In the midst of the crisis the Prime Minister has some gifts for small business
The recent National Forum on Small and Medium Businesses has set some important precedents. For the first time it was attended by the country's Prime Minister Vladimir Putin, who promised unprecedented measures of support, beginning with tax breaks and access to government tenders and ending with the promise to pull down administrative barriers.
Second, this time, rather than hearing the entrepreneurs' endless complaints, the congress proceeded in a dynamic, businesslike and fairly democratic way.
One could have guessed that a VIP would be attending the event from the long queues at the entrance to the International Trade Centre where the forum took place and from the large number of burly security men. Prime Minister Vladimir Putin lived up to the expectations of the participants and the journalists and unveiled some important initiatives. He proposed increasing the annual revenue limit that qualifies a business for the simplified taxation schedule from 30 million to 60 million roubles, but without subsequent adjustments. This schedule is currently enjoyed by about 35% of small businesses (55% pay an imputed income tax and 10% pay "standard" taxes). The simplified schedule replaces the profit tax (or income tax), the property tax, the single social tax and the value added tax with a single tax whose assessment depends on who is being taxed. If the tax payer computes the tax on net profit, the rate is 5-15%, and if it is based on total revenue, it is 6%. The "gift" of an expanded application for the "simplified taxation schedule" will partially compensate for the loss of businesses due to the transition from the single social tax to the system of insurance contributions beginning in 2010. According to the Prime Minister, that initiative will cost about 100 billion roubles in budget revenue.
The Minister of Economic Development, Elvira Nabiullina, lately the most consistent champion of the interests of small business, had proposed lifting the threshold for the use of the simplified taxation schedule to 100 million roubles.
However, the Finance Ministry was categorically opposed and the result was a compromise.
Vladimir Putin said that the authorities would revisit the issue of taxes on small business within three years, partly in order to put an end to "various opaque schemes."
In the future special taxation regimes would be cancelled, said First Deputy Prime Minister Igor Shuvalov, who spoke after Mr Putin.
In addition to tax breaks, small enterprises have been promised access to government and municipal electronic tenders. Pilot electronic auctions will be opened by the Moscow Government and by Tatarstan in May. The head of the Federal Anti-Monopoly Service, Igor Artemyev, explained that state orders would be awarded electronically, with the lots being divided into smaller pieces, up to 20% of the total state order. "Considering the gigantic size of the lots, small business should get 80-90% of the small lots. We are talking about at least 400 billion roubles a year," the FAS head said. In addition, the required deposit to enter a bid at these auctions will be cut from 5% to 2% for small businesses. "That would save small business about 24 billion roubles, according to analysts," Vladimir Putin added. He said that the standards of procurement activities of the natural monopolies and state corporations would be revised to give preference to Russian producers.
"The entrepreneurs who pay the imputed income tax should be relieved of the need to use cash machines. The cash machine sometimes costs more than the goods sold," the Prime Minister continued. Those who pay this tax use about 2 million cash machines, each costing an average of 15,000 roubles. So, business spends a total of 30 billion roubles plus 10 billion in annual costs on maintaining the cash registers. The first reading of the draft law to this effect was passed eighteen months ago. "We will try, with the State Duma, to finalise it not later than July 1," the Prime Minister promised.
He said he had already signed a resolution introducing a simplified procedure and eased utility fees for connecting small businesses to the power grid. If the capacity is under 100 kW, only pre-payment of 5% of the cost of the service will be required, with the rest payable in interest-free instalments over three years. The connection should take no more than six months.
Finally the Prime Minister announced some measures to make credit more accessible.
The problem of lack of collateral will be addressed by pumping money into regional guarantee funds. These funds have already been given 3.5 billion roubles as part of the federal programme in support of small and medium-sized enterprises. It has now been decided to add another 15 billion roubles.
In addition to guarantees, grants and micro-credit have been promised to start-up businesses. In 2009 15,000 such enterprises will receive grants of 300,000 roubles and another 20,000 loans (1 million roubles each) will be made available under micro-financing programmes supported by the federal and regional authorities. More than 1.5 billion roubles this year will go to subsidised interest rates on small business loans. In 2009 government banks will allocate about 100 billion roubles in support of small and medium-sized businesses. Of these about 30 billion will be disbursed by Vnesheconombank, the head of VEB, Vladimir Dmitriyev, said. He added that the European Bank for Reconstruction and Development and the German Commercial Bank were ready to disburse an extra billion euros in support of SMEs in Russia against VEB guarantees.
Mr Putin expressed hope that "in the long term the contribution of small and medium-sized enterprises to the development of Russia, to the diversification and modernisation of the economy will grow and will play an ever bigger part not only in the traditional sectors, but also in hi-tech areas, such as engineering, science and telecommunications."
Today SMEs in Russia account for less than 20% of GDP compared with about 50% in the US, for example. Russian authorities have long been committed to reaching a similar indicator, but the forum was told that this time around the promise would be kept.
Commenting on the Prime Minister's initiatives, Mr Shuvalov said: "We will do it at all costs".
Moscow Mayor Yuri Luzhkov said that he was "pleasantly overwhelmed" with Mr Putin's decisions and concluded that small and medium enterprises were key for stabilising the whole country. He said that more than half of Muscovites were engaged in small and medium-sized business. Today the Moscow Government awards up to 20% of the city's orders to small business. The Mayor said that the authorities "had argued for a long time and concluded that any premises rented by small enterprises in the city should cost no more than 1,000 roubles per square metre per year, which is 8-10 times less than the market price."
Yuri Luzhkov thinks it is necessary to relieve small and medium enterprises of inspections by government bodies. The Mayor said that "inspections are very painful and important issues." "The Government of Moscow has decided to categorically exclude any inspections of small businesses by municipal authorities in 2009," Mr Luzhkov noted, saying that "the decision is likely to be prolonged." The Mayor also said that the fees for connections to the power grid should be cut for small and medium-sized business.
"The charges for connection are so high that it cripples any attempts to organise a small business." "The charges for a business are such that they leave it without pants," Mr Luzhkov said.
Many speakers at the forum raised other important issues. In the first place they urged cuts of the tariffs of state monopolies. There were many complaints about excessive use of licensing. For example, if a businessman wants to sell meat he has to obtain three certificates (veterinary, hygienic and compliance), which increases retail prices by 30%. Bribe-taking got a lot of flak.
"The level of corruption in the last three months has multiplied over what it was before," said a businessman from the Chelyabinsk Region.
Businessmen were even more candid speaking after the end of the forum. For example, a businessman who had received approvals for the financing of an original project in the Krasnodar Territory has been unable to receive the money allocated for several months because of the greed of the head of the regional administration. "I have had a running feud with him and I am ready to give him the ‘standard' 30% kickback, but he is not content with that, he demands 50% because of the crisis", a businessman said on condition of anonymity.
By Sergei Krivyansky