Small business in Russia: Carrots or sticks?

In Russia, relations between small entrepreneurs and government officials are far from being perfect, to put it mildly. One side wants to loosen the fetters, while the other one is scared of unexpected turns. Pravda.Ru sat down with Ivan Grachev, a deputy of the State Duma, the leader of the public movement Entrepreneurship to talk about the problem. 

"The latest news that caused excitement among small and medium-sized businesses, was the intention of the Finance Ministry to prohibit companies from writing off the full value of too expensive loans in the calculation of income tax. Thus, the tax burden will be even greater for small businesses. What do you think the Finance Ministry proceeds from offering such amendments?"

"A defective plan leads to incorrect actions. If we believe that a credit scheme - is the main support scheme for businesses and that is how it should be supported, giving loans to banks in large amounts, then new schemes will immediately appear, which, roughly speaking, allow to use these loans for purposes other than those that were originally designated. Accordingly, the Ministry of Finance begins to struggle against this fraud, creating barriers that will become an additional tax burden for normal honest entrepreneurs.

"In my view, it is easier to give a zero tax rate to small companies, at least at the start of business, and then there will be no additional interest there. For example, you start a business that gives you profit, you invest in your business, and it is not taxed. Everything will be fine then. But we are usually told that in this case, Gazprom, for example, will split into a million pieces to use these tax benefits.

"It was me, who introduced the tax benefit, it was my law and a privilege for tax holidays. So I always say "give me evidence showing how many scammers have used the benefit, or the total volume of the part that fraudsters got their hands on." But there is really is no data to prove that scammers will be massively using the technology. There is nothing. This is just a declaration."

"It just so happens that because of the fear of manipulation and fraud the authorities hinder such an important sector for the economy as small business?"

"One only needs to choose the correct plan. I'll give you another example. The companies working in the field of nanotechnologies - Ronanotech, Rosnano - were given 300 billion rubles directly in the form of state guarantees, which was 30 times larger than all businesses in the country. The funds were given to them through credit schemes and so on. Returns for seven years in the budget are zero. Is there any sort of global returns there, some new projects - this is a big question too, because the effectiveness of this type of investment is close to zero. To correctly identify an innovative project is difficult. When managers and officials become involved in it instead of scientists, the efficiency will generally be zero. But there is very big and serious money rolling in there. 

"To free, for example, all large and small companies in the country from tax, to make them a "nanotechnological" package with zero taxes in full - this will cost a lot less than three hundred billion. I think it's about 30 billion a year, but they refuse from this.

"In the meantime, there no chances to steal or misuse anything there. To receive a tax break on profits, you must first give profit - create business that makes profit and then you will get tax relief on profits. If there is no business - then there are no taxes. If you give money to Nanotech, then there is no business. It's like investing in a Swiss bank, for example, when they live on the interest. So, the correct scheme is much less prone to corruption or fraud."

"Which country, do you think, Russia could align to in improving business environment ? For example, Singapore has been considered the most ideal country for business for many years. Maybe we should try to unravel the secret of their success?"

"I think that Singapore it's a kind of a place where there are low taxes, fierce fight against corruption, and where they invested heavily in infrastructure. Moreover, infrastructure in Singapore is perfectly adjusted and works much more effectively than in many democratic countries. I do not know whether their energy is expensive. They are not the most democratic and free country in the world, but they are more rigid in the observance of law. In addition, they have money and goods coming in and out all the time - Singapore has a good geographical position, after all. I think Russia should not look up to Singapore - we are such a huge country, and we are absolutely different. I think we need to see what they have in Canada, in the United States, in Australia.

"In Canada, there are low taxes too. The entire U.S. system of insurance is built on liberal principles, and is quite expensive. The Canadian system is closer to the Soviet one in this respect, partly. And it is in fact cheaper than the excessively liberal system, so I think that Canada is a convenient place to do business."

Maria Snytkova

Pravda.Ru

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