Uzbekistan Constricts Control over Foreign Currencies
Wednesday 30 January 2013
TASHKENT (Central Asia Newswire) – Uzbekistan has created a special tax department to crack down on the illegal exchange of foreign currencies for goods and services. Operatives of the new office within the State Tax Committee have been enjoined to carry out covert spot checks at retail traders and service outlets. Consequently, it will be more difficult to convert local currency into foreign bills.
President Islam Karimov signed the legislation that is aimed at ensuring full compliance of the law on foreign currency circulation. Current legislation forbids payments in hard currency within the retail and service sectors. The new department will have the power to conduct test purchases and report violators to the law enforcement agencies, the 12.uz news agency reported.
It was also charged to carry out educational initiatives among the general public and businesses as a preventative measure.
The new tax office is just the latest addition by governing authorities to eradicate the illegal turnover of hard currencies that already involves the Prosecutor-General’s Office, the ministry of interior affairs, and several other ministries and departments. Since 2009, a currency circulation order demands that bank clients must use all foreign currency within seven days after purchasing it, otherwise they are obligated to sell it back to the banks. The order is basically related only to companies that import goods. However private businessmen think these restrictions has increased demand for foreign currency on the black market and increased the difference between the official and unofficial rates for the som against the dollar.
The legislation, however, still allows Uzbek residents to spend their foreign currency on air tickets sold by foreign airline companies and to purchase vehicles made in Uzbekistan.
Two legal exchange rates exist in Uzbekistan: the commercial (wire-transfer) rate and the exchange booth rate, as well as an unofficial (black market) rate. All citizens have legal access to the exchange booth rate. Limitations to foreign exchange in 2011 resulted in severe lag times for current account convertibility both for imports and for raw materials and components related to manufacturing (three months to more than a year). These restrictions created the thriving currency black market.
Currency and Export Controls in Uzbekistan
In 2003, the government accepted Article VIII obligations under the IMF, providing for full currency convertibility. However, strict currency controls and tightening of borders have lessened the effects of convertibility and have also led to some shortages that have further stifled economic activity. The Central Bank often delays or restricts convertibility, especially for consumer goods. Difficulty in converting currency is cited by foreign firms as one of the greatest obstacles to normal investment operations.
According to Baker & McKenzie, Uzbekistan remains a very strict currency control systems with the following features:
- Import-export transactions are subject to registration with banks and, in certain cases, with customs authorities.
- A resident entity is prohibited from opening bank accounts outside Uzbekistan without the approval of the Central Bank of Uzbekistan.
- Export licence is required for export of gold, uranium and nonferrous metals.
- Export proceeds must be transferred to Uzbekistan within 60 days from the date of shipment.
- Export proceeds generally are subject to 50% mandatory sale to banks.