Changes in Small Business Taxation
According to Chapter 26.5 of the TC of the RF, the system embraces 47 types of activity, with their concrete list to be established in the regional law. In addition, the legislative authorities of a RF subject may enlarge the list of the activities given in the TC of the RF: the regions have the right to impose the above-mentioned taxation regime on the additionally listed types of entrepreneurial activity relating to community services.
It is stipulated that an annual income fr om 100 thousand to 1 million rubles is to be taxed according to the system; and a region can establish an increased 10-fold threshold of maximum income for some separate types of activity.
The transition to patent-based taxation system exempts an individual entrepreneur from tax on income of physical persons and tax on the property of physical persons, but only as regards income or property received from the patent activity. Besides, patent holders do not pay VAT, except the three cases, stipulated by law. The rest taxes and charges must be paid.
Individual entrepreneurs using patent taxation system will be able to hire employees, the average number of which should not exceed 15 people a year. The period of taxation is a calendar year; advance payments of the tax are not envisaged. One can positively estimate the possibility for an individual entrepreneur to receive a patent for the term less than a year, but not less than a month; the entrepreneur can lower his/her risks from unsuccessful business if s/he takes a patent, for example, for a period of 6 months or on a seasonal basis.
Patent rate is 6%, which is one of the lowest rates in the Russian taxation system.
Simultaneously with patent system introduction since January 1, 2013, the transition to single tax on imputed income system becomes voluntary. It is assumed that the sphere of application of patent taxation system will expand, and single tax on imputed income will be canceled since 2018.
The introduction of patent taxation system is to bring positive changes for the local budgets, too, for all 100% of this tax are directed to the budgets of municipal entities.
The legislator has, of course, foreseen the terms of termination of the right to use patents, but these instances comprise a closed list of situations. Besides, for the purposes of determining the amount of income of taxpayers, applying both patent taxation system and simplified taxation system, the incomes earned under the two above-mentioned special taxation regimes are taken into account.
A taxpayer may acquire a patent on the territory of one subject of the Russian Federation only one time during a calendar year; if s/he needs to preserve the taxation regime, s/he has to wait until the next calendar year. The procedure of granting a patent takes 5 days. If an individual entrepreneur acquires patents in different subjects of the Russian Federation, they may not coincide in terms. Such a regime can considerably weaken the tax burden for individual entrepreneurs.
The success of various combinations of particular terms of patent regimes in different regions will depend on the regional authorities' desire to develop small business, and on the correct assessment of economic situation and the region's peculiarities. It is obvious, though, that the regime will help the local authorities to stimulate legalization of small business and develop it on the territory, thus enhancing the local budgets' revenues1.
Subjects of the Russian Federation by the end of 2012 were to adopt the laws on introducing since January 1, 2013 on their territories patent taxation system embracing 47 types of activity pointed in Chapter 26.5 of the Tax Code2. But by the beginning of 2013 not all regions adopted the law; for example, the City of St. Petersburg has not adopted the law on patent taxation system yet.
The basic innovation, introduced by the Law of the City of Moscow of October, 2012 № 53 "On patent taxation system", is the possibility to apply patent system in retail trade. It is to be recalled that imputed tax was not imposed in this subject of the RF. Consequently, simplified taxation system calculated on the basis of imputed income for entrepreneurs in retail trade in the City of Moscow will be applied for the first time.
Physical units of activity, influencing the amount of potential earnings, have not been approved in Moscow. But the legislator determined potential annual earnings in retail trade for the objects without trading floor at a higher rate than for the objects with trading floor. Thus, the annual earnings to be taxed for stalls are 2.7 million rubles, and for little shops - 2 million rubles. It should be noted that Moscow legislator exercised the right to expand the list of types of activities to be taxed according to patent system. In Moscow it will be possible for 65 types of activity instead of 47, determined by the Tax Code of the RF.
In Rostov, on the contrary, the potential annual earnings in retail trade for the objects with trading floor have been established at a higher rate- 1.5 million rubles for one object and 418 thousand rubles for the objects without trading floor, which, to our opinion, is more logical, since the sale proceeds of a stall must be smaller than that of a little shop due to the limited assortment of goods (Law of the Rostov region "On regional taxes and some issues of taxation in the Rostov region" of 10.05.2012 № 843-ЗС). It should be also noted that in Rostov the amount of potential earnings is determined on the basis of the number of objects or employees, unlike in Moscow, wh ere the potential earnings of a taxpayer is determined irrespective of the number of selling spots opened or workers employed.
It is interesting to note that excursion services in Moscow, by the legislator opinion, may bring up to 300 thousand rubles, and in Rostov - 370 thousand rubles (provided that 1 person is employed). Translator's services in Rostov are also rated higher than in Moscow: 370 thousand rubles against 300 thousand rubles per year.
In the Krasnoyarsk Territory patent taxation system is imposed by Law of 27.11.2012 № З-756 "On patent taxation system in the Krasnoyarsk Territory" for 47 types of activity. The potential annual earnings in retail trade for the objects without trading floor is determined, like in Rostov, at a lower rate than for the objects with trading floor (100 thousand rubles and 557 thousand rubles respectively). Besides, the legislator estimates differently the earnings received from more than one selling spot with more than one employee. Letting the property (residential properties) is supposed to bring up to 140 thousand rubles in the Krasnoyarsk Territory, and 1 million rubles in Moscow, which is justified taking into account the level of prices on apartments for rent in these regions.
In the Nizhniy Novgorod region Law of 24.10.2012 № 305-5 ОД "On patent taxation system" also imposes patent system on 47 types of activity. It is important to note that besides establishing the potential annual earnings depending on physical units (the number of employees, trading floor space), the legislator exercised the right granted by the TC of the RF to define maximal possible earnings, exceeding of which will lead to an individual entrepreneur's loss of right to apply patent system. It should be noted that the quantity threshold was established at a maximum rate, which allows entrepreneurs to work without the necessity to artificially undercharge earnings.
Law of the Krasnoyarsk Territory of 16.11.2012 № 2601-КЗ "On implementation of patent taxation system on the Krasnoyarsk Territory" is notable for a detailed elaboration of the criteria influencing the size of patent tax. Besides defining physical units, the law enlarged the established by the TC of the RF maximal possible earnings depending on the type of activity. The maximal earnings are 10 million rubles for such activity types as retail trade and catering. Especially notable is the fact that in the sphere of retail trade different annual earnings rates for the purposes of taxation were set for different goods. Thus, the legislator singled out trading jewelry, medical goods, alcoholic products etc. Even in the sphere of catering the legislator differently assessed the potential earnings of a bar, cafe, restaurant, or snack bar. But in practice the situations are possible when an entrepreneur will have difficulties in proving that s/he owns a snack bar, not a cafe wh ere the annual earnings rate are higher, for the criteria of their differentiation are not established by law.
In summary, comparing the provisions of some regional laws on implementation of patent taxation system, we can emphasize the following moments. The established by the legislator annual earnings rates considerably differ for different types of activity, for example, in retail trade or letting the apartments. Besides, the majority of the regions established a differentiated approach in assessing imputed income on the basis of physical units, such as the assortment of goods, number of selling spots, and number of people employed. The approach, to our mind, contributes to a more fair taxation. It is obvious that the regional authorities, when adopting the laws, assessed the potential earnings on the basis of the regions' possibilities and their levels of economic development, but the established criteria do not always seem fair. Besides, the methodology of the assessment is not revealed, so the economic feasibility of any imputed income will be impossible to contest or change.
N. Yu. Kornienko - PhD in Law, Head of Tax System Development Department;
M.S. Esipova - Researcher of Tax System Development Department
1 For details in the world's practices in the sphere of special small business taxation regimes one can refer to the work: Shkrebela Е.V. Small Business Taxation in Russia: problems and their solving perspectives / Ed. by Doctor of Economics Sinelnikova-Muryleva S., PhD in Economics Trunina I. - М.: ИЭПП, 2008.
2 For instance, Law of the City of Moscow of October, 2012 № 53 "On patent taxation system"; Law of the Leningrad region of November 7, 2012 № 80-оз "On patent taxation system on the territory of the Leningrad region".