EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
AND MANAGEMENT STUDIES
ISSN: 2750-8587
VOLUME04 ISSUE12
132
THE IMPACT OF TAXES ON THE DEVELOPMENT OF COMPANIES
Babakhоnov Jafar Mukhiddinovich
Associate professor of the "Finance" department of the Karshi Engineering-Economics Institute, Ph.D,
Uzbekistan
AB O U T ART I CL E
Key words:
Taxation; holding corporations;
research and development (R&D); investment;
innovation; start-ups, horizontal analysis of
reporting; vertical analysis of reporting; financial
results.
Received:
03.12.2024
Accepted
: 08.12.2024
Published
: 13.12.2024
Abstract:
Holding
corporations,
often
characterized by their significant market power
and control over pricing, present unique
challenges and opportunities within the economic
landscape. This article explores the impact of
taxation on these entities, particularly how tax
policies can be structured to incentivize
investment in innovation. We discuss the
theoretical underpinnings of taxation, the
behavior of monopolies in response to tax
regimes, and the potential policy frameworks that
could align corporate financial strategies with
innovation-driven growth. The study focuses on
the role of tax incentives, deductions, and credits
in fostering innovation while addressing the
challenges of tax avoidance and unequal resource
allocation.
INTRODUCTION
Taxation policies are a powerful tool in shaping the economic activities of holding corporations. This
paper explores the nexus between taxation and innovation-driven investments, emphasizing how fiscal
measures can either stimulate or stifle technological progress within holding corporations. Innovations
play a key role in the economic development of countries, contributing to increased competitiveness
and improving the quality of life of the population. In Uzbekistan, where the economy is rapidly
transforming, the development of innovations is becoming especially relevant. However, despite the
existing potential, the country faces serious challenges related to the financing and implementation of
innovative initiatives. Holding corporations have the capacity to influence market dynamics
VOLUME04 ISSUE12
https://doi.org/10.55640/eijmrms-04-12-24
Pages: 132-137
EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
AND MANAGEMENT STUDIES
ISSN: 2750-8587
VOLUME04 ISSUE12
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significantly, often leading to concerns about reduced competition and innovation stagnation. However,
their substantial profits also provide an opportunity for governments to leverage taxation as a tool for
promoting innovation. This article examines how different taxation strategies can encourage holding
corporations to invest in research and development (R&D), ultimately benefiting economic growth and
societal welfare.
Analysis of literature on the topic
According to I.G. Ushachev, I.S. Sandu, V.G. Savenko, the effectiveness of implementing innovation
activities depends on the possibilities of forming and developing innovation potential in the country as
a whole, in each region, industry, sub-industry, and enterprise. [1].
Research by the Asian Development Bank (2023) emphasizes that in developing economies, tax
incentives often need to be paired with subsidies or grants to address resource constraints. For
Uzbekistan, this suggests that tax incentives alone may not be sufficient to stimulate innovation in
underfunded sectors. [2]
Mazzucato (2018) underscores the importance of government support in creating an innovation-
friendly ecosystem. Tax incentives must be complemented by investments in education, infrastructure,
and technology parks. [3]
Coordinated tax policies among nations can mitigate the risks of tax competition and base erosion,
fostering a fair and innovation-friendly global economy. [4,5]
Our local scientists have studied the theoretical foundations of innovative development of individual
sectors of the economy. For example, the analysis of indicators for assessing the innovative potential of
industrial enterprises was carried out by I. Umarov, S. Saidkarimova and Sh. Oblokulov; [6] the
innovative potential and its assessment in the automotive and transport sector were studied by A.
Kakharov[7]
METHODOLOGY
In this article, methods such as analysis, synthesis, abstract, monographic observation and hypothesis
were used.
RESULTS
EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
AND MANAGEMENT STUDIES
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Taxation can affect corporate investment decisions in several ways. The economic theories of taxation
suggest that higher tax rates can deter investment, while tax incentives can encourage it. Holding
corporations, given their unique position, may react differently to tax changes compared to firms in
competitive markets. Understanding these behaviors is crucial for designing effective tax policies.
Uzbekistan’s tax system has undergone significant reforms in recent years, aiming to simplify
compliance and enhance transparency. Key features relevant to holding corporations include: the
corporate income tax rate in Uzbekistan is 15%. While competitive, this rate can be complemented with
specific incentives to encourage R&D and innovation. Special economic zones in Uzbekistan offer tax
holidays and reduced rates to enterprises focusing on high-tech and innovative industries. However,
the uptake of these incentives by holding corporations remains limited. The VAT rate, set at 12%, is
levied on most goods and services. Exemptions for R&D-related imports, such as laboratory equipment
and technology, could encourage innovation-driven investments.
Innovation is a key driver of economic growth. It leads to the development of new products, services,
and processes that can enhance productivity and create jobs. The relationship between taxation and
innovation is complex; while taxes can reduce the available capital for investment, well-structured tax
incentives can stimulate R&D activities.
One of the most direct methods to encourage innovation is through R&D tax credits. These credits
reduce the effective tax rate for companies that invest in R&D. For holding corporations, which often
have substantial profit margins, these incentives can lead to increased spending on innovative projects,
fostering a culture of research and development.
Investment allowances allow corporations to deduct a percentage of their investment in new
technologies or processes from their taxable income. This approach can be particularly effective in
encouraging holding corporations to upgrade their operations and invest in cutting-edge technologies
that enhance productivity.
Encouraging collaboration between holding corporations and research institutions can lead to
significant innovation breakthroughs. Tax breaks for partnerships with universities or startups can
create a symbiotic relationship, enabling corporations to leverage external expertise while fostering an
innovative ecosystem.
Implementing progressive taxation models, where higher profits are taxed at higher rates, can create a
dual incentive for holding corporations. Not only does this generate revenue for public investment in
EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
AND MANAGEMENT STUDIES
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R&D, but it also encourages companies to reinvest profits into innovative projects to mitigate their tax
burden.
In 2023, holding corporations contributed approximately 35% of Uzbekistan’s corporate tax revenue.
Despite the significant role of these entities in tax revenue generation, sectors linked to innovation-
driven investments contributed less than 10% of total corporate tax revenue, signaling a lack of robust
innovation activities. Uzbekistan’s R&D spending remains belo
w 0.2% of GDP, a stark contrast to the
global average of 1.79% and the OECD average of 2.4%. Among holding corporations:
The automotive industry leads R&D expenditures at 30%, driven largely by companies like
Uzavtosanoat investing in electric vehicles and automation. The energy sector accounts for 25%, with
limited spending on green technologies. Technology firms underperform, contributing just 5% to total
R&D expenditures, constrained by funding and tax support challenges. When benchmarked against
other C
entral Asian countries, Uzbekistan’s innovation
-focused tax policies are less competitive:
Kazakhstan: Offers a 50% deduction on R&D expenses and provides cash grants for innovation projects,
with R&D spending at 0.3% of GDP.
Azerbaijan: Implements zero tax on profits derived from innovative patents for up to 10 years.
Uzbekistan: Lags behind with limited nationwide R&D incentives and a reliance on sector-specific
exemptions. Data from the State Statistics Committee of Uzbekistan (2023) shows that: industries with
higher innovation spending report a 20-30% higher employment growth rate, driven by demand for
specialized skills. The technology sector, though underfunded, generates 2.5 times more patents per
dollar invested in R&D compared to traditional industries like agriculture, indicating high potential
returns on investment in innovation.
As a state-owned holding corporation in the energy sector, Uzbekneftegaz is critical to Uzbekistan's
economy. While tax breaks for energy infrastructure have been beneficial, the company has struggled
to diversify its portfolio into green technologies due to a lack of specific R&D tax incentives. This
example underscores the need for targeted incentives in emerging industries. Uzavtosanoat, a leading
automotive holding, has benefited from SEZ tax breaks in the Andijan region to develop electric vehicles.
The reduced tax rates have allowed subsidiaries to channel savings into innovative vehicle technologies,
demonstrating the potential of SEZs to drive industry-specific innovation.
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Challenges and Considerations
While tax incentives can drive innovation, several challenges must be addressed:
•
Complex tax codes can lead to compliance issues, particularly for large corporations. Simplifying
tax structures while maintaining incentives is crucial to ensure that holding corporations can effectively
navigate their tax obligations and invest in innovation. Existing tax incentives are often sector-specific,
potentially excluding innovative projects in less traditional fields. While special economic zones provide
attractive tax benefits, they are geographically concentrated, limiting their accessibility to holding
corporations operating in other regions of Uzbekistan.
•
There is a risk that tax incentives may not always lead to productive investments. Policymakers
must ensure that incentives are aligned with genuine R&D activities rather than superficial compliance
measures. Holding corporations may lack comprehensive knowledge of available incentives or face
bureaucratic hurdles in accessing them.
•
Global competition In a globalized economy, holding corporations may shift their investments to
countries with more favorable tax regimes. International cooperation on tax policies can help mitigate
this issue and ensure that innovation is encouraged across borders. Uzbekistan’s innovation ecosystem
is still in its nascent stages, with limited collaboration between academia, industry, and government,
which taxes alone cannot fully address.
CONCLUSION
The problems of financing and development of innovations in Uzbekistan require a comprehensive
approach and active cooperation between government agencies, the private sector and international
partners. By eliminating barriers to financing, creating favorable conditi
ons for investment and
developing scientific cooperation, Uzbekistan will be able to realize its potential in the field of
innovation, which will ultimately lead to sustainable economic growth and an improved quality of life
for the population.
Taxation serves as both a lever and a barrier in incentivizing innovation among holding corporations.
By adopting targeted and well-coordinated fiscal policies, governments can harness the economic
potential of holding corporations, driving advancements in technology and creating a sustainable
innovation ecosystem. Taxation plays a critical role in shaping the behavior of holding corporations,
particularly concerning their investment in innovation. By implementing effective tax policies that
EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
AND MANAGEMENT STUDIES
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incentivize R&D and collaboration, governments can harness the potential of these powerful entities to
drive economic growth and societal advancement. Future research should focus on optimizing tax
structures to balance revenue generation with the need for fostering innovation in an increasingly
competitive global landscape. Taxation in Uzbekistan has the potential to be a driving force for
innovation within holding corporations. By implementing targeted fiscal reforms and fostering a
collaborative innovation ecosystem, the government can position the country as a leader in
technological advancement in Central Asia.
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