Transparency of the Regulatory System
Tajikistan’s regulatory system lacks transparency. Executive documents – presidential decrees, laws, government orders, instructions, ministerial memos, and regulations – are often inaccessible to the public. Businesspeople and investors must purchase access to Adliya, a commercial legal database, to obtain updated legal and regulatory information. Each ministry has its own set of unpublished regulations and these may contradict the laws and/or regulations of other ministries.
Proposed laws and regulations are seldom published in draft form for public comment. Although the Tajik government solicited public comment on the 2013 Tax Code, it did not modify the draft law based on the input received.
TajikStandard, the government agency responsible for certifying goods and services, calibrating and accrediting testing laboratories, and supervising compliance with state standards, lacks experts and appropriate equipment. TajikStandard does not publish its fees for licenses and certificates or its regulatory requirements.
The World Bank-funded Public Financial Management Modernization Project helps the Ministry of Finance adopt International Public Sector Accounting Standards (IPSAS). A state utility company and Tajik Air Navigation company are two pilot businesses using the IPSAS reporting standard. According to a 2017 World Bank Public Finance Management Modernization Project Report, all state agencies will become IPSAS-compliant by December 2018 (http://documents.worldbank.org/curated/en/193691512132668403/pdf/Disclosable-Version-of-the-ISR-Public-Finance-Management-Modernization-Project-2-P150381-Sequence-No-05.pdf).
The Tajik central government is the highest rule-making and regulatory authority. On a case by case basis, the central government will delegate some regulatory functions to state, regional, or local levels.
Regulatory procedures are not transparent. Tajikistan is now in the process of shifting to International Financial Reporting Standards (IFRS). The majority of state companies prepare their accounting and financial reports according to national accounting standards. Private sector, donor agencies, and the banking system use IFRS. If the company also operates internationally, then it is in its interest to abide by international standards as well.
The Office of General Prosecution, Anti-corruption Agency, Tax Committee, and State National Security Committee oversee government and administrative procedures.
No regulatory system and enforcement reforms have been announced in 2017. However, the International Finance Corporation Business Regulation and Investment Policy Project conducted an annual review of existing investment stimuli and preferences and concluded that there are in total 93 different investment stimuli offered to investors in Tajikistan. They are broken up by tax, customs, licensing, property management, and inspections incentives.
Government agencies submit proposed draft regulations to working group commissions, which are headed by government representatives. Once cleared, draft regulations receive final review by the relevant Ministries.
Legally the enforcement process is reviewable and could be made accountable to the public. In practice, however, Tajikistan’s regulations are seldom enforced. Regulations are not reviewed on the basis of scientific or data-driven assessments. Tajikistan archives its laws, regulations and policies at www.mmk.tj.
International Regulatory Considerations
Tajikistan is a member of the CIS (Commonwealth of Independent States). To date, Tajikistan has decided against membership in the Eurasian Economic Union.
CIS and U.S. technical norms are incorporated in the regulatory system that governs Tajikistan’s cotton sector. Tajikistan is a WTO member and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
Tajikistan has a civil legal system. The parties to a contract can seek enforcement by submitting their claims to Tajikistan’s Economic Court. Tajikistan has written laws on commercial activities and contracts. Tajikistan’s economic courts review economic/commercial disputes.
Legally, the judicial system is independent. In practice, the executive branch interferes in judiciary matters. The current judicial process is neither fair nor reliable. Outcomes tend to be decided by the government’s executive branch.
Legally, regulation and enforcement actions are appealable and appeals should be adjudicated in the national court system. In practice, national courts typically carry out executive preferences, leaving business and commercial interests vulnerable to government interference.
Laws and Regulations on Foreign Direct Investment
Several government websites provide information on laws/regulations:
The Tajik government regulates investments through a number of laws, inter alia, the Law on Investment Agreement, Law on Concessions, Law on Resources, Law on Legal Status of Foreigners, Law on Free Economic Zones, Law on Investments, Concept of State Policy on Investments and Protection of Investments, Law on Natural Resources Tenders, and Law on Privatization of Housing. The government also established the New Coordination Council of Inspection Agencies. According to the proposed draft decree, inspections will now be guided by an initial risk assessment. Historically, inspections have been undertaken without any justification whatsoever.
The government’s Action Plan for the Improvement of Investment Climate of Industry Sector, Support of Introduction Entrepreneurship, and Development of National Production for 2016-2018 was approved July 27, 2016.
The Tajik government does not offer a “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors, however the Organization for Security and Co-operation in Europe (OSCE) has expressed interest in helping the Tajik government establish one.
Competition and Anti-Trust Laws
The State Agency for Anti-Monopoly Policy and Enterprise Support is responsible for providing support for entrepreneurship and regulating prices for products of monopolistic enterprises, as well as preventing and eliminating monopolistic activity, abuse of dominant market position, and unfair competition.
In November 2016, the State Agency for Anti-Monopoly Policy and Enterprise Support received a notification on the transaction between the Aga Khan Fund for Economic Development (AKFED) and Swedish Group Telia Sonera; this transaction will sell 100 percent of the shares of TCELL, a mobile provider, to AKFED. Telia Sonera and AKFED completed the deal in April 2017, giving AKFED 100 percent ownership of TCELL in Tajikistan.
Expropriation and Compensation
The Tajik government can legally expropriate property under the terms of Tajikistan’s Law on Investments, Law on Privatization, Civil Code, and Criminal Code. The laws authorize expropriation if the Tajik government identifies procedural violations in privatizations of state-owned assets or determines that property has been used in anti-government or criminal activities, as defined in the Criminal Code. Under the Law on Joint Stock Companies, the government may request that a court cancel the private purchase of shares in state-owned enterprises (SOEs) if it determines that there was a violation to the procedure within the original sale.
Tajikistan has a history of expropriating land on the grounds that the properties involved were illegally privatized following Tajikistan’s independence. Following an investigation by government anti-corruption, anti-monopoly, and other law enforcement agencies, the State Committee for Investments and Property Management can issue a finding that the asset was illegally privatized, and request that the Tajik court system order its return to government control. Local domestic law requires owners to be reimbursed for expropriated property, but the amount of the compensation is usually well below the property’s fair market value.
In several cases, Tajik officials have used government regulatory agencies to pressure businesses and individuals into ceding properties and business assets. The Tajik government has not shown any pattern of discrimination against U.S. persons by way of illegal expropriation. All privately owned operations are vulnerable to expropriation actions.
The Tajik government may threaten to impose inflated and baseless taxation charges on companies, and use this as leverage to negotiate the transfer of some share of a company to the government. In cases of expropriations, claimants and others have generally not had access to due process.
ICSID Convention and New York Convention
Tajikistan is not a member state of the International Centre for the Settlement of Investment Disputes (ICSID) Convention.
Investor-State Dispute Settlement
Tajikistan became the 147th country to sign and ratify the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Notwithstanding this, if recognition and enforcement of a foreign arbitral award would be sought in the Tajik courts, the ill-functioning judicial system of Tajikistan may cause a lot of “technical” troubles for the applicant.
Tajikistan acceded to the Convention on August 14, 2012, but it entered into force on November 12, 2012 – 90 days after the deposit of the signed text at the UN and in accordance with Article XII (2) of the Convention.
Tajikistan signed the Convention with a number of reservations regarding types of arbitration agreements and decisions that can be recognized and implemented in Tajikistan.
One of the reservations established that Tajikistan does not apply the provisions of the Convention to disputes with immovable property. A similar reservation was established by Norway, which acceded to the Convention in 1961.
Another reservation established that Tajikistan apply the Convention only to disagreements and decisions “arising after the entry into force of the Convention and to decisions made in the territory of third countries.”
The decision to accede the Republic of Tajikistan to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards was adopted by the Majlisi Namoyandagon (Lower House of Parliament) of the Majlis Oli (Upper House of the Parliament) of the Republic of Tajikistan on May 31, 2012.
Tajikistan is not a member state at the International Center for Settlement of Investment Disputes. In 2011, Tajikistan also joined the Cape Town Convention on International Interests and Mobile Equipment. The Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, together usually referred to as the Cape Town Treaty, is an international treaty intended to standardize transactions involving movable property, particularly aircraft and aircraft engines. The treaty creates international standards for registration of ownership, security interests (liens), leases and conditional sales contracts, and various legal remedies for default in financing agreements, including repossession and the effect of particular states’ bankruptcy laws.
There have been no claims by U.S. investors under a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA), because Tajikistan does not have a BIT or an FTA with the United States.
Disputes involving foreign investors have primarily centered on the implementation of tax incentives. In the last ten years, a minimum of three foreign investors have reported to Embassy officials difficulty utilizing promised value-added tax exemptions on imported items. Tajik procedures require businesses to submit in January of the calendar year a list of goods to be imported, the exemption then expires at the end of December in that same year.
It takes an average of 430 days to obtain a resolution on a commercial dispute/contract enforcement proceeding in Tajikistan: 40 days for filing and service, 120 days for trial and judgment, and 270 days for enforcement of the decision.
In 2013, Rusal, a Russian Aluminum company, which is owned by Russian oligarch Oleg Deripaska, prevailed over the Tajik Aluminum Company (TALCO) at the Swiss Arbitration Court with a claim of USD 274 million. In response, the Tajik Tax Committee launched a case against Deripaska’s companies in Tajikistan, including a Business Center and Hyatt hotel. The Tajik government accused Deripaska’s businesses of failure to pay USD 60 million in taxes to the Tajik state budget. Deripaska resolved this dispute by agreeing to sell the business center and hotel to TALCO for an undisclosed sum. In return Rusal declined to pursue the USD 274 million claim, and TALCO agreed to pay Rusal’s USD 60 million of tax debts to the Tajik authorities.
The government has also been involved in disputes with the governments of Iran and Russia over revenue sharing arrangements at the jointly-owned Sangtuda-1 and Sangtuda-2 hydroelectric power plants.
International Commercial Arbitration and Foreign Courts
Tajik law recognizes the role of local courts in dispute resolution and arbitration but in reality there is not a reputable arbitration institution that is a popular venue for resolving disputes domestically among individuals and businesses. In practice, however, these courts are primarily used to resolve disputes over agricultural plot demarcations as part of the land reform process, and do not serve as venues to resolve non-agricultural commercial disputes.
Tajikistan has signed bilateral agreements with several countries on arbitration and investment disputes, but local domestic courts do not always properly enforce or recognize awards.
Under Tajikistan’s Law on Bankruptcy (2003), both creditors and debtors may file for an insolvent firm’s liquidation. The debtor may reject overly burdensome contracts, and may choose whether or not to continue contracts supplying essential goods or services, or avoid preferential or undervalued transactions. The law does not provide for the possibility of the debtor obtaining credit after the commencement of insolvency proceedings. Creditors have the right to demand the debtor return creditors’ property if that property was assigned to the debtor less than four months prior to the institution of bankruptcy proceedings. Tajik law does not criminalize bankruptcy.