How entrepreneurs on the simplified payment system will be required to pay VAT under special rules

The Ministry of Finance has proposed a tax reform to change the method of VAT payment. According to this proposal, organizations and individual entrepreneurs operating under the simplified tax system (STS) will be required to pay VAT on revenue exceeding 60 million rubles per annum.

Under current legislation, entrepreneurs whose annual revenue does not exceed 200 million rubles and whose residual value of assets is not more than 150 million rubles can operate under the STS. In most cases, these entrepreneurs do not pay VAT, regardless of whether they choose the “income” or “income minus expenses” tax object.

From 2025 onwards, businesses operating under the STS will be required to pay VAT if their revenue exceeds 60 million rubles per year. Furthermore, the government proposes to raise the income threshold for SUS businesses to 450 million rubles annually. Generally, the VAT rate will be 20%. However, organizations and entrepreneurs will be entitled to deduct incoming VAT. They can also choose other non-deductible rates, which depend on their income:

1. If income does not exceed 60 million rubles annually, VAT is exempt.
2. For income between 60 and 250 million rubles, the rate is 5%.
3. For income between 250 and 450 million, the rate increases to 7%.

Income thresholds of 250 million and 450 million will be subject to annual indexation. However, the threshold of 60 million will not.

The State Duma Committee on Budget and Taxes proposed allowing a deduction for those who pay tax at a reduced rate. This would allow entrepreneurs who purchase goods or services from businesses that pay VAT at reduced rates to claim a deduction. It was also proposed to exempt income up to 60 million per year from VAT automatically, so entrepreneurs would not need to apply to the Federal Tax Service for this benefit.

For small businesses, the introduction of VAT has both positive and negative implications. On the one hand, there will be an increase in the tax burden. However, on the other hand, this may lead to opportunities to work with larger customers who are willing to claim VAT deductions. Large businesses typically prefer not to deal with non-VAT registered entities, as they cannot claim deductions after transactions with these companies.