Digital Communications Market of Uzbekistan: Current State and Prospects

Nowadays, the priority tasks for the consistent socio-economic development of Uzbekistan are the widespread introduction of the ICT and digital technologies. Digital technologies - an effective tool that can provide high-quality reform of public administration, sectors of the economy and spheres of public life.

It should be noted that in recent years, a number of fundamental documents have been adopted, laying the legal foundation for further digital reforms, which have now proven the importance of measures for the widespread introduction of digital technologies in the field of public administration, public services and trade.

On April 28, 2020, the Decree of the President of the Republic
of Uzbekistan “On measures for the widespread introduction of the digital economy and e-government” No. PP-4699 was adopted. This document provides norms related to the widespread introduction of digital technologies in the work of domestic enterprises and public services, the training of IT specialists and comprehensive support of IT-entrepreneurship and others.

The logical continuation of these reforms was the Decree of the President of the Republic of Uzbekistan dated October 5, 2020 “On approval of the Strategy “Digital Uzbekistan - 2030” and measures for its effective implementation”. The large-scale policy document includes roadmaps for the digital transformation of priority economic sectors and regions until 2030.

One of the main qualitative indicators of the development of the industry is the development of the IT market and the creation of maximum opportunities for IT entrepreneurs.

In accordance with the Law of the Republic of Uzbekistan "On telecommunications" operators, providers, legal and individuals engaged
in investment activities in the field of telecommunications, as well as manufacturers and suppliers of equipment receive equal access
to participate in the creation and the development of telecommunications networks and the service market.

With the growing demand for digital services over the past 5 years, the ICT services market has grown 2.2 times, from 8.1 trillion sum in 2017 up to 17.8 trillion sum in 2021.

11 119 business entities are currently operating in the ICT industry
of which 3 850 provide computer programming services.  The number
of enterprises with the participation of foreign capital amounted to 534 units.

Measures taken to improve the performance of digital service providers and support their activities

1. Improving licensing procedures

In the process of improving the scope of licensing for operators and providers of telecommunications, the following benefits are provided:

a) licensing procedures have been simplified;

when obtaining licenses, the number of required documents was reduced (a copy of the certificate of state registration of a legal entity, regulatory legal documents required for design and construction work, conclusions of the relevant authorities on compliance with the requirements of sanitary and fire safety standards, copies of diplomas of higher education and work books of design specialists and construction of telecommunications networks);

b) issuance of licenses for an unlimited period of validity (with the exception of the use and provision of services of mobile radiotelephone (cellular) communication networks, television and radio broadcasting distribution networks);

c) acceptance of applications and issuance of licenses is carried out in electronic form through the portal of unified interactive public services my.gov.uz, while the collection of payments is made in the amount of 90 percent of the amount due;

d) in order to create greater convenience for small businesses, the following licenses have been canceled since January 1, 2021:

provision of data network services by common access points, including common access points of small businesses in rural areas (Internet cafes);

provision of services by small businesses in rural areas through local telecommunications networks;

provision of services by small businesses in rural areas via long-distance communication networks;

provision of services by small businesses in rural areas via international telecommunications networks;

e) the number of licenses was reduced by 3 times by issuing a single license for the design and (or) construction of three telecommunication networks (local, long-distance, international networks), by 2 times by issuing two telecommunications networks (local and long-distance telecommunications networks) for use and / or the provision of services.

The number of licenses issued has decreased and the amount of the state fee charged for a combined licensed activity has remained at the level of the minimum state fee established for the type of activity that is canceled as a result of merger.

Currently a draft law is being developed for a reduction of up to 50 percent and the introduction of payment by installments within
a year of the amount of the established state fee for the design and construction, operation and provision of services for television and radio distribution (broadcast) networks.

At the same time, separate amounts of the state duty are provided for:

design and construction of distribution networks (transmission)
of television and radio programs;

distribution (broadcast) of television and radio programs throughout the country or distribution (broadcast) of regional television and radio programs;

distribution of radio broadcasts.

In order to provide comprehensive support to participants of the information and communication technology services market, broad involvement of operators and providers, as well as private entrepreneurs in the development of telecommunications infrastructure in remote and rural settlements, tourist and recreational areas, along the main roads and railways, as well as networks of wireless broadband access to the Internet by the relevant acts of the President of the Republic of Uzbekistan and the Cabinet of Ministers were granted a number of tax incentives and preferences.

Currently, the number of licensees is 1 015 units; the number of issued licenses is 2 089 units.

2. Providing tax benefits and preferences in the field of ICT for business entities

In the field of telecommunications.

Telecommunications operators and providers that ensured the creation of telecommunications infrastructure for budgetary organizations located in remote and rural settlements, on the terms of public-private partnership were provided with guarantees for 10 years:

when calculating income tax and a single tax payment of operators and providers of telecommunications, the taxable base is reduced by the amount of funds allocated for the creation of engineering and communication infrastructure facilities for budgetary organizations and state unitary enterprises in remote and rural settlements;

provision by budgetary organizations and state unitary enterprises in remote and rural settlements free of charge and infrastructure for the placement of telecommunications facilities intended to serve this organization and other legal entities, as well as the population in this region (PP-4329).

As additional measures to improve the mechanisms for the sale of natural gas and electricity, improve the accounting system for natural gas and electricity, prevent losses, as well as ensure the timely and most complete collection of payments for the consumption of energy resources through the widespread introduction of modern information and communication technologies (M2M services) in accordance with the "Regulations on the procedure for calculating and paying by legal entities providing mobile communication services (cellular companies), fees for the use of a subscriber number" (registration No. 2329 dated February 21, 2012) numbers used in the control and accounting system energy resources are not subject to payment for the use of a subscriber number.

In addition, the amount of the fee for using the subscriber's number is deducted in accordance with Article 305 of the Tax Code of the Republic of Uzbekistan when determining taxable income for income tax.

In order to create the most favorable conditions for the development of the tourism potential of the republic, primarily through the active attraction of investments, the introduction of innovative ideas and technologies in this area, as well as the full use of the available opportunities and resources of the rich natural, cultural and historical heritage of the country, it has been established that:

From January 1, 2018, the taxable base of business entities that provide services for the sale of tourist products and/or online booking of tourist services is reduced by the amount of expenses allocated for the introduction of electronic services, including electronic payments, booking, acquiring and others as well as specialized Internet - sites and portals offering modern types of tourist services;

the taxable base of economic entities that have installed zones of free wireless access to the Internet (Wi-Fi) on their territory, including for a single tax payment, is reduced by the amount of expenses spent on the purchase of equipment and the purchase of Internet traffic for the deployment of a wireless access zone of the corresponding quality;

operators, providers and other business entities that have created zones of free wireless access to the Internet (Wi-Fi) in public places are given the right to install an advertising banner or streamer with an area of ​​not more than 18 sq. m in this zone at no cost and without obtaining permission from the relevant state authorities in the field (PD-5326).

Regardless of the signal strength, the operating fee and payment for the use of the radio frequency spectrum for wireless data transmission using Wi-Fi technology in the radio frequency bands 2400-2483,5 MHz
and 5000 - 5999 MHz is not charged (PP-4329).

From April 1, 2022, users of the radio frequency spectrum are given the right to share the radio frequency spectrum in accordance with the relevant permits of the radio frequency broadcasting authorities (PP-104).

1. Benefits for property tax and land tax for legal entities.

Producers of energy from renewable sources are provided with benefits in the form of exemption from property tax in terms of installations for the production of energy from renewable sources and land tax on sites occupied by these installations that generate energy using installations for the production of energy from renewable sources (nominal capacity
0,1 MWatt and more), for a period of 10 years (Articles -414, -428 of the Tax Code of the Republic of Uzbekistan).

From April 1, 2022, exemption from property tax for legal entities and land tax from legal entities is provided for antenna-mast metal structures located in rural areas, including structures installed on them and being an integral part of them, as well as land plots occupied by them (PP–104).

Also on February 1, 2022, until January 1, 2025, technological equipment, materials, software and spare parts imported by telecommunications operators and providers that are not produced in the Republic of Uzbekistan are exempted from customs duties, according to lists formed in the prescribed manner, as part of implementation projects telecommunications infrastructure (PP–104).

1. Excise tax

For mobile operators the excise tax rate for mobile services is reduced from January 1, 2022 up to 10 percent, and starting from January 1, 2023, mobile communication services are not subject to excise tax (PP–4986).

From January 1, 2022 excise tax rates for mobile services for mobile operators are set in the amount of 10 percent (PP-104).

1. Tax incentives in the field of information technology

The gradual reforms carried out in recent years on the introduction of information and communication technologies (hereinafter referred to as ICT) in all areas of public administration and the provision of public services have made it possible to achieve significant progress in promoting information services, developing and implementing the e-government system, creating effective mechanisms for establishing a dialogue with people and timely solution of urgent problems of the population on the ground.

For the formation and active development of high-tech sectors of the economy based on the use of information and communication technologies, further deepening the integration of science, education and production in this industry, the actual decision was to create a Technology Park for software products and information technologies on the principle of extraterritoriality within the territory of the Republic of Uzbekistan with the accommodation of residents Technopark throughout the republic.

In order to create favorable conditions for developers and customers of information technology products, to increase the export of ICT products, Technopark residents were provided with additional benefits and preferences, providing for exemption from payment until January 1, 2028:

- all types of taxes and mandatory contributions to state trust funds, as well as social tax;

- customs payments (with the exception of customs fees) for equipment imported for own needs, components, parts, assemblies, technological documentation, software not produced in the Republic of Uzbekistan, according to lists approved in the prescribed manner.

In addition, income in the form of wages received before January 1, 2028 by employees under employment contracts with residents of the Technopark is subject to personal income tax at a fixed rate of 7.5 percent and is not included in the total annual income of individuals determined for tax purposes. (PP-5099).

As additional preferences, starting from April 1, 2022, the amount of deductions (1 percent of total income) monthly paid by residents to the Directorate of Technology Parks for Software Products and Information Technologies, if the annual volume of exports of services in the field of information technology exceeds 10 million US dollars, is reduced
by 25 percent, for $20 million - by 50 percent (PP-104).

To cover the costs of vocational training of young people with disabilities in non-state educational organizations, the formation of their professional skills, training in information technology, the practice of computer programming, general education disciplines and foreign languages, as well as, if necessary, living expenses and transportation costs, allocation of subsidies up to 50 - a multiple of the base calculated value
(PP-92).

The Tax Code of the Republic of Uzbekistan provides for exemption from taxation on the sale of additional education services provided by educational institutions (organizations), as well as organizations providing retraining and advanced training of personnel.

Currently 747 business entities have become residents of the IT park.

1. Support for technological innovation

The Tax Code of the Republic of Uzbekistan also provides for exemption from taxation of turnover for the implementation of research and innovation work carried out at the expense of the budget. The specified exemption from taxation is applied if there is a conclusion of the relevant financial authority on the allocation of funds from the budget.

Summarizing the above, we can conclude that all consistently taken measures stimulate the development of the digital services market.

The comprehensive digital reforms being carried out today in Uzbekistan are aimed at achieving the main goals - ensuring the availability of digital services for the population, improving digital skills, as well as the widespread introduction of digital technologies in government bodies and sectors of the economy.

3. Perspective tasks for the development of the ICT sphere

1. Increasing the volume of ICT services by 2.3 times by 2026 (from 17, 8 trillion sum in 2021 to 40,6 trillion. sum in 2026);

2. Ensuring the export of ICT services in the amount $500 million in 2025 and $1 billion in 2028;

3. Direction for the development of digital infrastructure of investments in the amount of more than 1 billion US dollars.