17 October 2003 03:25
`Small Business Is 20% of GDP`
Prime Minister Mikhail Kasyanov on Thursday hailed the growing role small businesses are playing in the economy, but
called on the government to redouble its efforts to support the sector through less bureaucracy and fewer taxes.
Kasyanov, speaking to ministers during the weekly Cabinet meeting, said small businesses now account for 20 percent
of gross domestic product, up from 14 percent just a year ago, but that bureaucracy remains "the most sensitive and
painful issue" for the sector.
"A large economy starts with small business. Small business means social and economic stability for this
country," Kasyanov said, according to the government's web site.
However, while Kasyanov trumpeted government efforts to cut red tape -- such as reducing the number of organizations
that must be visited to register a company from five to one -- experts said little progress has actually been made on
reducing bureaucracy.
"The only thing that has changed is that you don't have to register your company with the local
administration any more. This is done with the tax authorities now," said Oleg Zamulin, assistant professor at the
New Economic School.
Zamulin, who conducted a nationwide survey of small businesses for the Center for Economic and Financial Research, or
CEFIR, said much more needed to be done.
"You still have to register with the Pension Fund, statistical organizations, social and medical insurance
organizations, even though all these things could be brought under one roof," he said.
Kasyanov also praised legislation that simplifies taxes and prevents regulators from visiting a small business for
the first three years of its existence. Small businesses often complain of predatory inspections from fire, health and
other inspectors who often exact bribes disguised as fines.
The simplified tax regime allows businesses with fewer than 100 employees and revenues of less than 15 million rubles
($500,000) per year to either pay 8 percent of revenues or 20 percent of profits. It also eliminates social security
payments, but retains contributions to the Pension Fund.
"The ideas are right but they are not being implemented fully," said Vladislav Oreshkin, an economist at
investment house United Financial Group.
Both Oreshkin and Zamulin said the figures given by Kasyanov -- that the small-business sector accounts for 20
percent of GDP and employs 13 million people -- were conservative.
"Government figures are very general and don't take into account the gray economy," Oreshkin said.
"If the reforms were working, more companies would be encouraged to register, pay taxes and statistics would be
more accurate."
Nevertheless, reforms are having moderate success.
"Those businesses switching to the simplified tax system are seeing taxation as less of a problem than
before," Zamulin said.
"Although heavy taxation remains the No. 1 problem businesses complain about, we found that other factors such
as economic instability, regulation and tax administration are taking a back seat to competition as the greatest
challenge small businesses face, and that's the way it should be," he said.
Adding to the confusion are the criteria by which Russia considers businesses to be "small," which vary
depending on what a company produces. If measured by international standards, the small-business sector would account
for 40 percent of GDP, Zamulin said.
Kasyanov approved an Anti-Monopoly Ministry proposal that will universalize criteria used to define small businesses
next year. Under the proposal, companies with less than 10 employees and a turnover below 15 million rubles will be
considered micro-businesses and firms employing less than 100 people will be considered small businesses. No revenue
ceiling has been set for the latter yet. Companies employing under 250 employees with annual revenues of less than 500
million rubles will be considered medium-sized businesses.
Also on Thursday, the World Bank offered Russia a long-term, low-interest $300 million loan to support small-business
development, news agencies quoted Anti-Monopoly Minister Ilya Yuzhanov as saying.
"It would not make economic sense to reject an offer that allows Russia to borrow on the cheap," Yuzhanov
said.
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