Russia's Tax Shift: A Breather for Small Businesses

Russia's government has decided to ease up on a planned tax increase for small businesses.

Gradual Adjustment of Tax-Free Revenue Threshold

• Initial Plan:

• Businesses with revenues between 10 million and 250 million roubles to pay a 5% VAT starting in 2026.

• Adjusted Plan:
• Tax-free revenue threshold will drop gradually:
• 60 million roubles in 2026
• 15 million in 2027
• 10 million in 2028

Businesses' Concerns and Government's Response

• Businesses' Argument:

• The tax hike would hurt many, possibly forcing closures.

• Government's New Plan:
• Better than the original but not as favorable as businesses hoped (they wanted a 30 million roubles threshold).

Broader Context

• Purpose of Tax Hike:

• Raise funds for military spending and address the budget deficit.

• General VAT Rate Increase:
• From 20% to 22%, expected to generate about 1 trillion roubles.

Impact on Small and Medium-Sized Businesses

• Economic Significance:
• Make up more than a fifth of Russia's GDP.

• Employ about 31 million people (40% of the total workforce).

• Definition:

• Up to 250 employees and annual revenues of up to 2 billion roubles.

• Expected Revenue:
• Around 200 billion roubles (about 2.5 billion dollars).

Government's Consideration and Future Implications

• Government's Decision:

• Shows responsiveness to business concerns.

• Future Outlook:
• Significant change affecting many businesses.
• Uncertainty about further adjustments based on feedback.