Ways to Reduce The Shadow Economy in The Region Through Fiscal Policy

Despite reforms in recent years, informal activities still comprise a considerable part of GDP in Uzbekistan, so this study investigates the scale, causes, and economic consequences of the shadow economy there. While there is a body of global literature that identifies digitalisation and better tax administration as important instruments, relatively few empirical pieces of work have studied the mechanics of these within the context of Uzbekistan´s current fiscal landscape. In order to fill this void, the research adopts a mixed method approach mirroring the deficit in the literature; reviewing national level data using variable statistics, as well as institutional practice through legal regulation analysis; and addressing a comparative review of international experiences. Informality persists across services, construction, retail, and transportation, with over 300 trillion UZS of output remaining unreported. High tax burdens, cumbersome processes, and lack of trust in institutions are still the drivers of informality, the analysis finds. Meanwhile, digital tax platforms, risk-based audits and simpler reporting mechanisms are also delivering tangible results, including higher tax revenues published as being traced via electronic monitoring. The research finds that long-term digitalization, selective tax incentives, and sectoral monitoring can have a major impact in mitigating shadow activity. Broadening the tax base while enhancing financing for social protection and improving overall economic transparency in the region would be key areas where strengthening these reforms would play an essential role.