More could be done to advance tax reforms in Tajikistan, says ADB new director for Tajikistan

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Ms. Campbell, congratulations on your appointment as the Asian Development Bank’s Country Director in Tajikistan! We wish you fruitful and successful cooperation with the government and other partners!

Q. You have been in this position for a month now, and I would like to ask how do you find Tajikistan?

A. Thank you for your congratulations and good wishes! And thank you for doing this interview with me. I assumed office as the ADB Country Director for Tajikistan on 15 February and have been working in this position from my home in New Zealand. I look forward when my family and I can physically move to Tajikistan. I have worked in Tajikistan briefly before, but many years ago. I expect some things have changed – such as downtown Dushanbe – but the essentials are the same, such as the amazing food, landscapes, and friendly people.

Q. You have work experience in almost 30 countries around the world. How different is the development of the Tajikistan economy in comparison with countries with the same level of income?

A. All countries are inherently different due to history, geography, politics, and culture. We are currently preparing our next five-year Country Partnership Strategy for Tajikistan, undertaking detailed assessments of relevant sectors, consulting with the government and development partners, and referencing past performance. This enables ADB to position our program with the best mix of knowledge and finance to support Tajikistan’s development.

Q. You also worked in neighboring Afghanistan, whose half of the population is like us Tajiks. Can you tell us briefly how you worked in the unstable political situation in that country?

A. I look back on my time in Afghanistan with so much fondness and admiration for the resilient, hard working people. Despite the challenging security environment, the work there was incredibly rewarding. It is the countries with the most difficult circumstances where even the smallest gains feel like big wins. It is my fervent hope that Afghanistan can find peace, it has so much to offer the world.

ADB grant assistance provided to Tajikistan during 1998-2020 amounts to $1.6 billion

Q. In past weeks, you held virtual meetings with some ministers - key partners for your institution, in particular, the Minister of Energy and the Minister of Transport. What main issues did you discuss during those meetings?

A. I had the pleasure to virtually meet with our key counterparts from the government, including the First Deputy Prime Minister Mr. Davlatali Said, who is the ADB Governor for Tajikistan; ministers of finance; economic development and trade; transport; energy; labor; and several others. Those were introductory meetings to get to know each other and exchange views on ADB’s cooperation with the country.

Q. ADB is the largest donor in Tajikistan; it has provided over $2.1 billion to the country. Starting from 2018, the assistance has been provided on grant basis. We understand why it was done, but I would like to know what other ADB member countries are supported exclusively by grants?

A. ADB is proud to be Tajikistan’s trusted and largest multilateral development partner. ADB grant assistance to the country amounted to $1.6 billion during 1998-2020. Based on per capita gross national income and creditworthiness, ADB classifies its developing member countries into three groups. Tajikistan belongs to group A countries that have access to ADB’s grant assistance. Currently, there are 13 countries in this group, including Afghanistan, Kyrgyz Republic, Maldives, several Pacific countries, and some others.

Q. Last year, ADB exceeded its plan to support Tajikistan, which is associated with overcoming the consequences of the pandemic. How much assistance is planned for Tajikistan this year, for what purpose, and is the issue of increasing the volume of aid being considered? Have you received such request from the government?

A. ADB’s total grant assistance to Tajikistan in 2020 reached $321.49 million. 2020 was an extremely challenging year. All countries had to respond to the pandemic and address immediate health, economic, and social protection needs. Yet, it was equally important to stay the course and continue reforms and development initiatives. To support Tajikistan in its fight against COVID-19, ADB in 2020 provided $52.5 million in grants for budget support and delivered emergency medical supplies to the country. At the same time, COVID-19 did not delay our normal operations. We managed to prepare and approve five other projects covering skills development, water resource management, energy, roads, and finance. As of now, ADB’s planned support to Tajikistan in 2021 comprises three new projects for the COVID-19 vaccine, food security, and irrigation modernization. Our support is funded in four-year cycles, so flexibility is exercised according to annual needs.

Q. What are ADB mid-term priorities in terms of sectors in Tajikistan?

A. Tajikistan and ADB are currently developing a new 5-year partnership strategy. This strategy is expected to be approved in August this year. It will define ADB’s strategic approach and mid-term priorities in the country during the next five years. The headline theme will be improving the quality of growth in Tajikistan.

Tax incentives should be limited to activities with clear and monitorable impacts on investment, innovation

Q. Currently, the government is revising the Tax Code, which is planned to be launched at the beginning of the second half of the year. ADB, as far as we know, has supported this exercise. How do you see the tax legislation in the country today, what changes are most important, and what amendments would you like to make, in general, in the tax system of the country?

A. The intention to revise and introduce a new tax code is laudable. Goals include reducing the overall number of taxes, lowering corporate tax rates, and providing preferential rates for small businesses while widening the tax base and simplifying business operations. Electronic filing of tax returns and online payment of tax liabilities have already been introduced to simplify taxpaying and reduce corruption.

However, based on the analysis of ADB economists, more could be done to advance the reform: reviewing tax exemptions to further broaden the tax base, moving from tax inspections toward risk-based assessment, and shifting more of the tax burden from income and profit to consumption. Tax incentives should be limited to activities with clear and monitorable impacts on investment, innovation, regional development, and/or employment generation.

As part of the recent ADB policy-based program grant of $50 million (approved in December 2020), the government adopted a decree on granting tax and customs benefits to ensure transparency for provision of tax and customs incentives. As a result, a cost-benefit analysis framework for assessing the effectiveness of tax incentives was introduced and the authorized state body for the provision of tax and customs incentives was defined.

About power sector reforms

Q. Tajik parliament recently ratified financial agreement in the electricity sector. After that, some media published materials that say: one of the main ADB conditions is gradual increase in electricity tariffs. To what extent is this true, what recommendations did you offer to improve the difficult situation in this sector?

A. The $105 million grant program that ADB approved in December 2020 and the Tajikistan Parliament recently ratified provides critical support for the government to accelerate ongoing reforms in the energy sector and improve its financial sustainability. This program complements interventions by earlier ADB energy projects and those of other development partners. The reforms include unbundling Barqi Tojik into three independent companies responsible for power generation, transmission, and distribution; restructuring Barqi Tojik’s excessive liabilities; establishing a new power sector regulator; adopting a tariff methodology; and setting up a new centralized cash control system among the unbundled entities. As part of the reforms and institutional capacity building, a newly established power distribution company will be operated under a 5-year management contract by an internationally reputable company with experience operating power utilities. The program will also enhance retail electricity metering and low- and medium-voltage distribution networks in seven cities to improve the quality of supply for customers.

Q. In general, to improve the current socio-economic situation in the country, what would you recommend to the government to change, what steps need to be taken so that the economy develops, the population lives better, and people do not leave their homeland in search of work?

A. Tajikistan’s growth was very robust in the last two decades up to 2019, recording an average of over 7% annually, before COVID-19 posed a significant adverse impact in 2020. However, the quality of growth needs improvement. The country’s growth was mainly driven by capital formation with strong public investment, rather than efficiency and productivity gains, and private investment played a minor role. Heavy reliance on public investment led to public debt distress. To improve the sustainability of growth, Tajikistan’s growth driver needs to change from public investment to efficiency and productivity gains. This requires more efficient allocation and mobilization of private investment and rationalization of public finance by further advancing structural reforms. More productive jobs must be created, poverty needs to be addressed, and labor productivity enhanced through human capital development. An emphasis on regional cooperation and trade is critical to overcome the limitations of Tajikistan’s geography, and ADB commends Tajikistan on its active participation in various regional cooperation platforms.

Source: Asia-Plus