Tax crackdown on Russia’s small businesses

Hello! Welcome to your weekly guide to the Russian economy, written by Alexander Kolyandr and Alexandra Prokopenko and brought to you by The Bell. This week we discuss the government’s tax crackdown on small businesses, its possible effects and what could be motivating it. We also look at the EU accelerating its plans to cut off Russian gas imports.

Amid budget woes, Russia tightens taxes on small firms

In search of additional budget revenues and a general tightening of the screws on tax collection, the Kremlin is taking a hardline approach to small businesses. At the end of September, the government announced plans to make small businesses pay VAT, and it is now starting to consider the removal of another key tax break — the reduced tax rate for the self-employed. Around 13 million Russians currently enjoy that system, allowing microbusinesses to pay 4-6% income tax with exemptions from pension and health insurance contributions.

What’s the current system?

For many years the Russian authorities have sought to promote small businesses, hoping to use them as additional economic support outside of the mammoth oil and gas sector and to nurture prosperity and loyalty among a broader middle class. In a 2012 campaign article, shortly after the mass protests on Moscow’s Bolotnaya Square (an anti-government movement seen as stemming from the urban creative classes), Vladimir Putin powerfully called to boost Russia’s small businesses. He said he wanted to see “an economy where small business represents at least half of the jobs.” Moreover, he added that by 2020 a significant chunk of them should be working in the intellectual and creative sectors, exporting products and services to the global market.