EFFICIENCY AND DEVELOPMENT PROSPECTS OF TAX BENEFITS FOR SMALL BUSINESSES IN THE CONTEXT OF THE DIGITAL ECONOMY

INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 4 DOI: https://10.5281/zenodo.17344706 EFFICIENCY AND DEVELOPMENT PROSPECTS OF TAX BENEFITS FOR SMALL BUSINESSES IN THE CONTEXT OF THE DIGITAL ECONOMY Gofurov Doston Bokhromovich PhD, TSUE, associate professor of the Department of International Finance ABSTRACT This article comprehensively analyzes the effectiveness of tax benefits provided to small businesses and private entrepreneurship entities in the digital economy. During the study, the impact of tax burden reduction mechanisms on the development of small businesses, the economic results of the integration of digital technologies, and the effectiveness of using tax benefits are assessed. The article examines the relationship between modern digitalization processes and tax policy, and also analyzes the prospects for the development of small businesses in the context of e-commerce, digital platforms, and innovative business models. Keywords: Small business, private entrepreneurship, tax incentives, digital economy, tax policy, business development, digitalization, tax burden, e-commerce, economic efficiency, entrepreneurial activity, tax incentives, digital transformation. INTRODUCTION Small business and private entrepreneurship are gaining special importance today as one of the most important pillars of the national economy. In the process of deepening market relations, modernization of the economy and increasing its competitiveness, it is the small business sector that is becoming an important driver of economic growth. Therefore, the state is systematically implementing measures to support this sector, facilitate their activities and increase their efficiency. In particular, tax policy incentives play an important role in the development of small businesses. Because, on the one hand, incentives reduce the financial burden on entrepreneurs, and on the other hand, they create the basis for the establishment of new enterprises, increased employment, and the development of a competitive environment. From this perspective, assessing the effectiveness of tax incentives not only shows economic results, but also their importance in ensuring social stability. In a modern market economy, small businesses are the main driving force of the national economy. According to the World Bank, in developed countries, small and medium-sized businesses account for 60-70 percent of total output and 50-60 percent INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 5 of jobs (World Bank Group, 2021). These figures clearly demonstrate the role of small businesses in economic development and social stability. The COVID-19 pandemic has further increased the importance of digital technologies. According to World Trade Organization (WTO) reports, the volume of e-commerce during the pandemic increased by 70% compared to 2019, which accelerated the transition of small businesses to digital platforms. This process continues to this day and is expected to accelerate in the future. The development of the digital economy creates several key opportunities for small businesses. Firstly, the possibility of entering global markets, through the Internet, a small enterprise can reach clients from anywhere in the world. Secondly, a significant reduction in operating costs with the help of cloud technologies, automation, and digital tools will allow small businesses to operate effectively without a large IT infrastructure. Thirdly, it became possible to establish direct contact with clients and better understand their needs. Digital marketing tools allow small businesses to conduct targeted advertising campaigns with minimal costs. Fourthly, new technological opportunities have opened up for the creation of innovative products and services. Modern technologies such as artificial intelligence, blockchain, the Internet of Things (IoT) have become available for small businesses as well. In the context of the digital economy, the future prospects of small business depend on several factors. Firstly, the policy of state support and regulatory mechanisms. Secondly, the level of development of digital infrastructure. Thirdly, the level of attention to digital skills in the education system. According to the World Economic Forum (WEF), by 2025, 50% of the global economy is expected to be based on digital technologies. This creates new opportunities and challenges for small businesses. Working through digital platforms, e-commerce, the application of fintech solutions and artificial intelligence technologies are becoming a necessity for a modern small business. RESEARCH METHODOLOGY The following methods were used in this study: comparative analysis of statistical data, study of small business indicators based on official reports of Uzbekistan and international organizations. Also, through statistical analysis, the degree of correlation between tax incentives and economic indicators was determined. Through the method of comparative analysis, the small business tax policy of different countries was studied and best practices were identified. Through a systematic analysis of theoretical sources and literature, modern approaches to the topic were studied. ANALYSIS OF LITERATURE ON THE TOPIC INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 6 Extensive research has been conducted on the issue of tax incentives for small businesses. International literature covers this topic from various angles. Among the sources written in English, the study by Chen and Mintz (2013) is of particular importance. The authors analyzed in depth the impact of tax breaks for small businesses on economic growth in the United States and Canada. Their empirical research showed that a 1% reduction in tax rates increases the creation of new businesses by 3.2%. The authors also studied the impact of tax breaks on job creation and found that an average of 1.8 new jobs are created for every $1,000 in tax breaks. This study is also methodologically important, showing ways to use panel data analysis and instrumental variables to assess the effectiveness of small businesses. Lee and Gordon (2014) propose modern methods for assessing the effectiveness of tax incentives and develop principles for designing optimal incentive systems based on empirical evidence. The authors develop principles for designing optimal tax incentive systems based on data from 25 OECD countries. According to their conclusions, the most effective tax incentives are those that are time-limited, targeted, and tied to specific indicators. In Russian-language sources, Petrov and Ivanova (2019) assessed the effectiveness of tax incentives for small businesses in the Russian Federation and analyzed their impact on budget revenues. Their study is based on data from 20102018 and a comparative analysis was conducted across 85 federal subjects. The authors introduced the concept of “budget efficiency ratio” and developed a methodology for measuring the impact of the tax incentives provided on budget revenues. According to their conclusions, tax incentives provided for small businesses in Russia are selfsufficient, and for every 1 ruble of incentive, an average of 2.8 rubles of additional budget revenue is generated. Smirnova and Kozlov (2021) conducted a comparative analysis of the role of tax incentives in the development of small businesses using the example of CIS countries and provided recommendations for determining optimal tax rates. Among the literature written in Uzbek, Karimov and Rahmonov (2020) studied the role of tax policy in the development of small businesses in Uzbekistan and made recommendations that are relevant to the conditions of our country. Their work analyzes the comprehensive reforms implemented in 2017-2019 and their impact on the small business sector. The authors introduced the concept of "economic multiplier of tax reforms" and developed a methodology for measuring the economic impact of each tax reform in the conditions of Uzbekistan. According to their empirical calculations, as a result of the tax reforms implemented since 2017, employment in the small business sector increased by 35%, and the share of this sector in GDP increased from 48% to 56%. INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 7 Toshmatov and Yusupova (2021) analyzed the impact of tax incentives for small businesses on regional development, identifying differences across regions. Their study is based on data from all 14 regions and the city of Tashkent for 2018-2021. The authors developed a "regional tax efficiency index" and showed ways to determine the optimal tax policy for each region. Abdullayeva (2022) studied ways to improve small business tax policy in modern conditions and developed proposals taking into account the impact of digital technologies. Her study provides an empirical analysis of the digitalization programs implemented in Uzbekistan in 2019-2021 and their impact on small businesses. Abdullayeva defined the category of “digital small businesses” and proposed a special tax regime for business entities operating online. ANALYSIS AND RESULTS The patent is of particular importance and is intended for entities engaged in certain types of activity. Under this regime, the tax amount is paid in a fixed amount, regardless of turnover. According to data for 2024, the annual fee for a patent is set in the range of 5-15 base calculation amounts. According to statistics, as of 2024, the total number of small businesses and private entrepreneurs was 450 thousand, which is 2.3 times more than in 2017. The role of tax incentives in this growth is significant, and in 2019-2024, the amount of tax incentives granted to small businesses increased by an average of 15% per year (Stat, 2024). To assess the impact of tax breaks for small businesses on the economy, it is necessary to analyze several key indicators. First of all, it is important to look at the impact on the number of new jobs created and the employment rate. Table 1 Employment dynamics in the small business sector(thousand people) Years Jobs in small businesses Share in total employment (%) Growth rate (%) 2019 8,200 58.5 2.9 2020 8,450 59.1 3.0 2021 8,720 60.2 3.2 2022 9,150 61.8 4.9 2023 9,680 63.4 5.8 2024 9,970 64.9 6.7 Source:Prepared by the author based on data from the Statistical Agency under the President of the Republic of Uzbekistan. The data show that employment in the small business sector is showing a steady growth trend. In 2019-2024, the number of jobs in this sector increased by 18%, which is an average annual growth of 4.5%. The impact of tax incentives is particularly INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 8 evident, since starting in 2022, after the introduction of additional incentives, the growth rate increased significantly. The growth rate of employment has accelerated year by year, which indicates the increasing impact of tax incentives. Based on the “tax efficiency index” methodology developed by Lee and Gordon (2014), this indicator in Uzbekistan was 6.8 in 2024, which is a high result by international standards. The digital transformation process typically consists of several stages. The first stage is digitization, where analog processes are converted to digital format. The second stage is digitization, where existing business processes are improved using digital technologies. The third stage is full digital transformation, where the entire business model is rebuilt on a digital basis. The final stage is digital innovation, where new digital products and services are created. The level of digital adoption by the small business sector in Uzbekistan is still low compared to developed countries, and there is significant potential in this area. Small businesses are achieving varying degrees of success in adopting various digital solutions. According to the Statistics Agency of the Republic of Uzbekistan, by the beginning of 2024, the number of small businesses and private entrepreneurship entities in the country amounted to 465,300. However, their level of use of digital technologies still remains average. Table 2 Small businesses’ use of digital technologies(in %) Technology type 2022 2023 2024 Growth rate Foreign average (%) Social media presence 53.1 59.8 68.3 +28.6% 78.4 Accepting online payments 26.9 31.2 34.7 +29.0% 67.8 Electronic accounting programs 34.5 37.8 41.2 +19.4% 72.3 Using cloud services 14.6 17.1 19.8 +35.6% 45.7 Selling on e-commerce platforms 18.7 22.4 26.5 +41.7% 52.9 Using CRM systems 10.4 11.7 12.3 +18.3% 38.6 Website ownership 23.8 27.1 32.4 +36.1% 71.2 Digital Marketing 19.2 24.7 29.8 +55.2% 64.3 Using mobile apps 15.7 19.3 24.1 +53.5% 41.8 Big Data Analysis 3.2 4.1 5.7 +78.1% 23.4 *Source: World Bank, Statistical Agency under the President of the Republic of Uzbekistan (2024). “Statistical Collection on the Use of Information and Communication Technologies”. Tashkent: UzStat Publishing House. The most common digital activity is a presence on social media. Facebook, Instagram, Telegram and other social platforms have become an effective tool for small INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 9 businesses to directly communicate with customers, promote products and services, and build a brand. Small entrepreneurs are using these platforms not only for marketing purposes, but also to advise customers, take orders, and provide post-sales services. Especially during the pandemic, sales through social media have shown a significant increase. Although the share of exports in the trade sector is relatively low, this indicator is formed mainly due to re-export operations and international trade mediation. Significant investments have been attracted to the sector, which are mainly aimed at the development of modern shopping centers and logistics infrastructure. Although the level of innovation is relatively low, the development of e-commerce and digital payment systems in recent years has significantly increased this indicator. In terms of territory, the trade sector is most developed in the capital. The capital region is in second place. Other large cities also occupy leading positions in the trade sector. The territorial distribution of tax incentives in the trade sector is also uneven, with the capital enjoying the largest number of incentives. The internal structure of the trade sector is also diverse, with retail accounting for the largest share. Wholesale is in second place, while car sales and online sales also contribute. Online sales have been developing rapidly in recent years and are expected to expand further in the future. Small businesses are a key driver of employment, output, and export opportunities in the economy. Therefore, it is necessary to thoroughly assess the effectiveness of tax incentives provided to them. Table 3 presents the indicators before and after the introduction of tax incentives. Table 3 Effectiveness of tax breaks for small businesses Indicators Before the Privilege (2020) After the concession (2023) Absolute change Relative growth (%) Production volume (billion soums) 125,000 170,000 +45 000 +36 Number of new jobs (thousand people) 920 1 210 +290 +31.5 Investment volume (billion soums) 18,500 29,600 +11 100 +60 Export share (billion dollars) 1.2 1.9 +0.7 +58.3 Budget revenues (billion soums) 22,000 25,600 +3 600 +16.3 Number of formalized entrepreneurs (%) 100 135 +35 +35 Source:Prepared by the author based on data from the Statistical Agency under the President of the Republic of Uzbekistan and international organizations. INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 10 As can be seen from the table, tax incentives had a significant positive impact on small business activity, with production volumes increasing by 36 percent, from 125 trillion soums to 170 trillion soums. This indicates that the share of small businesses in the economy is increasing. The number of new jobs increased from 920 thousand to 1 million 210 thousand, and 290 thousand additional jobs were created. This result indicates the social effectiveness of the incentives (ILO, 2022). Investment volumes increased by 60 percent, from 18.5 trillion soums to 29.6 trillion soums (World Bank, 2021). This increased the interest of small businesses in technological modernization. Export indicators also grew at a positive pace, from $ 1.2 billion to $ 1.9 billion. This strengthened the integration of small businesses with foreign markets. Instead of a short-term decline, budget revenues increased by 16.3 percent, from 22 trillion soums to 25.6 trillion soums. This confirms that tax incentives provide a sustainable fiscal result. The number of formalized entrepreneurs increased by 35 percent, indicating a decrease in the size of the shadow economy (Stat, 2023). The digital transformation process is not developing at the same pace across different sectors of the small business sector in Uzbekistan. The specific characteristics of each sector, customer demand, technical capabilities, and traditional business practices directly affect the speed and depth of digitalization (Table 4). IT services industryis the absolute leader, currently with a digitalization level of 89.7 percent. This result is natural, since IT companies are closely related to digital technologies by the nature of their activities. Companies providing software development, web design, and digital marketing services are almost completely digitalized. By 2025, this figure is projected to reach 95.3 percent, and by 2030, 98.9 percent. The investment need in this area is relatively small, $156.4 million, since the basic infrastructure already exists. The remaining small gap is mainly related to the adoption of new technologies and retraining of employees. Table 4 Level of digital transformation and forecasts by industry* Industry Current digitization (%) 2025 forecast (%) 2030 forecast (%) Investment needs (mln$) Retail 72.3 84.7 94.2 245.8 IT services 89.7 95.3 98.9 156.4 Food services 54.8 69.2 82.6 187.3 Professional services 67.8 79.4 89.1 134.7 Transport/logistics 47.2 62.8 78 *Source: OECD, World Bank, Statistical Agency under the President of the Republic of Uzbekistan (2024). “Statistical Collection on the Use of Information and Communication Technologies”. Tashkent: UzStat Publishing House. INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 11 Retailranks second with a digitalization rate of 72.3 percent. This sector has experienced the greatest shift during the pandemic. Online stores, e-commerce platforms, digital payment systems, and digital communication with customers have become widespread. Grocery stores, clothing stores, and home appliance retailers have actively introduced sales and delivery services via Telegram bots and Instagram. It is projected to reach 84.7 percent by 2025 and 94.2 percent by 2030. The investment requirement of $245.8 million is mainly related to the modernization of logistics systems, automation of warehouses, and improvement of customer service systems. Professional servicesThe level of digitalization in the sector is 67.8 percent. Small companies providing legal services, accounting, consulting, and educational services are actively using cloud technologies, video conferencing, online document management, and digital communication tools with clients. Remote consulting, online training, and virtual meetings have become standard practice during the COVID-19 pandemic. It is expected to reach 79.4 percent by 2025 and 89.1 percent by 2030. The investment of $134.7 million is mainly needed for modern software, professional platforms, and staff retraining. Transport and logisticsThe sector has a 47.2 percent share. Freight transport, taxi services, and courier services are actively using GPS navigation, online ordering, digital payments, and customer tracking systems. Platforms such as Yandex Taxi and MyTaxi have accelerated the digitalization of this sector. It is expected to reach 78.5 percent by 2030, which is associated with the introduction of autonomous transport technologies and smart logistics systems. Health careThe small business sector has a digitalization level of 38.9 percent. Private clinics, dentistry, diagnostic centers are using electronic cards, online appointment systems, telemedicine and digital medical devices. Remote consultation and online monitoring systems have become widespread during the pandemic. It is projected to reach 73.6 percent by 2030. The high investment need of $420.8 million is related to modern medical equipment, software and staff retraining. CONCLUSION AND SUGGESTIONS In general, although tax incentives may cause certain losses to the budget in the short term, in the long term they have fully justified themselves by increasing economic activity, developing the business environment and strengthening social stability. Therefore, in the future, it would be appropriate to improve tax incentives on the basis of a more targeted and selective approach, especially focusing on supporting innovative activities, export-oriented enterprises and business entities that create high added value. At the same time, the following conclusions can be drawn. INTERNATIONALSCIENCES, EDUCATION AND NEW LEARNING TECHNOLOGIES VOLUME 2 | ISSUE 6 | 2025 https://internationalsciences.org/ | Social Sciences and Humanities | October, 2025 12 1. To increase the effectiveness of tax incentives, it is necessary to take a targeted approach.Each benefit should have a specific purpose and be time-limited. This ensures the efficient use of budget resources and increases the impact of the benefits. 2. By improving the monitoring and evaluation systemThere is a need to regularly assess the impact of tax incentives and take corrective measures where necessary. For this, it is advisable to use modern digital tools. 3. In order to improve infrastructure, it is important to improve the quality of the Internet network in rural areas, introduce 5G technology, and reduce the cost of digital communication services. It is also necessary to develop data centers, strengthen cloud services infrastructure, and strengthen cybersecurity systems. 4. It is necessary to establish free consulting services on digital technologies for small businesses, disseminate and popularize successful experiences through the development of educational and consulting services. It is recommended to develop professional certification programs and create national standards for digital skills. 5. It is necessary to support the development of digital platforms and local ecommerce platforms, create special departments to promote small business products, and expand export opportunities. It is advisable to develop programs to help access international platforms and bring product quality to international standards. REFERENCES: 1. 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The role of tax policy in the development of small business in Uzbekistan. Economics and Education, 3, 45-52