The analysis of taxation systems of small business in Russia and Europe

Today small business plays the key role in the economy of developed and developing countries. The role of small businesses within the global market economy has significantly increased in the 1980s and 1990s of the last century. And at the international arena small business solves the market’s classical problems:

• 1.    The equalization of economic fluctuations through the mechanism of demand and supply;

• 2.    A support and development of a fully competitive environment;

• 3.    The increasing of employees’ competence and industry’s development as a result of healthy competition [1].

There is no stable development of the market economy without a proper system of taxation. Of course, the formation of the state budget is possible without tax deductions. The most important role of taxation system is the state regulation of the economy. Thus, in the interaction between customers and suppliers there is another interactive object – the state. There are two main directions of the state's participation in that interaction:

• 1.    Direct regulation of the market relations between customers and

• 2.    The support of state’s manufacture branch’s development tool in a working condition through the exposure to the needs of the end user and production in a way that is necessary and beneficial for state [2].

suppliers through the creation of regulations;

In a domestic practice it is customary to classify small businesses by number of employees and revenue in to it:

• 1.    Micro enterprises (up to 15 people, the revenues of up to 60 million rubles);

• 2.    Small enterprises (up to 100 people, the revenues of up to 400 million rubles);

• 3.    Medium enterprises (up to 250 people, revenue up to 1 billion rubles) [3].

There is no common classification system of the small business in Europe. Some countries of the European Union also classify small business by number of employees. Others use the rate of turnover of the company as an additional criterion (Germany, France, Belgium, and the UK). Italy and Ireland use the value of the property [4].

There are following modes of the small business taxation systems in Russia for today:

• 1.    The common system of taxation;

• 2.    The unified tax on imputed income;

• 3.    The simplified system of taxation;

• 4.    The patent system of taxation;

• 5.    The system of taxation for agricultural producers [6].

While using common system of taxation, organization fully provides an accounting and pays all general taxes:

• •     The value added tax;

• •      The tax on organizations’ profit;

• •      The tax on organizations’ property.

An individual entrepreneur when using the common system of taxation pays the tax on the income of individuals, the value added tax, unified social tax on income, the tax from employees’ salary, contributions for compulsory social insurance against accidents in production, the state customs duty, license and registration fees and other applicable taxes, fees and charges [7].

There is an important feature about the single tax on imputed income - since 2013 - it has become voluntary [6].

The unified tax on imputed income is the tax system, which is enforced by the municipal laws, urban districts and may be used only for certain kinds of activity:

• •     Household and veterinary services;

• •      Repair services, maintenance, cleaning and storage of motor vehicles;

• •      Transport services;

• •      Retail trade;

• •      Catering services;

• •      Outdoor advertising and advertising on vehicles;

• •      Services of temporary residence;

• •      The renting of trading shops and land for a trade [10].

The simplified taxation system for small businesses replaces next 3 taxes: the value-added tax, the tax on income and the tax on property of physical persons used in the enterprise, on the single tax. There are following single tax rates according to Asset 346 of the Tax Code of the Russian Federation:

• 1.    6% if only incomes are taxed:

• 2.    15% if incomes are taxed after minus the value of costs:

The Simplified Tax = D*6%, where D is the amount of income.

The Simplified Tax = (D - R)*15%, where D is the amount of income, and R – value of costs [9].

The patent system of taxation is gaining popularity in the Russian Federation now.

The patent system of taxation is, in fact, a replacement of the simplified taxation system. According to the patent system of taxation an entrepreneur has to obtain a patent for a particular activity. This patent replaces the payment of some taxes. For example, if an entrepreneur has a patent which gives him a right to do business in the field like a "maintenance and repairmen of motor vehicles and motor transport, machinery and equipment" that patent allows to avoid the tax on the income for this particular activity (6% according to the simplified taxation system). By the way, this mode of taxation may be applied exclusively to companies with the organizational form of the Individual Entrepreneur with the total number of employees not more than 15 persons [11].

The unified agricultural tax presents a replacement of three taxes for farms engaged in the production of agricultural goods: the tax on income, the value-added tax and the tax on a property of organizations. It is impossible not to notice the tendency of changing of the interest rate on the tax for producers of agricultural goods. In 2004 the interest rate was 0%, whereas in 2015 it is already 24% [12].

A distinctive feature between small business in Russia and in European countries is that the weight of budget of the European countries is much more than the same budget in the Russian Federation. This is due not only to higher interest rates on taxes, but also to the fact that the total number of people engaged in entrepreneurial activity in Europe is much higher (40 small businesses per thousand people in Europe against about 12-13 small businesses per thousand people in Russia).

In European countries there are the analogs of the imputed income taxation and the simplified taxation system used in Russia, but there are some differences:

• 1.    Simplified accounting system;

• 2.    Small business' subjects in several European countries are disburden from paying taxes for the first two years of activity;

• 3.    There are some additional benefits for the small business in certain European counties. For example, if a company was established in the non economically developed area;

• 4.    Simplified mechanism of incomes declaration is common in most European countries.

In conclusion, it is necessary to emphasize that there are quite favorable conditions for establishing and developing the small business in any state with a developed or developing market economy. The differences in the tax systems are mainly in a legislation system of the certain states which depend on the rules of the game in the market of that state. It is important to understand that initially the taxation system was created to replenish the state budget, but nowadays it's primarily focused on the regulation and development of the internal market.