Russia Adjusts VAT Threshold Reduction for Small Businesses to Alleviate Sector Concerns

Russia will gradually implement its plan to increase the value-added tax (VAT) for small enterprises after business owners expressed concerns that sudden changes could negatively impact the industry, Prime Minister Mikhail Mishustin announced on Thursday.

At present, small and medium enterprises utilizing the simplified tax system are exempt from VAT if their annual revenue falls below 60 million rubles ($739,000). The Finance Ministry has suggested reducing that limit to 10 million rubles ($123,000) as part of a wider initiative aimed at raising the VAT rate from 20% to 22% by 2026.

Mishustin indicated that the updated plan will ease the new threshold in stages. It will begin at 20 million rubles in 2026, then drop to 15 million rubles in 2027, ultimately reaching the initially proposed 10 million rubles in 2028.

He mentioned that the government is also contemplating a temporary halt on penalties for first-time infractions of the new regulations.

“Throughout the comprehensive discussions, input from lawmakers, business representatives, experts, and NGOs regarding tax reforms was taken into account and communicated to the president,” Mishustin stated during a government meeting.

This reversal follows increasing concerns from entrepreneurs and business associations, who caution that many small businesses might be compelled to close or shift to the informal economy.

According to data from the Ministry of Economic Development cited by Reuters, small and medium enterprises contribute over 20% to Russia’s GDP and employ 31 million people, accounting for 40% of the workforce.

Currently, approximately 1.4 million companies and 3.1 million individual entrepreneurs are participating in Russia’s simplified tax system, which allows smaller businesses to enjoy reduced flat tax rates and VAT exemptions up to the current income threshold.

Business news outlet The Bell estimated that the initial reduction of the VAT threshold could impact around 450,000 small enterprises, mainly in sectors like retail, services, and manufacturing.

The lower house of Russia’s State Duma is expected to integrate Mishustin’s amendments into the tax reform bill prior to its second reading, as reported by The Bell.