#8
Financial Times (UK)
30 March 2002
Russia reforms tax rules for smaller companies
By DAVID STERN

Russia took another step forward in liberalising its economy this week by significantly simplifying taxes for small and medium-sized businesses.

The move follows the introduction of a flat 13 per cent income tax introduced two years ago.

President Vladimir Putin announced during a visit to the eastern Siberian city of Bakailsk on Thursday that small entrepreneurs would now have a choice of paying 20 per cent tax on profits or 8 per cent on revenues, starting in 2003.

Taxes would be collected quarterly - not monthly as is currently the method - and would apply only to cash already received.

The new plan would apply only to those businesses that employed up to 20 people and received an annual income of no more than R10m a year (around Dollars 322,000).

Mr Putin also said that businesses would be able to write off 100 per cent of capital expenditures immediately.

The plan does away with value-added tax, sales tax, property tax and income tax that businesses are currently required to pay.

The new tax "can be considered no less revolutionary than the decision on the flat, 13 per cent tax for individuals", Mr Putin said on Russian television.

Russia's flat income tax rate is the lowest in Europe and has been credited with initially increasing state revenues.

The government also simplified and slashed the corporate tax rate to 24 per cent last year.

The Russian president said he hoped that the government would submit the necessary legislation to the country's parlia-ment, the State Duma, by April 10.

German Gref, Russia's economic development and trade minister, said that Mr Putin's initiative was aimed at reducing the tax burden for small and medium-sized businesses - which employ officially around 19m Russians - and inducing unregistered companies out of the shadow economy.

The president's announcement was greeted warmly by the Russian business community, which has long complained of lack of support for the country's small and medium-sized businesses.

"This is very good. It is even more liberal than we expected," said Alexei Moisseev, an economist with Renaissance Capital, the Moscow-based brokerage firm.