Uzbekistan is taking vigorous measures to reduce the shadow economy

Large-scale reforms are being implemented in our country aimed at creating favorable conditions in monetary, currency, tax and other areas for conducting business, as well as improving the investment environment.

But at the same time, expert assessments and surveys conducted among business entities indicate that the shadow turnover in the economy remains at a high level. This is especially noticeable in such areas as trade and catering, trucking, housing construction and repair, housing and communal services.
Of course, this situation damages the interests of bona fide entrepreneurs and creates unequal conditions for doing business.  
At the meeting on January 16, the Head of State stressed that the problem of the shadow economy is urgent. According to the data provided, a large volume of turnover remains in the shadow: in the service sector — 140 trillion soums, in construction — 50 trillion soums and in industry — 40 trillion soums. If these funds were used for their intended purpose, the GDP would increase by 135 trillion soums, and the State budget would be replenished with 30 trillion soums.  
Almost 11 thousand, or 41 percent, of the 27 thousand construction organizations in the reports indicated only one officially employed employee. 2,249 of them operate in Tashkent, 1,087 in the Tashkent region, and 837 in the Samarkand region. These companies completed construction work worth 4 trillion soums last year.
A global problem
Unfortunately, the shadow economy exists not only in Uzbekistan, but all over the world. Economist E. Feig estimated that its scale in the late 70s of the last century amounted to one third of the official gross domestic product of the United States. This assessment was specifically discussed in the Economic Committee of the United States Congress.
In 1991, a conference of European analysts dedicated to the shadow and informal economy was held in Geneva. Based on its materials, special guidelines on statistics of the shadow economy in countries with developed market economies have been issued. Since then, this problem has been widely studied in many developed and developing countries. In 2016, the volume of the shadow economy in relation to GDP amounted to 21.1 percent in Italy, 20.4 percent in Sweden, 14 percent in France, and 13 percent in Germany. 
The indicators are particularly high in developing countries. For example, in Thailand, its volume reached 71 percent, in Egypt and Bolivia — 66 percent, in Panama — 62 percent. Until recently, Russia occupied the fourth place in the ranking, which covered 28 states, and entered the top five largest shadow economies. According to a number of studies on the assessment and forecast of the development of the global "shadow", its volume is 33.6 trillion rubles, or equal to 39 percent of the country's GDP.  
Ukraine has a large shadow economy — with an indicator of 46 percent of GDP, Nigeria — with 48 percent and Azerbaijan — with 67 percent, Sri Lanka — with 38 percent. 
Experts give such a definition of the shadow economy — economic activity that is outside the framework of state regulation, taxation or control.
The smallest indicators of the volume of the shadow economy sector were noted in the United States — 7.8 percent of GDP, Japan — 10 percent and China — 10.2 percent. In 2016, the share of the shadow economy in the global gross domestic product exceeded 22.6 percent. In the following years, this figure decreased: in 2017 — to 22.5 percent, in 2020 — to 22.1 percent. This figure is expected to decrease to 21.4 percent in 2025.
Causes and effects
There are many factors leading to the development of the shadow economy. These are the contradictory nature of man, the struggle between good and evil, shortcomings in tax policy, the unsaturation of the market with goods and services, the lack of balance between industries and spheres of the economy, low purchasing power of the population, insufficient legislative framework, imperfection of the mechanism of combating economic crime, the attitude of the state to private property and the private sector, bureaucracy, the level of competence and responsibility of civil servants, administrative pressure on entrepreneurs, coercion to charity.
Entrepreneurs operating in the shadows pay less taxes to the state treasury, artificially reducing the volume of real profits or hiding from the state the proceeds from the sale of goods, work performed or services rendered.
It should be recognized that shopkeepers who sell smuggled cigarettes "from under the counter" and do not indicate the income received from this anywhere are also available in the United States or Britain. The only difference is that in developed countries, Governments are trying to take measures to reduce the share of illicit trafficking. 
In the former Soviet Union, goods needed for everyday human life were often in short supply. For example, many drivers at enterprises or organizations sold some of the gasoline used to fill up official cars. In one of the studies on the shadow economy, it was noted that in the 70s of the last century, from 33 to 65 percent of the gasoline used to fill cars in large cities was stolen in this way.
It was also possible to steal money from the state treasury by attributing unproduced products, ungrown crops, and unproven services. An important factor in the existence of the shadow economy was that there were huge amounts of cash in circulation. This was caused by people's distrust of financial institutions. Even when people had the opportunity to save money in the 1970s and 80s, few people carried it to the savings bank, as it was promoted, but preferred to keep it "under the pillow." They turned out to be right, given the fate of the "burnt out" bank deposits of the population in the 90s of the last century.  
The reforms of the President of Uzbekistan to reduce barriers to entrepreneurship and reduce tax interest contribute to the reduction of the shadow economy. However, there are still some problems. One of them was pointed out by the head of state when he cited the fact that a construction company, indicating in the report the presence of only one employee, is building an object worth five billion soums.
The shadow economy is illegal in any country, and criminal liability is often provided for such violations. For example, the supplier of counterfeit products, the person selling it, and the official who turns a blind eye to their machinations for a bribe know about what is working illegally. Therefore, everything is done as secretly as possible.
The responsible agencies can only give tentative estimates. In 2019, it was reported that the share of the shadow economy in Uzbekistan could range from 48 to 62 percent, depending on the sphere.  
The policy of openness, and why digitalization is needed
In recent years, thanks to the policy of openness, various statistical facts have been brought to the public. This may give the impression that the share of the shadow economy is increasing. And if the World Bank considers Uzbekistan's GDP to be $80 billion, then revenues of $ 32 billion do not go to the State budget. The harm of the shadow economy is also that it "kills" the incentive to legally pay taxes. For example, seeing how firms or companies enrich themselves by hiding income, the owner of another company loses the desire to pay taxes.
The presence of a shadow economy in Uzbekistan has, of course, its roots and reasons.
The first of them is excessive state interference in economic affairs. Until recently, an entrepreneur who was active, having officially registered his business, could not say that he was completely free. For example, the khokim of the district or another official could "ask" for a certain amount to be allocated for events, landscaping or other purposes. The businessman, who in words was essentially forced to transfer part of the income for the event, then, of course, did not indicate this amount in the tax report. Why didn't shops or canteens like to give a customer a check? Because they had to leave a loophole to close the unpaid gatherings of some official or inspector.  
The second reason was the heavy tax burden. Therefore, the Government of Uzbekistan has reduced the value added tax to 12 percent in order to encourage entrepreneurs to operate transparently. This means that it is necessary to make sure that the tax does not burden a conditional car driver who prefers to engage in private haulage than to work officially. 
The third reason is corruption. There are several inspection agencies in Uzbekistan, which have always been staffed by those who turned a blind eye to the reports of entrepreneurs hiding their income for bribes.
Now in Uzbekistan, documents and office work are gradually being digitalized, which leads to a reduction in the share of the shadow economy. A decrease in cash turnover and the transition to electronic payments also, on the one hand, reduce the shadow economy, on the other hand, contribute to an increase in confidence in banks.    
At a government meeting on the problem of the shadow economy, President Shavkat Mirziyoyev noted that the activities of the Department for Combating Economic Crimes under the Prosecutor General's Office will be completely changed. A scientific-analytical and training center will be opened under him. 
The Head of State signed a decree on measures to improve state control mechanisms in the field of combating the shadow economy. They provide support for law-abiding entrepreneurs, reducing the scale of the shadow economy not in a repressive way, but through mechanisms to stimulate entrepreneurs and provide them with practical assistance. Also, by refusing to strengthen penalties, it is planned to protect bona fide entrepreneurs, which should lead to the elimination of corruption factors that hinder business development. 
The conclusion about the result of this work can be made in a year — when a new report on the share of the shadow economy in Uzbekistan will be announced.