Reducing the tax burden on small and medium-sized businesses

A legislative initiative aimed at reducing the tax burden on small and medium-sized businesses has been submitted to the State Duma. The proposals address several areas: value-added tax, the conditions for VAT exemption for businesses under the simplified tax system, and employee insurance contributions.

The initiative proposes adjusting the current tax regulations to benefit small companies and entrepreneurs. However, at this stage, this is only a draft law. The proposed changes must still undergo the established review process, so the current tax system will remain in place for now.

They propose to reduce the VAT rate

One of the main proposals is to return the basic VAT rate to 20% instead of the current rate of 22%.

For businesses, a change in the rate can impact both the amount of tax paid directly and the cost of goods, works, and services. Furthermore, the VAT rate is important when setting contractual prices, settling accounts with counterparties, and financial planning.

The proposed reduction is aimed at reducing the tax burden on companies operating with VAT. However, until the relevant amendments are adopted, tax calculations will be carried out according to the current rules.

It is proposed to establish a single limit for VAT exemption under the simplified tax system.

A separate proposal applies to organizations and entrepreneurs using the simplified tax system. For them, the proposed income threshold for VAT exemption is set at 60 million rubles .

This approach presupposes abandoning any further gradual reduction of the relevant threshold and establishing a single value. This is of significant importance for businesses, as reaching the established income level may entail additional tax liabilities and changes to the payment procedures with counterparties.

The initiative’s authors intend for the higher limit to be set to allow more SMEs to continue operating without incurring VAT liability.

For now, entrepreneurs should focus on current requirements. Submitting a proposal to parliament does not automatically change the application of the simplified tax system or the conditions for VAT exemption.

It is proposed to extend the reduced insurance premium rate to all SMEs.

Another proposed measure concerns insurance premiums for employees. It is planned to reinstate the reduced rate for all small and medium-sized businesses , without restricting it to specific types of economic activity.

Currently, eligibility for reduced rates depends on conditions established by law. The proposed change aims to expand the range of companies eligible for the preferential insurance premium calculation procedure.

For employers, this is directly related to personnel costs. The higher the payroll, the more significant the financial impact of a rate change, so this measure may be significant for companies with large numbers of employees.

What changes are proposed to be introduced?

Overall, the initiative includes three main areas:

• reduction of the basic VAT rate to 20%;
• setting the income limit for exempting businesses on the simplified tax system from VAT at 60 million rubles;
• extension of the reduced insurance premium rate to all SMEs.

Thus, it is proposed to simultaneously reduce the VAT tax burden, ease the conditions for the occurrence of the obligation to pay it for businesses using the simplified tax system, and reduce employers’ expenses on insurance contributions.

What this could mean for business

If adopted, the proposed changes could reduce the overall tax burden on small businesses and entrepreneurs. The most significant impact will potentially be felt by organizations that simultaneously use the simplified tax system, have a significant payroll, and face the need to account for VAT when working with contractors.

The following consequences are possible for business:

• reduction of the VAT amount while maintaining the same tax base;
• the opportunity to work longer under the simplified tax system without incurring the obligation to pay VAT;
• reduction of expenses associated with the calculation of insurance premiums for employees;
• more predictable tax planning as revenue grows.

However, the potential impact can only be assessed at this stage. The final parameters may change as the initiative is reviewed.

The changes have not yet come into effect.

It’s important to distinguish between the proposed measures and current tax regulations. At the time of writing, the bill is still under review, so the new rates and limits are not yet in effect.

Entrepreneurs and organizations are not required to change their tax accounting procedures simply because of such an initiative. Tax and insurance premium calculations must continue according to the current rules until the relevant changes are officially adopted and enter into force.

As the initiative progresses, its provisions may be adjusted. Therefore, the specific parameters of the tax burden should be assessed after the legislative process is completed.