Russia To Introduce Simplified Tax Payment System For SMEs In 2022

New ATS system pilot for businesses with turnover less than ₽60 million.

Russia is to launch a pilot scheme Automated Taxation System (ATS) next year, according to in Prime Minister Mikhail Mishustin. This a variant of the existing Simplified Taxation System (STS) and is designed to reduce the administrative burden in calculating and paying taxes by microbusinesses and SMEs in Russia.

SMEs account for about 22% of GDP and about 30% of the Russian workforce. Russian SMEs are mostly domestic-market oriented.

The ATS will make it easier for SMEs to interact with the state, with the filing of tax returns canceled. Tax calculations will be automatic and based on data from online cash desks and transactions on current accounts. This means the cost of tax reporting will decrease and these HR resources and work hours can instead be directed to business development.

Several requirements are needed to qualify – annual income must not exceed 60 million rubles, (US$820,000) while the business must employ up to five people. After these thresholds, SMEs must graduate to the STS system.

Businesses can become an ATS payer online by submitting an application to the local tax bureau.

The scheme is scheduled to run for six years. Russia’s Kaluga and Tatarstan regions are set to become the pioneers of the new system.

The initiative to introduce a new approach to tax legal relations between the Tax Bureau and SMEs has been welcomed. Vladimir Saskov, of Tax Management and Real Estate Economics at the Higher School of Economics, and a director of the Association of Tax Consultants, says “This is good both for micro-businesses, which are exempt from formalized procedures for tax declaration and tax control, and for the state. The implementation of elements of a proactive approach in tax administration of microbusiness guarantees the transparency of tax legal relations, leveling the need for any additional tax control measures.” According to Saskov, there are several important aspects in the ATS regime.

These include the voluntariness of the transition to the new tax regime, along with the planned practical testing in certain territories to form an assessment of the prospects for the further development of the system. In addition, if the idea is implemented in conjunction with other discussed initiatives – zeroing insurance premium rates while increasing the base rates for the simplified tax system, reducing the total tax burden for a wide range of taxpayers, then the proposed measure will act as a quality tax instrument to support microbusiness.

At the same time, Saskov considers possible tax evasion by splitting up businesses as the main risk – to qualify, larger SMEs may hide their true size by dividing themselves up into smaller businesses.

However, the ASN scheme will save business from errors and inaccuracies in reporting, says Ruslan Turdibaev, head of the SME business department at Bank Finam JSC.

For a micro-enterprise, submitting tax reports is a big burden, given the limited staff, and often the lack of an accountant on the staff.

Banks will not additionally monitor the size of the tax burden for such enterprises, complying with the requirements of No. 115-FZ, which will reduce the current load on the infrastructure of banks.

According to Turdibayev, the transition to the ATS will not allow optimizing taxes via automatic calculation, although at the first stages of introducing the regime, errors in calculating the amount of taxes could occur as the system is fine-tuned.

The new tax regime will slow down the transition of microentrepreneurs to being fully self-employed. But entrepreneurs will have to take the time to figure out the details of the new mechanism.

The new regime will simplify the conduct of a small business without formal tax reporting, says Yekaterina Kosareva, managing partner of the analytical agency WMT Consult.

Fines are currently levied for incorrect tax declarations, which in the case of SMEs are often filed by under-qualified staff. The absence of the need to submit tax documents eliminates these risks.

According to Kosareva, the Federal Tax Service has the appropriate computing power to deal with this issues and guide SMEs towards more accurate declarations.

A similar pilot scheme was tested on payers on self-employed Professional Services taxpayers, without many complaints from users.

Kosareva believes that everyone who wants it should be included in the new experiment. Kaluga and Tatarstan were the first to introduce the NPA regime in 2019. In Kosareva’s opinion, Moscow, the Moscow region and all neighboring regions, including Tver, Vladimir, Tula, and Smolensk should participate as they are entrepreneurs actively working with Moscow based customers. They should be the first to switch to the new regime.

However, there are also potentially problematic points that need to be thought through and resolved during the detailed development of ATS.

Firstly, the obligatory purchase and use of cash registers if the organization or individual entrepreneur works with individuals or accepts cash. This became a trigger for certain types of business to switch to the patent taxation system or to self-employment with the simplified tax system as deploying these systems requires capital expenditure.

The provision of subsidies for the purchase of KKT or a bonus for the payment of tax, as is the case with the self-employed could however be adopted.

Secondly, a clear scheme for adjusting the automatically accrued tax should be introduced, the possibility of recalculation: businesses employing staff are more of a priority than individuals merely just freelancing.

Thirdly, a mechanism should be worked out under which, if the revenue limit is exceeded, the company would not block the tax regime.

Currently, if a self-employed individual exceeds an annual income of 2.4 million rubles (US$33,600) he can break through the next check level only at the beginning of the next financial year. This means that instead, they draw up a GPC contract for one-time work, and apparently cease operations in their business. As an option could be to designate a higher automatic rate for the excess amount, although individuals will still try and avoid the threshold.

The ATS system will simplify tax payments by SMEs. The difficulty is to motivate SMEs to use it and make the system smart enough so evasion through natural business growth can be deterred.

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