Government remembers small business in the wake of economic meltdown

Approximately a quarter of the government’s antirecessionary plan is devoted to the support of small and medium business. In particular, there have been suggestions that the threshold at which special regimes become applicable should be increased and UTII (unified tax on imputed income) to be extended without limit in time.

First Deputy Prime Minister Igor Shuvalov reported to President at the meeting with the government that the government’s antirecessionary plan in 2016 will contain a large block committed to the support of small and medium entrepreneurship. RBC analysed the 105-page document which RBC believes to have been was sent on January 26 by the Ministry of Economic Development to the government. Of the 96 different support clauses, more than 20 concern small and medium business. In particular, the government promises that a recommendation rather than a fine will be issued in the event of any first-time violations. The plan includes other measures intended to make life easier for small and medium entrepreneurs:

1. Increasing the special regimes application threshold to RUB 120 million

Pursuant to the Tax Code, the current threshold of RUB 60 million (RUB 79.7 million with deflators in 2016) has not been changed since 2008. Due to accumulated inflation, in the past two recent years most entrepreneurs have been forced to abandon the simplified taxation system (STS) in favour of the primary system (significantly complicating business operation) , or segment their business, which in itself is fraught with the possibility of an indictment for tax evasion and criminal persecution.

2. Extension of UTII without limit in time after January 1, 2018

UTII is a special regime whereby entrepreneurs pay the imputed tax, regardless of their proceeds, depending on the size of their premises (e.g. in retail) or number of employees (e.g. dry cleaner’s). “This is excellent news,” says Olesya Sapa from Opora Russia. “For the retail sector 2016 is the last year in which UTII is applicable, so prolongation of the regime will be a great relief to one million entrepreneurs,” Olesya Sapa believes. According to Federal Tax Service, as of January 1, 2015, 333 thousand SEs and 1.8 million LLC’s have benefitted from the UTII.

3. Introducing a moratorium on the increase of the deflator for 2017

The moratorium will freeze UTII taxes next year, as was the case in 2016, when the Ministry of Economic Development revoked its decree on tax growth for businesses using this special regime by 16%.

4. Introducing the unified standard for offset on property tax calculated with reference to cadastral value

The government proposes fixing an offset on property tax amounting to 500 sq m for companies using special taxation regimes: companies which own premises below 500 sq m will be exempt from this tax, while those which own larger premises will pay this tax only in excess of 500-sqm limit. Similar preferences already exist at the regional level. For example, in Moscow the limit is 300 sq m, but only for companies which have been in operation for more than 3 years, with more than 10 employees and proceeds in excess of RUB 2 million. Principal of Urvista law firm, Alexei Petropolsky doubts that the proposal will be supported by regional authorities. “So far the entire policy of the authorities has been directed at increasing budgetary proceeds: on January 1, 2016 the tax deduction threshold for real estate transactions was raised from three to five years,” he noted. “Increasing the property tax threshold and the removal of additional restrictions will encourage business to segment property into lots of below 500 sq m each.”

5. Providing state-owned assets to entrepreneurs on preferential terms

Small and medium business enjoys this right even today, but pursuant to the government’s antirecessionary plan entrepreneurs may now lease state-owned assets without formal sales (an auction where preferential assets are acquired by the highest bidder). Anastasia Alekhnovich, head of the Expert Centre under the Presidential Commissioner for the Entrepreneurs’ Rights, believes that this will hardly result in any tangible results for business. “Preferences exist today, but everything comes down to their actual use,” she noted. According to her, the Prosecutor General’s Office’s audit revealed about 23,000 violations connected with the access of entrepreneurs to state-owned assets. Providing the property or assets without auction sales is fraught with additional risks of corruption and nepotism, she points out.

6. Providing “licensed” entrepreneurs with right to deduct insurance premiums from license cost

Now private licensed entrepreneurs cannot deduct insurance premiums from the cost of the license. This preference is available for business people using other special regimes (those using STS and UTII may deduct up to 100% of premium from their taxes). This is the main reason why system of licenses is not popular among entrepreneurs, notes Opora Russia’s Olesya Sapa. “The mechanism of deduction is not yet clear,” she pointed out. “The obligation to pay premiums occurs after the PE (SP) buys a license.” She hopes that by transferring the insurance administration to FTS, this will be made easier. “I think permanently working private entrepreneurs may use the carry-forward scheme and those who do not work on a permanent basis may apply for tax refund,” she assumes.

7. Introducing a license for self-employed individuals who carrying out business activities in the absence of SP (PE) status, and with the possibility of e-payments

This measure is aimed at counteracting shadow employment. However, its success is dependent on major amendments to relevant laws and thus barely feasible, notes Anastasia Alekhnovich. “The concept of self-employed individuals needs to be introduced and for them somehow to be distinguished from sole proprietors. However, it’s not quite clear how this could be done,” she noted. Back in the summer of 2015, self-employed individuals were assumed to be granted the right to engage in all types of business carried out by SPs (with the notable exception of trading), and that they would not be inspected by supervisory authorities, but they would pay lesser contributions to the budget and off-budget funds – about RUB 10,000 per annum (at the moment the rate of RUB 24,000 a year is being discussed). “It’s hard to say how this idea will be put into practice as part of this plan, since citizens are not apparently willing to somehow legalize their informal activities in today’s environment,” concludes Anastasia Alekhnovich.

For more detail on RBC: http://www.rbc.ru/ins/economics/27/01/2016/56a8ad7a9a7947182c57c32d?utm_source=pushc

01/27/2016 05:45:00 pm