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. Last Updated: 07/27/2016

Duma Widens Relief for Small Businesses

The State Duma backed sweeping tax cuts for small and medium-sized businesses Friday, passing a major plank of President Vladimir Putin's reform agenda in its key second reading.

The new legislation would allow businesses with fewer than 100 employees and revenues lower than 15 million rubles ($477,100) to choose between a revenue tax of 6 percent or a profit tax of 15 percent.

It would cancel social security payments but retain contributions to the Pension Fund.

"The simplified taxation system has been created to stimulate the development of small businesses and will contribute to the technological development of Russia," Itar-Tass reported Economic Development and Trade Minister German Gref as saying.

The Finance Ministry estimates the new measure would cut taxes to small businesses by between 200 percent and 400 percent.

The new legislation bans such types of businesses as banking, insurance or investment from the scheme.

The law would still require a formal third reading in the Duma, which has extended its spring session to Monday. It would then require approval from the Federation Council before moving on to Putin for signing into law.

The Duma also approved amendments to the Tax Code in the second reading that will see excises on beer raised 25 percent from 1.12 rubles to 1.40 rubles.

An excise on strong spirits will be raised 15 percent.

Deputy Finance Minister Sergei Shatalov said that the brewing industry is showing vigorous growth and could easily support the increase.

Beer producers, however, are calling it a clumsy attempt to milk money from the sector, and the Russian Brewers' Association sent its complaints in a letter to Putin.

"We believe that an equal excise scale [for beer and strong spirits] would be more fair," said Sun Interbrew vice president Irina Kibina in an interview with the Izvestia newspaper. "The deputies' decision is more political than fiscal. It means that beer is not a priority product."

The raise will hit regional brewers hardest when it comes into effect at the start of next year, Kibina said.

"The consumer who drinks beer socially will move to better-known brands, and those who drink it for the alcohol content will move to spirits," she said.

Sun Interbrew CFO Alan Hibbert played down the impact of the excise raise at a conference last week. Consumers would have to bear the cost, but this would have no serious effect on the company's plans, he said.

While having less to complain about than brewers, vodka producers are also disgruntled.

"You shouldn't change excise levels when everyone is used to them," Izvestia reported an industry source, who wished to remain anonymous, as saying.

"There are two types of player on the market -- honest and dishonest. The honest pay their duty and their prices go up, while the dishonest suddenly find themselves in a very strong competitive position," the source said.

(MT, Reuters)