THE ARCHITECTURE OF FISCAL EXEMPTIONS: A STRUCTURAL ANALYSIS OF VAT-FREE CROSS-BORDER REGIMES AND THEIR APPLICATION IN UZBEKISTAN’S TAX POLICY

Abstract

Value-added tax (VAT) is generally based on the destination principle, under which crossborder supplies are typically zero-rated in the country of export and taxed in the country of import. Governments employ various mechanisms to implement this principle, including zero-rating, tax exemptions, tax suspension arrangements, and special economic zone regimes. These mechanisms differ significantly in their fiscal implications and administrative requirements. This study examines the structure of VAT-free cross-border regimes and their application within Uzbekistan’s tax system since 2020. Uzbekistan applies a zero VAT rate to exports and qualifying international transportation services while gradually revising selected tax preferences. In 2025, the export-related corporate income tax exemption was abolished, several sector-specific exemptions were withdrawn, and new targeted preferences were introduced, including a zero VAT rate for most sales of agricultural products starting in 2026. Tax administration is increasingly incorporating real-time electronic invoicing and automated risk assessment mechanisms, reflecting a gradual transition from a preference-based framework toward a more rules-based system. Nevertheless, opportunities remain to improve tax expenditure reporting, the predictability of VAT refunds, and the systematic review of time-limited tax incentives. The study provides a structural analysis of these mechanisms and develops recommendations for strengthening the coherence, transparency, and effectiveness of Uzbekistan’s VAT exemption framework.