Determining the Tax-Free Income Threshold for Personal Income Tax Based on Relative Poverty: Evidence from Uzbekistan

This study develops an empirical approach for determining a tax-free minimum income in Uzbekistan by linking the personal income tax base to the relative economic position of households. The study is based on the premise that income required to maintain a minimum socially acceptable standard of living should not be subject to personal income taxation. Household data from the World Bank’s Listening to the Citizens of Uzbekistan (L2CU) surveys for 2018–2025 were used to analyse post-tax disposable income, relative poverty, and income distribution. Descriptive and comparative statistical methods, together with income-distribution analysis, were applied.The findings show that the reduction of absolute poverty has not eliminated differences in the distribution of household income. In particular, the lowest-income population groups continue to receive a disproportionately small share of total income, while the relative poverty rate remained within the range of 11.0–14.6% during the study period. The estimated relative poverty threshold increased substantially and reached UZS 1,913,210 in 2025. This result provides an empirical basis for reconsidering the current approach to determining the tax-free component of personal income. The study proposes using the relative poverty threshold as a benchmark for establishing the tax-free minimum income. For 2025, the proposed threshold is equivalent to approximately 1.41 times the minimum wage. Unlike a fixed nominal exemption, this approach links the tax-free minimum to changes in household welfare and income distribution. The proposed mechanism can strengthen the social and redistributive functions of personal income taxation, protect low-income households from excessive tax burdens, and contribute to greater vertical equity in Uzbekistan’s tax system.