Finance Law in Turkmenistan
Turkmenistan, a country in Central Asia, has a financial system influenced by its political structure and state-controlled economy. The country's financial and banking laws are closely regulated by the government, with a focus on maintaining central control over most economic activities. Below is an overview of the finance law and financial regulations in Turkmenistan:
1. Governance and Legal Framework
Turkmenistan’s financial system operates under a highly centralized model, with the government playing a dominant role in regulating the economy. Financial law and regulations are enforced by various state agencies, with primary oversight provided by the Central Bank of Turkmenistan (CBT).
Constitution and Economic Law: The legal framework in Turkmenistan is based on the Constitution of Turkmenistan, which establishes the country’s economic system, including the role of the state in regulating financial matters. The Constitution emphasizes the importance of a planned economy, with state control over major sectors, including banking and finance.
Banking and Financial Laws: The Law on Banks and Banking Activity (1996), the Law on the National Bank of Turkmenistan (1993), and other related regulations govern financial activities in the country. These laws set out the structure of the banking sector, the role of the Central Bank, and the rights and obligations of financial institutions and their clients.
2. Central Bank of Turkmenistan
The Central Bank of Turkmenistan (CBT) is the key regulatory body for the country’s financial system. It controls monetary policy, manages state reserves, and supervises the banking sector.
Monetary Policy: The CBT is responsible for regulating the country’s monetary system, including setting interest rates, controlling inflation, and managing the money supply. Given Turkmenistan’s state-controlled economy, the central bank plays an essential role in ensuring the government’s economic policies are implemented.
Currency and Exchange Control: The Turkmen manat (TMT) is the official currency of Turkmenistan. The CBT controls the exchange rate, and foreign currency exchanges are also regulated by the bank. Foreign exchange controls are strict, and the government monitors all currency transactions to prevent fluctuations that might destabilize the local economy.
3. Banking Sector
Turkmenistan's banking sector is dominated by state-owned banks, and foreign banks have limited access to the market. The system is heavily regulated, and private banking activity is minimal.
State-Owned Banks: The majority of banks in Turkmenistan are state-owned, including the Turkmenistan State Commercial Bank, Turkmenistan Industrialists and Entrepreneurs Bank, and others. These institutions are primarily responsible for managing state resources, financing major infrastructure projects, and supporting the government’s economic initiatives.
Private Banks: Private banks are allowed to operate but are subject to strict government controls. The state heavily regulates their activities, especially in terms of loans, deposits, and the allocation of credit. Private banking services are limited, and most financial transactions are conducted through state institutions.
Foreign Banks: Foreign financial institutions are permitted to operate in Turkmenistan but face significant restrictions. They must enter joint ventures with state-owned enterprises or form partnerships with local banks to provide services. This has limited the presence of international financial services in the country.
4. Financial Regulation
The financial regulatory environment in Turkmenistan is designed to ensure that the government maintains control over all major financial activities. There is little to no room for independent financial regulation or a competitive financial sector.
Regulatory Oversight: The Central Bank of Turkmenistan is responsible for overseeing all financial institutions, ensuring compliance with government policies, and regulating financial services. The CBT has the authority to issue licenses, impose sanctions, and supervise financial institutions.
Financial Transactions: Turkmenistan has strict controls on financial transactions, including significant restrictions on cross-border transactions and foreign exchange. These controls are designed to protect the economy from external shocks and maintain the stability of the national currency.
5. Taxation
The taxation system in Turkmenistan is largely under the control of the government, with the aim of supporting state-funded programs and infrastructure projects. Taxes are generally high for businesses and individuals.
Corporate Tax: The corporate tax rate in Turkmenistan is 20%, with additional taxes on certain types of income and activities. Large state-owned enterprises may receive favorable tax treatment, especially those involved in energy production or infrastructure.
Personal Income Tax: Personal income tax is set at a flat rate of 10%, and it is applied to wages, salaries, and other income. This rate applies to both residents and non-residents.
Value Added Tax (VAT): The VAT in Turkmenistan is set at 15%, applied to most goods and services. This tax is an important revenue source for the government, and businesses are required to comply with strict reporting and payment regulations.
Customs Duties: Customs duties are levied on imports and exports, and the government controls foreign trade activities. These duties can vary depending on the nature of the goods being traded and the country of origin or destination.
6. Investment and Foreign Capital
The investment environment in Turkmenistan is highly controlled, with foreign investment subject to strict regulations and oversight by the government.
Foreign Direct Investment (FDI): Turkmenistan encourages foreign investment in certain sectors, such as energy, infrastructure, and telecommunications. However, foreign investors are required to form joint ventures with state-owned enterprises or comply with other regulations that ensure government control over strategic sectors of the economy.
Investment Law: The Law on Foreign Investments (1993) sets out the legal framework for foreign investment in Turkmenistan. This law provides some protections for foreign investors, but foreign investment is still heavily regulated, and the government exercises control over key industries.
State-owned Enterprises (SOEs): Many sectors of the economy are dominated by state-owned enterprises, and private or foreign investors often face challenges in entering these industries. The government often limits competition and controls the allocation of resources and investments.
7. Money Laundering and Counter-Terrorism Financing (AML/CTF)
Turkmenistan has made efforts to align with international standards on anti-money laundering (AML) and counter-terrorism financing (CTF), but enforcement and implementation remain limited due to the closed nature of the financial system.
AML Laws: The government has enacted laws and regulations to prevent money laundering and terrorist financing, particularly with regard to financial transactions and foreign investments. However, enforcement is not robust, and the legal framework is largely designed to protect state interests rather than international financial standards.
International Cooperation: Turkmenistan has limited engagement with international financial bodies like the Financial Action Task Force (FATF), and its financial system is relatively isolated from the global banking network. This has implications for the country’s ability to combat financial crimes effectively.
8. Social Welfare and State Budget
The government of Turkmenistan provides social welfare programs for its citizens, but the system is also state-controlled and subject to government policy. The country allocates a portion of its national budget to social welfare, including pensions, healthcare, and education.
State Budget: The state budget is largely focused on government spending for infrastructure projects, public services, and maintaining state-owned enterprises. The government controls spending and prioritizes sectors deemed crucial for national development.
Social Security and Pensions: Turkmenistan has a basic social security system that provides pensions and benefits to retirees, the disabled, and low-income citizens. The system is managed by the government, and the level of benefits varies based on the person’s employment history and contributions.
9. Financial Reporting and Audit
The financial reporting system in Turkmenistan is controlled by the government, with state-owned enterprises and financial institutions required to report to central authorities.
- Audit and Accountability: State-controlled entities and financial institutions are subject to audits conducted by government agencies. Independent financial audits are rare, and transparency in financial reporting is limited.
Conclusion
Turkmenistan's financial system is characterized by a high degree of state control, with limited room for private sector growth and foreign investment. The government regulates banking, taxation, investment, and other financial activities closely through the Central Bank of Turkmenistan and various other state institutions. Although the country has established laws to govern banking, investment, and taxation, its closed economy and restricted financial market make it challenging for international investors or businesses to operate without significant government involvement. The financial system is mainly focused on supporting state projects and maintaining control over national resources.
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