Development of tax tools to support entrepreneurial initiatives

Krokhmal Daniil Dmitrievich ORCID: 0000-0001-7801-9164 Student, Faculty of Taxes, Audit and Business Analysis, Financial University under the Government of the Russian Federation Russian Federation, Krasnodar Territory, Slavyansky District, Petrovskaya, 24 daniil.krohmal.dm@mail.ru Other publications by this author

RelevanceSmall and medium-sized businesses in modern world realities are taking more and more important positions.

Small private commercial entities are increasingly becoming the market basis of entire economic sectors. Due to the constant competition and a more involved and creative approach of the owners of capital in direct office work, some market segments only benefit. This fact cannot but positively affect the public welfare, which, in turn, is one of the main interests of the state.

As a result, the policy of many modern countries is based on the need to improve mechanisms that would contribute to the development of the economic environment for the activation of individual entrepreneurial initiative. The Russian Federation is no exception in this matter. The reflection of this thesis can be found in the Main directions of the budget, tax and customs tariff policy for 2022; in the decree of the President of the Russian Federation "On national development goals of the Russian Federation for the period up to 2030"; in the national project "Small and medium-sized entrepreneurship and support for individual entrepreneurial initiative" and in other documents of the highest order.

In the Russian Federation, support for entrepreneurial activity is implemented through a variety of mechanisms, including tax. One way or another, it is when taxes are paid that the most financially tangible interaction between business and the state takes place. However, due to the obvious market instability of small and medium-sized businesses during the crisis period, as well as due to the direct interest of the state to preserve the financial stability of these taxpayers, and an urgent agenda is being formed to study and improve mechanisms in the field of taxation of small and medium-sized businesses.

Literature review and research methods The study of special tools and approaches for the taxation of small and medium-sized businesses is of interest to many scientists.

For example, M. K. Chistyakova ^[1] adapted tax planning methods for small or medium-sized businesses using express analysis, while calculating the associated risks. S. V. Arkhipova ^[2] justified and specified the need for a service platform for the selection of a tax regime for each taxpayer individually. Krasovsky N. A. ^[3] in his scientific works revealed the contradiction of interests of the state, which on the one hand wants to support small and medium-sized businesses, and on the other hand totally control the dimension of all financial indicators. Parasotskaya N. N. and Yakovlev N. D. ^[4] investigated the impact of a particular tax regime on the profitability of sales of small and medium-sized enterprises. Samarina N. S. and Kovalenko N. A. ^[5] identified the main advantages for individual entrepreneurs from the transition to the patent system. Zotikov N. Z. ^[6] studied the impact of changes in special tax regimes on small businesses. Khutova L. A., Amadaev A. A. and Bagaeva A. I. ^[7] conducted a comparative analysis of taxation of small businesses in Russia and abroad. Panskov V. G. ^[8] justified the need for a structural approach to the benefits of small business with the help of tax tools. Urusova A. B. ^[9] has developed a number of recommendations for improving the taxation of small enterprises. However, despite the impressive volume of qualitative research on the subject, the problem of increasing the attractiveness of business activity remains as relevant as ever.

The purpose of this work is to find additional ways to stimulate entrepreneurial activity in the Russian Federation.

The research is based on such scientific methods as: abstract-logical; statistical; comparison and others. The development of some proposals was carried out, among other things, using successful foreign experience.

Definition of small and medium-sized enterprises in the Russian FederationFirst of all, it is necessary to indicate which economic entities can be considered small and medium-sized enterprises according to Russian legislation.

The definition of such economic entities is presented in the Federal Law "On the Development of Small and Medium-sized Enterprises". If for individual entrepreneurs, peasant (farmer) farms, production/consumer cooperatives there are only criteria for the number and level of income, then additional special requirements are added for other forms of organization. Among them, for example, the limitation of the share of participation of the Russian Federation, subjects of the Russian Federation, various charitable foundations in the authorized capital – at the level of 25%, as well as the participation of foreign capital – at the level of 49%. In addition, the state in this case implements a socially and economically oriented policy, since there is no need to comply with these criteria, for example, among the participants of the Skolkovo project, organizations with a founder in the person of the All-Russian public association of disabled people and some others. However, the criteria for the number of employees and the marginal value of income are mandatory for any economic entities applying for the status of small or medium-sized enterprises (Table 1). 

Table 1 — SME criteria [compiled by the author on the basis of Federal Law 209]

It is also worth adding that the final distribution of an enterprise to a particular type of small or medium–sized enterprise (hereinafter referred to as SME) will be carried out on the basis of a larger criterion (if the number of enterprises is small, and the income is average, then by law the enterprise is average). There are also special cases when the state allows enterprises to slightly exceed the established size standards (for example, catering and light industry), but these cases can already be unequivocally attributed to special ones.

Nevertheless, despite the direct wording specified in this document (who and how can be considered a small enterprise), the tax legislation does not give any references in terms of determining the conditions for using a particular tax regime, but gives its own, as a rule, different criteria. That is, for example, only microenterprises and a very small proportion of small ones can apply for a simplified taxation system, and only a part of microenterprises, necessarily individual entrepreneurs, and so on, can apply for a patent system.

The reasons for the lack of unification in this matter are quite obvious. The range of support developed by the state for SMEs goes far beyond only tax regimes, so often bringing tax, credit, social and other benefits to one limiter is simply inconvenient and unjustified.

Thus, a quite natural question arises – which subjects of SMEs need to be stimulated. It seems quite logical that benefits should be designated comprehensively for all economic entities that are defined by law as SMEs. The importance of this approach is defined, for example, in one of the national projects of our state. However, this does not mean that additional reform of tax regimes for some SMEs will not indirectly meet the same goal.

Current measures to stimulate entrepreneurial activityCurrently, many tax and non-tax support measures for SMEs have already been developed and actively applied.

It is worth noting that in this case, the correlation between supporting SMEs and encouraging entrepreneurship is very high. It is logical that the more benefits an SME receives, the more free profit it has left.  A large profit means: first, the average annual number of bankrupts decreases, that is, such activities become less risky; second, the areola of success surrounds profitable SMEs, it becomes more prestigious. Both create native advertising of entrepreneurial activity, which is guaranteed to encourage a certain percentage of citizens to think about their own business. Of course, there are other ways to stimulate entrepreneurship, but this particular one will be considered in this study.

Government agencies have been developing a system of support for SMEs in a wide variety of areas for many years. In addition to tax regimes, subsidies for youth employment, credit holidays, various grants and compensations to representatives of SMEs in priority areas (determined by the Government of the Russian Federation), reduced rates of insurance premiums and more were introduced. In recent years, due to the escalation of crisis currents, even such measures as the suspension of on-site tax audits of IT companies have appeared, which was previously difficult to imagine.

It is worth noting that the results of these measures can be observed in practice. According to the statistics of the Federal Tax Service, the total number of SMEs, although showing some instability in some periods, is still growing. Over the past 10 months, the growth has amounted to almost 6.3%. However, it is not yet possible to achieve "pre-pandemic" indicators in general for the year. It is also unknown what the latest market fluctuations of the world economic system will lead to. So, the state has a very specific request — not just to increase the benefits of SMEs in absolute terms (which, accordingly, causes a loss of budget revenues), but to develop mechanisms that would allow more optically to provide benefits to economic entities.

Foreign experienceAfter analyzing a number of foreign jurisdictions, it can be concluded that many measures to support SMEs are applied everywhere.

Only the degree of impact of benefits differs. Somewhere there is a slightly more favorable special tax regime, or a slightly less affordable benefit for income tax. Everyone often has differences in the definition of SMEs. Sometimes priority areas and directions differ. That is, a largely successful foreign methodology for supporting SMEs has long been fixed in the Russian Federation.

However, of particular interest is the relatively recently implemented Chinese project on lending to SMEs through banking and tax cooperation. It is interesting primarily for its originality, and, according to Chinese state statistics ^[10], for its objective success. Its essence lies in a tripartite agreement between the bank, the tax authorities and the SME entity. Due to the apparently increasing trends in the world on the mandatory use of cash registers, China decided to use this for additional benefits for small and medium-sized businesses by organizing a communication channel between tax structures and banks, within which up-to-date information on the solvency of the taxpayer /borrower is transmitted and the possibility of potential unsecured lending to SMEs or lending with the involvement of tax authorities is being worked out bodies as a guarantor. The main advantage of such a technique lies in the mutually beneficial terms of such an agreement. Banks get access to additional information from the tax authorities about their clients, therefore they can more thoroughly develop credit lines for them and increase the volume of lending with less risks. SMEs get the opportunity to use additional borrowed resources for their own development, which they did not have access to before, due to the lack of collateral or a guarantor. In this way, the state implements an additional measure to benefit successful SMEs and simultaneously solves several important tasks (such as, for example, encouraging taxpayers not to underestimate their tax base). 

OffersDespite a number of structural differences between the Russian and Chinese economies, it seems logical that the aspirations to stimulate entrepreneurial initiative are homogeneous.

Moreover, the development of tax systems in these states in recent years has definitely similar points of support (in the form of, for example, mandatory CCT). Thus, there is every reason to believe that the system of preferential lending to SMEs through banking and tax cooperation can be successfully implemented in the Russian Federation.

The Federal Tax Service at this stage has a certain information base about each taxpayer-a subject of SMEs. This information can be used for a comprehensive analysis of an enterprise, studying its solvency based on profit indicators, financial results, timely payment of tax payments, and so on. Based on this, using technical and operational capacities, it makes sense to make a rating of SMEs. And depending on the position of the enterprise in the rating, the Federal Tax Service can either recommend unsecured lending to the bank, or act as a guarantor independently. Of course, cases when SME entities that have shown excellent economic results in the past go bankrupt for one reason or another cannot be completely excluded. If the tax authorities have vouched for such an enterprise, the state must reimburse the bank for all losses under the contract from the funds allocated for the support and development of the SME institute. However, the model of rating and providing guarantees is quite optional. When using it, you can take into account a variety of indicators, risk assessment methods, and other things. The main thing is that SMEs in need of additional capital and showing some economic success in doing business will receive additional resources for development.

Moreover, with the successful implementation of such a mechanism, it can be used in a number of other government initiatives to support SMEs. The development of something like this is already underway in China, where a state subsidy program is being modeled, taking into account all possible ways to attract resources for an SME. That is, the amount of funds that can be attracted from lending in the form of banking and tax cooperation, personal collateral lending and state subsidies is calculated. Then there is a comparison of this amount with the amount of capital that an SME needs to significantly develop its means of production. Based on the results of such a comparison, further development of the model is underway.

Additional measures that can be taken to benefit SMEs are the optimization of the simplified taxation system in terms of restrictions for priority industries and business areas. At the moment, the course of state policy in this direction is clear. There is a request for an increase in the initiative regarding the creation of enterprises that would be engaged in activities from the list of the Government of the Russian Federation No. 532. However, most of the positions presented in this document assume equipment with expensive means of production, the prices of which, due to the escalation of the crisis situation in the market, do not show stability. Because of this, many SMEs do not use the simplified taxation system, due to the risk of losing the right to it during the tax period. Based on this, the possibility should be considered:

1)    By analogy with the income limiter, multiply annually the limiter of the residual value of fixed assets by the deflator coefficient (this solution levels the effect of inflation on expensive fixed assets).

2) For priority industries, provide for the possibility of using a double limiter (the first is for switching to the USN; the second is for losing the right to the USN) for the residual value of fixed assets by analogy with the average number of employees and income.

Thus, many SMEs of priority industries will be able to use the simplified taxation system without the risk of sudden loss of rights.

ConclusionsThe proposals presented can provide significant support to SMEs without significantly increasing government costs.

The use of banking and tax interaction in lending is based more on increasing the interconnections of various private and public entities. Optimization of the simplified taxation system will only slightly expand the range of its application for SMEs of priority industries, the development of which can have an extremely positive impact on the economy of the Russian Federation.