Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

President Decides to Think Small

President Vladimir Putin has earned kudos for his tax initiatives. Gone are a slew of burdensome, often contradictory taxes that forced even the biggest corporation into the shadows. And everyone knows about the much-touted flat 13 percent income tax, the lowest in Europe.

But the very people upon whom the country's future economic growth rests -- the owners of small businesses -- have seen little relief.

"We hardly make any profit," said Roman, who asked that his last name not be used. He is the owner of the Admiral cafe on the outskirts of Moscow, a family-run business whose 15-odd tables are usually full during lunch hours.

"The value-added tax eats up a lot of our turnover," piped up the cafe's financial director, Genrikh.

Putin understands the complaints of such entrepreneurs all too well and ordered the government to draw up "revolutionary" measures to slash small businesses' taxes.

The Cabinet took heed and recently put forward amendments to simplify filing procedures and lower rates for small businesses. The legislation, if passed in its current state, would allow businesses with annual revenues of up to 10 million rubles ($325,000) to switch over to a simplified tax system under which they could choose to pay a single tax of either 8 percent of their turnover or 20 percent of their profits. Gone would be the burden of value-added tax, sales tax, social tax and other taxes.

The State Duma is expected to pass the legislation in time for it to take effect at the start of 2003.

Supporters say the move could breathe life into small business and bring them out of the shadows. Critics worry, however, that the initiative does not go far enough.

"I think some serious amendments will be made to the bill in the Duma," former Prime Minister Yevgeny Primakov, who now heads the Russian Chamber of Commerce, told reporters Tuesday at a conference of more than 600 small-business leaders from around the country.

At issue is the ceiling of 10 million rubles on revenues, which is seen as too low, and another stipulation that a small business cannot employ more than 20 people.

German Gref, the economic development and trade minister, offered assurances last week that even though the cap was at 10 million rubles, the more complicated tax system would not kick in until a company passed the 15 million-ruble mark.

Anti-Monopoly Minister Ilya Yuzhanov, who is overseeing the small-business reform effort, told small businessmen at the conference Tuesday that he favored a higher limit.

"The 10 million [ruble] turnover ceiling was actually a Finance Ministry proposal, not an Anti-Monopoly Ministry proposal," he said. "Ten million is perhaps enough for considering seed and ice-cream street vendors, but not for serious small businesses. This figure is laughable."

The limits on revenue and staff may discourage a small business from growing, he said.

Existing small-business legislation should be the yardstick by which the enterprises are measured, he added. A 1995 law does not put a ceiling on turnover but instead classifies businesses by the number of people they employ. It defines small businesses as companies with up to 100 staff.

Not all entrepreneurs are convinced about the proposed measures either.

"Even if they lower taxes to 5 percent, people who have learned to hide their income won't show it anyway," said Alexander Ryabov, general director of a computer repair firm that employs about 10 people.

He said his company pays all of its taxes. But now it is in the process of shutting down because of "bad market conditions and high taxes," he said on the sidelines of the conference.

Ryabov suggested that the government abolish taxes for small businesses all together in order to turn the shadow economy into a legal one. "We've got so much oil and gas, the whole country used to subsist on it," he said. "Now for some reason it's not possible."

Back at the Admiral cafe, Roman talked about customer satisfaction, home-cooked quality and everything else a restaurateur knows is the key to a successful eatery in the West. But somehow these borrowed concepts are not helping the restaurant pull through, on paper at least.

Roman and Genrikh opened the cafe a little over five months ago, their sisters work as waitresses behind the counter and Roman's grandmother cooks in the kitchen. Most of their business comes from a nearby office building and a factory.

A little before noon every day, the cafe feeds about five pensioners free of charge. "We do this on our own initiative," Roman said. "But it would be good if we could get a tax discount for this, then maybe we would be more inclined to feed more people."

Roman proudly presented a certificate of thanks presented to the cafe by the local veterans association for their help to the community.

"It's no secret that there has always been, is, and always will be tax evasion in Russia," he said. "There is just no other way to survive, and that's why I'm not afraid to say this."