Free zones. Free economy?

10.11.2008 

Author: Tajikistan: an economic perspective, # 10 (63)
On October, 29th the Tajik members of parliament have confirmed during the fifth session of Majlisi Namoyandagon Majlisi Oli “Regulations about free economic zones “Sogd” and “Pyandzh”. Will Tajikistan have a splash in enterprise activity? Will the foreign investments go to the country? Opinions of experts on this were divided.
As the first deputy minister of economic development and trade of the RТ Amonnullo Ashur has noted, addressing to the deputies, the project of the given document has been developed by the government of the republic with a view of development of industrial sector of the country, attraction of foreign investments and creation of workplaces.
“The free economic zone “Sogd” will be created in a southwest of the city Khujand in the territory of 320 hectares for the period of 25 years, - has told Ashur. - Here the basic stress will be made on development of new capacities and attraction of innovative technologies”.
As to a free economic zone “Pyandzh” it will settle down on 400 hectares in the territory of Kumsangir area of Khatlon region, and is also for the period of 25 years.
“FEZ “Pyandzh” will be industrial-trading where, basically, agricultural production will be processed, including, production of animal industries”, - the first deputy minister has informed deputies.
According to Ashur, all being in the territory of free economic zones enterprises will be released from payment of all taxes, except for the social. Besides for the foreign citizens, wishing to work in territory of the named FEZ, privileges are stipulated at reception of the Tajik visas.
It is necessary to note, that it will be the first free economic zones created in Tajikistan. Predictably, in the RТ in the near future two more FEZ will be created more - in Ishkashimarea (a trading zone) and in Khatlon (agricultural).
Let's remind, the law “About free economic zones in the Republic of Tajikistan” has been accepted on May 17th, 2004.
What will FEZ give to economy of Tajikistan?
In opinion of economist Rustam Jabbarov, tax government and other privileges at creation and functioning of the enterprise in the FEZ territory theoretically give the basis to assume, that in the near future splash in economic activity in these territories already will be observed.
- Practically, it is necessary to settle a lot of problems, - the expert speaks, - and especially it concerns infrastructures. The territory where few months per year there is no electricity, will hardly apply for the status of “industrial paradise”.
At the same time, the expert considers, creation of FEZ is a business of time, and many businessmen have a fine opportunity to get busy in adjustment of an infrastructure independently.
- In Kyrgyzstan FEZ operate already for a long time. Look, what results they have achieved? At their FEZ territory is made everything. Thus they have quickly involved necessary investments in the market. And though from several zones now only one works actually - FEZ in Bishkek, - they make many goods and of quite a good quality, - speaks R. Jabbarov.
In opinion of the economist, in the RТ business is still very passive. Money, nearly $2,2 billion, sent in the country by migrants, basically go on consumption, instead of on manufacture. “With creation of two FEZ people will have an additional good opportunity to favourably enclose the means in manufacture”, - the expert is convinced.
And here is the opinion of one of ideologists of creation of FEZ in the territory of Khujand, director of Open Society “Nurafshon” (the International Terminal of the 1st airport “Khujand”) Karimjon Akhmedov:
- The idea of creation in the country of free economic zones is one more step to formation of an effective liberal economic mode, which is called to keep national economy from full breakdown. For today in the countries of Northern America it is totaled more than 360 FEZ, in Asia - 280, in the Europe - 160, in Africa - 67 and it is not speaking about China, Central and South America, Middle East. However, each project on creation of FEZ is a serious analytical work, which is spent with a view of creation for business of special concessionary terms in the environment of a sharp competition with already operating worldwide FEZ. It, figuratively speaking as a network of high quality comfortable hotels worldwide and business should choose to itself the best from the point of view of comfort, a variety and cost of services. Now it is necessary to ask a question, what we can offer the international business in created in Tajikistan FEZ? In what these conditions will be better than, for example in FEZ, operating in the countries of Middle East? There are no taxes, the highest level of development of a business infrastructure, absence of problems with energy carriers and life-support systems, presence of a port infrastructure and the first class service in sphere of logistics. Naturally, there is a question on who will be the direct operator of created FEZ? If it will be the state, does it have necessary means for creation of a necessary infrastructure and if it is private business of structure, will they be ready to consolidation and long-term investment of huge financial resources? Will they have a necessary experience in sphere of maintenance of efficient control of FEZ? In a word, for me at the given stage there are more questions than the answers. I am confident, that idea of creation of FEZ in the country, sounded by the president of the country on business forum in the United Arab Emirates, is unequivocally focused on acceleration of market reforms spent by the country, however I have a big doubts regarding, how much agencies of authority can provide their effective realization. But a question here is not only about available financial resources or experience of management, but also is in efficiency of interaction of authority and business in questions of prospects of development of FEZ in the territory of Tajikistan.
The Kirghiz experience
At our nearest neighbours FEZ are created and work already for a long time - from the beginning of the 90th. In the territory of the Kirghiz republic there are 4 FEZ – “Naryn” in Naryn area, “Karakol” in Issyk-Kel, “Maymak” in Talass, “Bishkek” is in the capital of the country and partially in the territory of Chuysk area. From four zones three function now (“Naryn”, “Karakol”, “Bishkek”), and the fourth – “Maymak” is at a stage of formation.
Free economic zones in Kyrgyzstan are isolated sites specially allocated in territories of separate areas and cities of the Kirghiz Republic. Territory of FEZ is outside of customs territory of the KR, which borders are compound customs border of the Kirghiz republic.
In free economic zones the attractive investment climate is created. The special mode regulates questions of registration of the commercial and industrial and foreign enterprises, immigrations, a labour, the customs duties, taxes, a foreign currency, the landed property, international trade and any requirements of financial inspections, bodies of statistics, standards and public health services. FEZ give premises for warehousing, wholesale, export-import trade, bank activity, manufacture of the goods on export and transport services.
Free economic zones of the republic have involved investors of more than from 30 countries, they created over 300 companies and joint ventures, which work in the field of trade, food and light industry, manufactures of building materials and furniture, and also tourism.
The first in the country free economic zone “Naryn” is created in 1991 in administrative borders of one-nominal area (42,5 thousand square meters) and represents the open economic region. Now the free economic zone actually also is legally narrowed up to the territory of subjects on which the special tax and customs mode extend. In FEZ “Naryn” now make flour, meat and vegetable canned food, mineral water, polyethylene packages, confectionery products, concentrates of precious metals, etc. During activity of FEZ “Naryn” direct investments for the sum of 5,8 million US dollars are involved, 60 % from them made investments of China. Basically investments arrived in the form of the equipment for manufacture and conducting prospecting and search works.
In 1994 in borders of regional center of Issyk-Kel area the free economic zone “Karakol” is created. They are engaged in manufacture of an industrial output. The basic kinds of a released industrial output are: garments, flour, medicinal grasses, mineral water, berry canned food, bakery and confectionery products, containers, joiner's products.
In 1995 the free economic zone “Bishkek”, which has captured territory of the “Manas” airport, Ach-Chiy (Marble district), and also the National exhibition center of the capital of the country on the area of 489 hectares was created. Practical activities FEZ began in 1996. Among existing free economic zones of the country significant development was received a free economic zone “Bishkek” as it to the greatest degree meets accepted world standards, has own custom and other services, is completely fenced off from the basic territory of the republic.

Registration of subjects
All the rights to the state registration of investors belong to General management of FEZ “Bishkek”, which carries out the state registration free of charge in 2 hours. As soon as the investor receives the status of FEZ subject all privileges stipulated in the Law on free economic zones, inure. Only once per year subject of FEZ hands over the report in Tax inspection of the KR. Any check of subjects of FEZ “Bishkek” is spent in coordination with General management.
By general management of FEZ “Bishkek” by inquiry of addressed, all package of documents can be prepared. Records about registration of the subject are accessible to a review only to directors, members and auditors of the subject, and also to the persons authorized on this by the current legislation of the Kirghiz Republic, and only under the written requirement.
System of safety
In FEZ “Bishkek” has a control regime. The territory is completely fenced and meets to the world standards of protection of objects and a control regime. Not authorized penetrations on protected territory of FEZ “Bishkek” are completely excluded.

Custom mode.
In FEZ “Bishkek” operates a special custom mode. The goods imported on the territory of FEZ “Bishkek” from other countries, free pass customs border of the Kirghiz republic and custom taxes are not raised. At export of the goods from the territory of FEZ “Bishkek” on the territory of the Kirghiz Republic the custom duties are paid (except for the goods made in FEZ “Bishkek”) by the buyer. At export made in FEZ “Bishkek” of goods and at re-export of the goods from the territory of FEZ “Bishkek”, subjects of FEZ are released from payment of the custom duties.
Custom services of subjects of FEZ “Bishkek” are made only by customs service of FEZ “Bishkek”. Intervention of other customs services of the State custom inspection at the Government of the Kirghiz Republic in work of FEZ “Bishkek” customs service is forbidden.

Tax exemption
Participants of economic and foreign trade activities (the legal and physical persons, registered due to hereunder in FEZ “Bishkek”) are released from all kinds of taxes, gathering and taxes for all period of their activity in FEZ “Bishkek”. Subjects of a free economic zone are released from:
The profit tax;
The tax to using highways;
Deductions in fund of the prevention and liquidation of extreme situations;
The land tax;
Local taxes;
Export made in FEZ “Bishkek” production is released from licensing. At realization of the goods in FEZ “Bishkek”, intended for import on the territory of the КR, the value-added tax and the excise tax is paid by the buyer at crossing of border of FEZ “Bishkek”. At import of the goods on the territory of FEZ “Bishkek”, intended directly and only for re-export to the CIS and the far abroad, taxes, gathering and taxes are not raised.
Other activity or storage of the goods without the sanction of General management outside of the FEZ “Bishkek” territory is a subject to the taxation according to the Tax Code of the Republic of Kyrgyzstan. Activity outside of the territory of FEZ “Bishkek” considers crossing custom border of FEZ “Bishkek”.
Currency mode.
Subjects of FEZ “Bishkek” can work with any foreign currency without any restrictions, open any accounts in any bank of the Kirghiz Republic. Returning of the capital and transfer of the profit received by foreign workers, wages in a foreign currency after payment of taxes can free be transferred abroad. Subjects of FEZ “Bishkek” freely import and take out the capital without any restrictions, the received profit freely moves to any country of the world. Thus there is no taxation by local taxes. The capital can be taken out in any currency, as well in the Kirghiz money, to all the countries without restriction.
Visa mode.
According to the law in the territory of FEZ operates the simplified mode of entrance and departure of foreign citizens. Procedure reception of the visa is simplified. Foreigners can receive the entry visa in day of arrival in the republic in Consular agency at the “Manas” airport. Delivery of the multiple entrance visa to directors and managers of firms is stipulated.

From May, 1996 till May, 2006 in FEZ “Bishkek” it is involved 50,9 million dollars of direct foreign investments without granting the governmental guarantees. 5,000 new workplaces are created. For September 2006 in FEZ “Bishkek”, are registered 950 firms representing 46 countries of the world, from them 11 CIS countries, 35 countries of abroad. In territory of FEZ “Bishkek” operates manufacture on release of furniture in the big assortment on the equipment and technology of German and the Italian firms, assembly of computers, sewing manufacture, manufacture of building materials, heating systems on the American technology, manufacture of polyethylene and other. It is constructed and put into operation a factory on mineral water, with total amount of the investment in 3 million US dollars, by Turkish businessmen factory “Plaskap” with total amount of investments in 18 million US dollar. Distributoes of known firms as General Motors, Philip Moriss, Mercedes-Benz, Hundai, Daewoo, Kia and other carry out trading activity.