Accessibility links

Breaking News

St. Petersburg Attempts new flat tax for Small Business

St. Petersburg, July 15 (RFE/RL) -- An attempt by St Petersburg's new governor to simplify the city's tax code for small businesses seems to have created more problems than it has solved.

Governor Vladimir Yakovlev signed an alternative flat tax into law June 23. The new tax stipulates that small businesses may opt for a 10 percent flat tax, 6.67 percentage points of which go into the city coffers and 3.33 percentage points of which go to the federal budget.

The new system appears at first glance to be more attractive to small businesses than the old complex system of local taxation that involves countless forms and an army of accountants.

But to qualify for the new tax, a business must pay a license fee equivalent to from 540 to 9,100 U.S. dollars, depending on the nature of the business. Arkady Krasovsky, head of the Zerkolo co-operative, a small transportation and boat repair firm, says that,due to the licensing fees, the new tax does not make good business sense for him. Krasovsky, who says he was shocked to learn that he would need to pay the euivalent of 2,270 dollars to qualify for the flat tax, says the fees are the main deterrent.

Under St Petersburg's old tax system, businesses are not required to pay licensing fees. Revenues, salaries and other financial elements of the business are taxed at various rates. The system is costly for small businesses due to the volume of paperwork and hired accountants it requires.

It apparently is less costly -- at least for many businesses -- than the new optional flat tax system. An official at the St Petersburg Tax Inspectors' office, who withheld his name, said that only one business actually has paid for the license and is using the new system.