Not very expensive but impressive: Vladimir Putin makes a gift to small business
The Ministry of Economic Development is forever asking the Finance Ministry to give small business a break. Four years ago German Gref wrote to Alexei Kudrin asking him to not require small enterprises, which pay tax on imputed income, to use cash registers. Mr Gref asked, logically, why they need cash machines which register their revenue if the tax assessment is known in advance. Businessmen joked at the time that Mr Gref should be writing to the FSB and not to the Finance Minister.
Last week Prime Minister Vladimir Putin suddenly freed imputed tax payers from the much-maligned cash machines. "This is Easter, and so here is an Easter egg," the Prime Minister said thus hinting that cash machines were a particularly relevant topic.
This was not the only gift the Prime Minister offered small business. Companies with revenue of up to 60 million roubles a year would now be eligible for the simplified taxation schedule. The previous eligibility threshold was 30 million roubles. The new threshold, the Prime Minister computed, would save business about 100 billion roubles. Against the background of anti-crisis expenditures this is not a terribly large sum for the budget, but it may be truly useful. All this should have been done long ago, says Vladislav Korochkin, president of Opora Rossii.
Small business' share in Russia's GDP is not great, so for Vladimir Putin these measures are above all political and social: small and medium business provides employment for 20% of the country's population. Small business was the first to be hit by the crisis, the Trust Bank and the ROMIR company claim in their study. "Small business is active people, says political scientist Alexei Makarkin. They are sore, but they do not grumble. Nobody wants them to take to the streets."
CONTROL TAPE
The Government made it mandatory for businessmen to use cash machines in 1998, during the previous crisis. Businessmen did not mind: at the time such a cash register cost a mere 3,000 roubles. But in 2004 all the cash registers were fitted with a new device called a "protected electronic control tape". These tapes were installed to prevent dishonest merchants from "rolling back" the machine to understate their revenues.
The monopoly producer of the device was the Atlas company, which reported to the FSB. This requirement turned Atlas into a business that could hardly be described as small or medium-sized. It soon became clear that the device was vulnerable to cold and dust, broke down frequently when shaken and was not very good at performing its main function, i.e. preventing cash manipulation.
What made businessmen particularly angry was that even those who paid imputed tax, a fixed tax not connected with revenues, were forced to buy cash registers. For retail businesses in the Moscow Region the average store lease is about 1,800 roubles per square meter. They do not need a cash register because the tax does not change month to month. Opora Rossii, which lobbies for the interests of small business, invited FSB representatives to its meetings and asked them what the purpose of those cash machines was. They replied, "We are concerned about consumers." How touching, a member at one such meeting recalls.
Anatoly Lisogor has owned a small shop and a snack bar for 14 years and has been paying an imputed tax for several years. The cost of maintaining the three cash registers has increased dramatically since 2004: 9,000 roubles a year for the "protected control tape" and 600 roubles a year to maintain each machine. He needs an accountant to work with the cash machines; the accountant's salary is 7,000 roubles a month, 84,000 roubles a year. The tax inspector is sure to find something wrong and fine the enterprise as much as 10,000 roubles. That adds up to 125,000 roubles a year.
Natalya Chudakova, an entrepreneur in the Moscow area and a member of the presidium of Opora Rossii, spends about as much to maintain her cash registers. But it is not so much the cash registers as the inspections they entail, she says. Inspectors say you have a cash machine, so we will call on you. This is her account: The tax people come and make a control purchase; they buy a box of matches. If the cashier first punches out a check and hands it to the buyer and then gives him the purchase, everything is OK. If he does it in the reverse sequence, the owner may be fined between 30,000 and 50,000 roubles. Ms Chudakova found herself in this situation, but she refused to pay the fine and later even won a court case. "But this is not the way to work; it is nerve racking," Ms Chudakova says.
"There are two million cash registers in the country owned by businessmen who pay imputed tax," Prime Minister Putin said. Not requiring cash machines would amount to 10 billion roubles in support of small business. In reality it is even more. The businessmen polled by Newsweek say that the "protected control tape" devices break down frequently and new ones must be purchased every 10-12 months. If that is the case, the real gain may be as much as 20 billion roubles.
Still, most businesspeople do not believe that life will become easier for them after cash registers are abolished. Later, however, some document will have to be issued to consumers to confirm a purchase thus enabling a return or a refund. "I am sure they will think of something else," Anatoly Lisogor says.
FOR THOSE WHO STAND BEHIND THE COUNTER
The simplified taxation system was introduced on January 1, 2003. The whole point was to enable entrepreneurs to pay one tax - 6% of the gross or 15% of the net - in lieu of the profit tax, property tax and the single social tax. In 2002 the simplified taxation plan was an important part of the tax reform Mr Putin was implementing at the start of his first term. It is convenient, involves less paperwork and helps businessman save on payments.
However, today just 15% of entrepreneurs are eligible for the simplified taxation schedule, according to the National Systemic Studies Institute (NISI). The reason is that the qualification threshold is an annual revenue of 30 million roubles. Vladlen Maksimov of the Freedom League Trade Union claims that only a businessman who himself stands behind the counter or sells something in the market is eligible for the simplified scheme.
The Ministry of Economic Development proposed raising the threshold to 100 million roubles, which would make the overwhelming majority of small enterprises eligible for the simplified tax. The Government adopted a compromise: 60 million roubles. According to NISI that limit puts the simplified schedule out of reach for 70% of small enterprises.
Genrikh Penikas of the Higher School of Economics challenges Mr Putin's claim that raising the threshold for simplified taxation would save business 100 billion roubles. This is a formal measure, says Mr Penikas, it will help reduce the amount of paperwork but not the costs: "What businessmen need now is a real cut in the tax rate".
Nevertheless, small business will probably welcome Mr Putin's gift. The negative sentiments among small businessmen peaked in winter, but now they are more optimistic than before. "If the state supports small business now there is a real chance for a positive shift in that segment," concludes a study carried out by Trust Bank and ROMOR, a pollster. These measures may increase tax collection, hopes Natalya Malofeyeva of the MKPTsN audit company: the smaller the taxes, the greater the chances that they will be paid.
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BAD NEWS
The number of businessmen who are concerned about their business has more than doubled since the start of the crisis.
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SMALL BUT CAPACIOUS
Small and medium enterprises provide jobs for 20% of Russia's employable population.
By Svetlana Zaitseva, Alexei Savkin