300,000 former entrepreneurs will go to labor market and get registered as unemployed

To date, 317,300 businessmen have cancelled their entrepreneur registration certificate in response to raised social benefits. Net budget losses from cancellation of registration and cessation to pay social contributions by individual entrepreneurs (IEs) is expected to be nearly Rb 5bn, whereas a benefit from increasing total amount of contributions is expected to amount to nearly Rb 50bn. Net growth in budget revenues is expected to be more than Rb 40bn, because some of deregistered entrepreneurs may apply for unemployment benefit. All in all, these figures are not very important against more than Rb 1 trillion of general pension fund deficit.

 

Another story is whether such a system of social contributions for small businesses is reasonable or not. It is most likely that high tax liabilities should not be imposed on small enterprises, because IEs’ incomes are sometimes equal to Rb 35,000, especially when it comes to a seasonal business. It would be more reasonable to apply a flexible approach with well-defined criteria of how much they should contribute to the Pension Fund of Russia over their working life to be entitled to a minimum work pension (subsistence minimum) within 20 years after retirement. Insurance contributions should be based on these values. 

Entrepreneurs must be entitled to choose whether to pay large amounts of social contributions for a short period of time or pay less for a longer period. Even if an individual entrepreneur prefers not to pay at all, then he would be entitled to social pension, rather than work pension.

Nazarov V.S. – Ph.D. in Economics, Head of Budget Federalism Department