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Russian government does what it can to support small businesses

August 24, 2013, 2:31 UTC+3 Zamyatina Tamara

The disastrous position of small businesses has forced the Russian government to take urgent measures in a bid to rescue this sector of the economy. A special government commission met in session last Thursday to look into the matter. Economics Minister Alexei Ulyukayev presented a plan for expanding support for the business community. The Russian government is expected to approve the plan in September.  

Tax and administrative pressures on small businesses have produced a situation where, according to the non-governmental organization Business Russia, over 300,000 small businesses and self-employed businessmen had to close down in just first four months of this year. As a result, the country has lost two million jobs. Losses from the reform of taxation that took effect on January 1, 2013 have exceeded the Pension Fund’s incomes the government had expected by 150 percent.

According to the law enforcers, over 100,000 businessmen have been sentenced to jail terms over the past three years. At the beginning of the year the authorities declared the intention to announce what they described as “economic amnesty.” In reality, a tiny 87 jailed businessmen - in contrast to expected thousands - have regained freedom. At a meeting with Russian business representatives last May President Vladimir Putin declared that the proposed draft of the economic amnesty was still half-baked and would require fundamental revision. It is expected that a massive amnesty of businessmen will be timed for the 20th anniversary of Russia’s Constitution in December.

As a member of Russia’s Constitutional Court Tamara Morshchakova believes, employing the leverage of criminal legislation to ruin businesses would benefit no one but the ineffective system of law enforcement and those corrupt officials who “skim the cream of corruption” from businesses.

At last Thursday’s conference the Economic Development Ministry raised the long-expected issue of granting favourable loans and tax breaks to businesses. In order to lower interest rates the government plans to use the National Welfare Fund and the pension savings to grant small and medium businesses 130 billion roubles. First Deputy Prime Minister Igor Shuvalov suggested increasing the amount to 200 billion roubles and establishing a ten-percent interest rate on loans (in contrast to China’s interest rate of less than six percent).

Also, the conference made a compromise decision to prolong the favourable 20-percent rate of insurance deductions small businesses are expected to make. Under the existing legislation the grace period was to end this year and the overall rate was to go up to 30 percent as of 2014.

Are business people happy?

The vice-president of the non-governmental organization Business Russia, Nikolai Ostarkov, has told ITAR-TASS in an interview small business representatives would like the favourable insurance deduction rate to stay effective at least till 2016. What deadline will be set in the end is anyone’s guess.

As for the ten-percent interest rate on loans, Ostarkov believes that it is “acceptable but not favourable.” He argues that the taxation of the wage fund for small businesses is unduly high.

“By this parameter the World Bank has placed Russia in 152nd place on a 170-line list. The tax pressure on wages is as high as 52 percent. It is one of the worst in the world. The government made a decision to prolong the existing pattern, although the Ministry of Finance had proposed to make it nearly absurd. Fortunately, that did not happen. But there has been no turn for the better in the government’s measures to support businesses, either.”

Ostarkov believes that the measures the Cabinet of Ministers has proposed “by no means encourage enterprise, they merely keep them afloat.”

“The government’s proposals leave no chance for small businesses to return even to the pre-crisis level of 2008. We are perfectly aware that the government pays as much attention to this sector of the economy as it can. But in view of the looming crisis small businesses need real support, and not the preservation of the deplorable status quo,” said the president of Business Russia, which unites business people in 71 regions of Russia.

MOSCOW, August 24