Promised Tax Breaks For Small Businesses Have Yet To Materialize

The Ministry of Finance is supporting a bill from the Stavropol Regional Duma which proposes to lower the financial burden for a portion of small businesses. Regions may be given the right to vary tax rates applied under simplified taxation to between 3-6% of company revenue. This new development will affect 20% of small businesses that Prime Minister Vladimir Putin “forgot” about when he announced a decision to lower taxes for that economic sector a year ago.

The bill, which the Ministry of Finance is supporting, will eliminate the tax system previously in place that was skewed unfairly towards some small businesses. In November 2008, Prime Minister Vladimir Putin gave a speech during a party congress for United Russia which outlined his anti-crisis program. Amoung other things, he proposed easing the tax burden on those using simplified taxation and declaring the 15% Unified Tax. Putin then proposed allowing the regions where these businesses were located to lower their tax rate to 5%. The State Duma ratified this initiative and 43 of the 83 regions exercised this right by adjusting their tax rates.

However, this new plan affected a very small portion of those using the simplified system, explains Sergei Borisov, president of OPORA, a small-business lobbying organization. Currently, 35% of small businesses in Russia are using simplified taxation, while 55% are still paying Uniform Tax on Imputed Income (UTII), and 10% apply other standard taxes. From the 35% on simplified taxation, only 14% use their income as their tax base while 21% prefer to use profit as their tax base. For these taxpayers, the rate is staying at the previous 6%. Statements from resentful small business owners prompted deputies from the Stavropol Regional Duma to introduce a bill to the State Duma allowing regions lower tax rates for all businesses using simplified taxation to between 3-6%, depending on the type of business activity they engage in. Yesterday, the Ministry of Finance reported on the bill’s preparation and an official government report relating to it, which states that the bill is expected to receive support from most regions of the country.

“This is very logical decision. A year ago, they simply forgot about those who pay the 6% rate,” Borisov said. According to him, small businesses are now waiting for the government’s decision on UTII. The first step could be a voluntary transition to UTII – currently, if a region transitions, for example, small retailers to this taxation system, then all merchants have to transition to this system. Borisov explained that such decisions should be voluntary because UTII varies widely among regions. “In regions where municipal authorities don’t heavily restrain small business, entrepreneurs want to use UTII,” he stated.