level presidential meeting held on August 11, 2025, dedicated to addressing the persistent challenge of unreported economic activity in the country.
Deputy Minister of Economy and Finance Ilhom Norkulov unveiled the details of this ambitious program during a television interview, explaining that the proposals were meticulously crafted using analytical insights from prestigious international institutions. The development process incorporated recommendations from the World Bank and International Monetary Fund, alongside reports from Big Four auditing firms including Ernst & Young, and specialized research conducted under the UN Development Programme’s project in Uzbekistan. This comprehensive analytical foundation was further strengthened by practical field studies conducted across various regions.
The president emphasized a fundamental shift in approach, stating that authorities “must act through stimulation and motivation, creating a system where tax payment will be beneficial in itself.” This philosophy underpins the entire initiative, moving away from purely punitive measures toward positive reinforcement mechanisms.
Financial incentives drive compliance
Under the new system, the top 100 mahallas demonstrating the highest levels of tax compliance will each receive 2 billion sums from the state budget specifically earmarked for infrastructure development projects. This represents a significant financial commitment from the government, totaling 200 billion sums annually for community improvements.
The benefits extend beyond community-level improvements to individual residents. Tax-compliant citizens living in high-performing mahallas will gain priority access to preferential mortgage loans and educational credits, creating direct personal incentives for maintaining good tax standing. This multi-layered reward structure addresses both collective community needs and individual financial aspirations.
Integration with existing programs
The rating system will build upon the established Open Budget program, where residents previously won infrastructure projects through voting mechanisms. However, the enhanced system introduces a tax compliance coefficient that will give priority to mahallas with higher concentrations of active taxpayers. As Norkulov explained, “If within the Open Budget program residents of such mahallas already won projects through voting, this system will continue, but with the addition of a coefficient: with a greater number of taxpayers in the mahalla, it will be given priority.”
This integration ensures continuity while introducing accountability measures that align community development with fiscal responsibility. The approach represents a sophisticated balance between democratic participation and economic compliance incentives.
International business implications
This comprehensive tax compliance initiative signals Uzbekistan’s serious commitment to economic formalization and transparency, creating a more predictable business environment that international companies should find increasingly attractive. The systematic approach to reducing shadow economy activities, backed by international best practices and substantial financial incentives, demonstrates the government’s determination to establish clear, accountable economic structures.
For foreign businesses, particularly those in construction, infrastructure development, and furniture supplies, this initiative opens multiple opportunities. The 200 billion sums allocated annually for infrastructure improvements in top-performing communities represents a substantial market for construction materials, equipment, and services. International construction companies, building materials suppliers, and infrastructure technology providers may find growing demand as communities compete to improve their facilities.
Additionally, the government’s commitment to international standards and consultation with global institutions like the IMF and World Bank indicates a business environment increasingly aligned with international practices, reducing regulatory uncertainty for foreign investors and creating more familiar operational frameworks for international business expansion in Uzbekistan.
