Russia Delays Social Tax Hike For Small Firms

by Tatiana Smolenska, Tax-News.com, Moscow

03 December 2010

Russian President Dmitry Medvedev has announced USD3.3 billion in tax relief for small businesses.

In his State of the Nation address, Medvedev said that small businesses operating in the social and industrial sectors would have an extension of two years before being required to pay an additional 8% social tax. For all other businesses, the rate will rise to 34% as of January 01, a move that some predict may see capital being driven out of the country and an increase in tax evasion.

The increase in payroll taxes is required to finance retirement pensions, social insurance and obligatory medical insurance. Medvedev said that he felt the move was necessary to alleviate the additional burden.

There was a cautious response from Boris Titov, Chairman of the Delovaya Rossia Association of Small and Medium-sized Businesses. He told the Moscow Times that the businesses favored by Medvedev represent just 5% of Russia’s small business, while all others will still take a huge blow from the tax increase.

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