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Moskovskiye Novosti, May 6, 2003

A Means to Escape Legalisation

By Igor Artemyev

Igor Artemyev
Igor Artemyev
Igor Artemyev, Deputy Head of the State Duma Committee for Credit Institutions and Financial Markets (the YABLOKO faction) shared his views on the tax reform with Moskovskiye Novosti:

Our faction believes that key reform should be a reduction in the single social tax. This is a matter of principle for us, as one of the main points of our programme during the [previous] election to the State Duma was legalisation of the population's incomes. Why do most enterprises continue their shadow accounting? The tax system for wages includes 13 per cent of personal income tax and 36 per cent of the single social tax. It transpires that the employer should pay an additional 50 kopeks of tax from every rouble of wages.

Naturally, no one wants to pay real wages at such a huge social tax. However, legalization could become a positive factor for our economy in general. We would like to set a different scale: if a worker is paid small wages, about 3,000 roubles per month, than the single social tax rate should remain very high. In this case it will be unprofitable for the employer to pay such low wages. The higher the wages, say from 30,000 to 300,000 roubles, the lower the social tax rate. If the wage is only 5,000 roubles, the tax rate will be only 20 per cent. Everyone would profit: the employers, the employees and the state.

We think that it is too early to abolish the sales tax, as this provides the main source of tax receipts for Russian Federation subjects. How can we abolish taxes at a regional level and yet preserve them at the federal level? At first sight, a positive step was taken - an abrupt reduction in the profits tax. At the same time, however, the 50% investment break was abolished. So it would appear that the government only states a reduction in the tax, while increasing it in reality.

Small businesses represent another problem. Our faction submitted a special draft law representing amendments to the Civil Code and the Tax Code. It is entitled "On Family Business". About half the world-s population are engaged in entrepreneurial activity - refurbishing flats or baking cakes, etc.

What is happening in our country? If I, for example, don't establish a special enterprise and register with the tax authorities, I can face [criminal] punishment envisaging up to three years imprisonment for illegal entrepreneurial activity. At the same time the Constitution states that a citizen is guaranteed the right to entrepreneurial activity. Why should I apply to the state authorities if I want to run some business?

Our draft law envisages the establishment of a special kind of entrepreneurial activity, which does not require any permits from the authorities. To start up such a business, you should only have to send a letter to the tax authorities notifying them about the kind of business you plan to run. And entrepreneurs involved in the small business should be exempt from all taxes apart from personal income tax. Some restrictions should be placed on their operations. They would be banned from sales, for example, of goods subject to excise duty and would not be allowed to employ anybody.

In our opinion this law in our view should attract most of the active population into small business.


See also:

Tax Legislation

Development of small-scale business

Moskovskiye Novosti, May 6, 2003

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