“Small business does not deserve to obtain benefits”: should the STS be abolished?”

As part of the videoconference “Do we need a simplified taxation system and what else needs to be changed in taxation”, a heated discussion broke out between the business representatives and Viktor Zubarev, the representative of the State Duma Committee on the Budget and Taxes. The simplified taxation system and the small business, which the state is trying to support in the current situation, have become a stumbling block. Do they have a right for this support, and what about those, who are not legally entitled to the simplified taxation system but cannot work in the general taxation system?

The main question that was raised during the discussion is: do we need a simplified taxation system in general, or should the whole business operate in the VAT system?

The discussion was moderated by Vladimir Kuznetsov, the Vice-President of the Liquidation and Bankruptcy Bar Association and the head of the Committee on the Protection from subsidiary liability. He raised the question of how much the STS tax is needed.

“This supposedly helps the business, but the payers of STS pay few taxes to the budget and counting on maximum support today,” said Vladimir Kuznetsov.

Andrey Pavlov, the founder and president of the “Zenden Group” shoe store chain, spoke out as an ardent opponent of the simplified taxation system. He said that the entire Russian economy should work in one coordinate system. When all companies (as well as the companies around the world) work with VAT, it becomes much easier.

“I think that the simplified taxation system is an unnecessary system. We can make the entire economy to work in the VAT system. Small businesses can receive benefits on the regular taxation system as well,” Pavlov said.

According to the speaker, VAT should be reduced - 20% is too much, it should be reduced to at least 16%, and for the restaurants and some other, to 10%. Andrei Pavlov mentioned China as a positive example - during the crisis, VAT was reduced to 13% and to 3% for micro-business. Pavlov is sure that Russia needs something similar and that the simplified tax system can be replaced by 5% VAT.

His position was reasoned by the following facts. In 2017, 580 thousand legal entities were registered in Moscow and 470 thousand legal entities were registered only as of March 10, 2020. Someone fell under the cleansing of the Federal Taxation Service, someone became the Individual entrepreneurs. Moreover, if we take the statistics on IE, then in 2017 there were 201 thousand of them, and now there are 290 thousand. Pavlov said that out of 290 thousand entrepreneurs, 80% do not have employees.

“These are entrepreneurs without employees, running away from personal income tax and social contributions, why should we help them? They got so many benefits. But those, who really need help are not being helped,” concluded Pavlov.

By those, who need help, the speaker meant big business. Pavlov said that last year he paid 6 billion rubles in taxes to the budget, and now that he needs to pay 200 million rubles in salaries before April 10, but the state does not provide any assistance.

Sergey Mironov, restaurateur and founder of the “Meat & Fish” restaurant chain, agrees that the STS system outlived its usefulness.

“At the moment, institutions, earning up to 150 million rubles a year operate within the framework of the simplified tax system and feel quite good. But as soon as the restaurant reaches 151 million rubles a year, it goes bankrupt,” the speaker shared.

This happens because while earning 151 million rubles, the restaurant switches to the general taxation system, and VAT immediately kills the business. Sergei Mironov said that if earning up to 150 million rubles a year comes out 6-7% of the profit, then after the mark of 151 million rubles, the institution goes by -15%. In this case, the only thing left for restaurateurs is to split up the business in order to return to the level of 150 million rubles a year.

“We suggest reducing VAT to 10%. We need leverage to continue our development, and we are ready to whiten the business. According to all calculations, the restaurant business cannot operate under the general taxation system,” Mironov summed up.

Irina Kochetova, the representative of "Clerk.ru" accounting community, acted as an opponent. She said that at this stage everyone needs to recognize that in the current form, VAT is a value added tax. And a value added tax must be changed for production, because they should not have it at all.

“When we say that small business does not pay anything, we need to understand that there is no small business. We have a small business of 500 thousand people - what taxes should they pay and why should we strangle them?,” Kochetkova summed up.

She also noted that it is necessary not to increase the taxes for small businesses, but to normalize taxation system for large businesses so that they could develop normally and not pay 20% of the turnover.

Svetlana Sharonova, director of ANO International Legal Company, advocated a simplified taxation system. She noted that the STS allows the small businesses independently cope with all operations, and, if necessary, apply for services to other companies.

“Large business should not envy the benefits of small business. Of course, large business also needs to be supported, but if there is no support for the small business, it will die first,” said Svetlana Sharonova.

Victor Zubarev, the representative of the State Duma Committee on Budget and Taxes, also took the floor. He noted that a change in the taxation system is necessary, but a smooth transition is needed. If we remove the simplified taxation system today, most entrepreneurs will not cope with the load.

“The simplified taxation system cannot be abolished. We should completely free up the small businesses. When the country's economic potential begins to recover, then we can talk about changing the taxation system, both the simplified tax system and the VAT,” Viktor Zubarev said.

The representative of the State Duma also noted that small business must also be supported for the reason that it helps in the fight against the illegal gray sector. This problem is especially relevant in the regions - when the state helps legal small businesses, it automatically fights against the side business. Zubarev said that VAT on sales without deductions is quite realistic, but a little later, as it requires an environment of economic growth.

Sergey Mironov entered into a discussion with the lawmaker. He agreed with the fact that it is not the proper time for changing the laws, but the restaurants need money now - employees have no money to pay the salaries even for March.

“We asked the investors for money, but they refused to help. With the current taxation system, there is no further development, they were giving money before 2015, but now they do not want to, saying that we have to solve the problems with the legislators,” Mironov shared.

The speaker on behalf of the entire restaurant business said that the sphere needs to whitened, and then investors will invest. But for this, it is necessary to solve the problem of STS and VAT so that there is no business fragmentation.

The President of Zenden Group Andrei Pavlov also said that due to the simplified taxation system, 30 million economically active people give less than 1 trillion rubles of taxes to the budget – large business pays for them. The speaker is sure that the STS is destroying the Russian economy, it becomes impossible to be engaged in production. Pavlov noted that the benefits to small businesses are causing the crushing processes, the number of counterfeit goods is growing and all this is stifling the large business. The entrepreneur also assured that in the current condition, it works only for the state.

“I rent a store from an individual entrepreneur in the center of Moscow for 200 thousand euros per year. This businessman is on the simplified taxation system, and pays 12 thousand euros of taxes per year. Last year he received a patent and now pays 3 thousand euros. He lives in Nice, and gets rubles on his card, but in France he would pay 65 thousand euros of taxes. And now we are helping this individual entrepreneur, giving him another thousand euros to let him live well,” said Andrei Pavlov.

What is more, the businessman is sure that if the restaurant and shoe business will work as they do in Europe, with a break for lunch, then everyone will benefit from it. Pavlov said that now he is “forced” to work 84 hours a week, and if he had the opportunity to work 60 hours, excluding daylight hours, during which stores are empty, the meaningless activity will go away. With a 20% reduction in working hours, employees will not receive less, but the work will be more efficient.

The representative of the State Duma Committee Viktor Zubarev objected to the businessman, noting that it is impossible to cite the whole business system using the example of your own business.

“We do not fight to facilitate small, medium or large business. We want to preserve the economy, non-working places can turn into crime. We cannot allow instability and bring the situation to a riot, which, as you know, is senseless and merciless,” summed up Zubarev.

The State Duma representative did not agree with Andrei Pavlov that not all employers, like him, would be willing to pay the full salaries while reducing the working time.

“We should not change anything now. Let's survive the year 2020, preserving the jobs and moving the market from the gray to white. Large business can speak for itself, but small business cannot - now it might just cease to exist,” Viktor Zubarev summed up his speech.

To the question of Vladimir Kuznetsov about whether the state can subsidize the salaries for employees of the large businesses, Zubarev replied that the government is now thinking about this, and not only for the large businesses. For example, Uzbekistan has already taken this path - at the expense of its foreign exchange reserves, the country pays all 80% of the salaries until people return to work. Viktor Zubarev noted that the whole range of measures is needed. However, the taxation system should definitely not be changed, at least in 2020.