Tax Cuts To Be Introduced

The tax rate for Moscow businesses using the simplified taxation system may be lowered from 15 to 10% beginning in September. Mikhail Vyshegorodtsev, the head of the Moscow city government's Department for the Support and Development of Small- and Mid-Sized Businesses, reported yesterday that the necessary amendments to the city’s legislation were already being prepared. However, experts think that during an economic crisis, the size of the tax burden is not the most significant problem businesses face. Some say lowering administrative barriers and appetites for corruption would have a more positive impact.

According to data from the small-business lobbying group OPORA Russia, only 14% of the country’s small businesses pay a 15% tax rate. About half of these businesses are charged the unified tax on imputed income (ENVD) and the remaining 36% pay the 6% general sales tax. Small businesses that are paying revenue according to the simplified plan can now choose to either pay a 15% tax on their profits or a 6% general tax on sales.

During an economic crisis, any tax reductions stimulate business, experts say, but it would be more helpful if the overall tax burden were to be lowered and if businesses using the simplified system were charged either the 6% general sales tax or paid the ENVD.

According to Mikhail Vyshegorodtsev, small businesses’ main problem is not the tax burden. In Moscow, it is widely believed that administrative barriers cause the most difficulties. “About 35% of those polled cited the barriers as their main problem,” reports a public official. Corruption and a lack of development funds follow on the list of persistent problems. Over 20% of businesses complain of a drop in demand for goods and services, 6% complain of a shortage of workspace, and 7% of a lack of personnel.

According to Mr. Vyshegorodtsev, the limited funds and high rents are now less pressing problems in Moscow. “The rental market has now fallen to thirty to forty percent of pre-crisis levels,” he stated. Currently, ads in Moscow can be found offering leases of commercial spaces where the only payments due will be for certain utilities. There are also properties advertised for 3,500 rubles (a little over $100) per square meter.

Due to the unresolved problems emphasized by Mr. Vyshegorodtsev, many tax consultants are afraid that the tax cuts will have little if no effect.