In a decisive move to bolster its agricultural sector, the government of Uzbekistan has announced the abolition of Value-Added Tax (VAT) on the sale of agricultural products by farmers and dehkan (smallholder) farms, effective from 2026. This significant policy shift, excluding only cotton and grain, is designed to directly increase producer profitability, stimulate investment, and formalize a large segment of the economy.
The measure will provide immediate financial relief to nearly half of the nation’s producers. According to Minister of Agriculture Ibrokhim Abdurakhmanov, of Uzbekistan’s 100,000 farmers, approximately 48,000 will directly feel the state’s support, easing their tax burden considerably. The financial impact is substantial: the presidential press service estimates that the VAT exemption will leave an additional 400 billion soums in the hands of farmers. This infusion of capital is critical, as it provides significant working capital that can be reinvested into operations—whether for purchasing higher-quality inputs, adopting new technologies, or expanding production areas.
The anticipated economic benefits are multi-faceted. Current projections suggest the average profitability of farms would sit at 5-7%. However, with this VAT removal, the Ministry forecasts that profitability could more than double, reaching up to 15%. This aligns with global observations; a FAO review of fiscal policies in agriculture notes that reducing the tax burden on smallholders is one of the most effective ways to stimulate production growth and on-farm investment.
Furthermore, this policy is a strategic tool to combat the shadow economy. Minister Abdurakhmanov explicitly linked the reform to “whitening” the sector. By removing a major tax liability, the government reduces the incentive for off-the-book sales. This is expected to bring smallholder operations, particularly those with “small gardens” that previously could not compete with large industrial agroparks, into the formal economy. This formalization, in turn, unlocks access to official export channels, credit, and government support programs that were previously out of reach.
To ensure the reform’s effectiveness, the government is leveraging digital technology. President Shavkat Mirziyoyev has instructed that VAT refunds be processed as a cashback through a special electronic platform within a mere three days. This rapid reimbursement mechanism is crucial for maintaining cash flow for farmers and building trust in the new system.
Uzbekistan’s decision to eliminate VAT on most agricultural products is a profound and progressive step that addresses several core challenges at once. It moves beyond traditional subsidies to create a more enabling economic environment for producers. By directly boosting profitability and providing capital for reinvestment, the policy incentivizes production increases and modernisation. Perhaps most importantly, by bringing a larger share of agricultural trade into the formal sector, it increases transparency, improves data accuracy for policy-making, and creates a more stable and equitable market. This reform could serve as a powerful model for other developing economies seeking to empower their agricultural base and integrate smallholders into the formal value chain.
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