24 december 2010

Prime Minister Vladimir Putin meets with small and medium-sized businesses

Vladimir Putin

At a meeting with small and medium-sized businesses

“We expect that within ten years, half and maybe more than half of the country’s employable population will work in this sector of the economy. That is possible.”

Prime Minister Putin's opening remarks:

I would like to begin our meeting on a pleasant note. I would like to congratulate Boris Titov [the leader of the Delovaya Rossiya public organisation] on his 50th birthday and present him with a gift from the Government of the Russian Federation.

Good afternoon,

Today I propose we discuss the problems facing small and medium-sized business. We have regular meetings with you in one form or another. But it is a long time since we last met in this format.

I can say a few words about the development of small and medium-sized business in general. You probably don't need me to tell you this, but I will cite just a few figures. At present, 16.5 million people are engaged in small and medium business, of which more than 4 million are self-employed entrepreneurs. This is already no small number, but we expect that within ten years, half and maybe more than half of the country's employable population will work in this sector of the economy. That is possible.

I would like to cite some highly indicative figures. There has been no decline in entrepreneurial activity even during the crisis. On the contrary, the number of small and medium enterprises has increased by nearly 600,000 in the last two years. Higher education institutions and research centres alone have created almost 700 small companies in the high-tech industry.

I repeat: We are well aware of the huge economic and social significance of small and medium-sized business in Russia. In fact, this is true of any country. We will provide the necessary assistance. I know there are some problems, and we will discuss them today. This is why we are here.

Of course the first of these problems is the increase in the Consolidated Social Tax. We will discuss this in more detail later, but I would like to tell you that we have handled the issue of raising insurance premiums with the utmost care trying to take into account the specificities of various types of business. And we have given business owners time to adapt to the new rules and to recover from the crisis. As announced, we had planned to raise the Consolidated Social Tax on January 1, 2010 because we wanted to do it simultaneously with the 45% plus increase in pensions. This was to be the main source of financing the pensions rise. But considering the crisis and the difficult situation in which business found itself, we did not raise the tax even though we did raise pensions. We compensated for the shortfall out of the federal budget.

What else did we do? I would simply say that we dampened the increase of the tax burden for agriculture related businesses, for companies that employ people with disabilities, for businesses in information technology, for residents of technological innovation zones, for small enterprises created by higher education institutions and research centers and for small enterprises in the media. For them the insurance premium will not be raised immediately, it will remain at 26% and there will be a four-year transition period, while for high-tech companies the transition period will be still longer, until 2019.

Finally it has been decided to give targeted support to small businesses and self-employed entrepreneurs in manufacturing industries and social services. Pension Fund insurance premiums have been cut from 26% to 18% for them. That benefit will be available to them for two years.

That measure alone – and I want you to take note of this – will save the economy 170 billion roubles. That is the amount of the tax shortfalls. The shortfall in 2011 will be 80 billion and in 2012 almost 91 billion. That money will be kept by you.

We have tried to compensate for business costs by tweaking the tax system as a whole. The use of the simplified tax schedule will be substantially expanded. At present it is used by nearly 2 million organisations and self-employed entrepreneurs. As you may remember the income level that qualifies one for a simplified tax schedule was raised after one of our meetings. That was at the House...

Remark: ...of Receptions.

Vladimir Putin: No. That meeting took place at the International Trade Centre, you brought up the issue, and the Government decided to raise the bar from 30 million roubles to 60 million. We gave the opportunity to enterprises with a turnover of 60 million.

I am aware that some have proposed going further and, considering the changed circumstances, to lift the ceiling that qualifies for using the simplified taxation system to 100 million roubles, for example. Our government bodies, notably the Ministry of Economic Development and the Ministry of Finance, are working on that and have submitted proposals to that effect. We will see when and how much that bar can be raised and whether or not it can be raised today, and if the answer is yes, then up to what level and when it can be done. But generally we are aware of the problem and are willing to think about it.

Moving further. As we have promised, organisations in education and healthcare will be exempt from profit tax, and that will apply both to non-commercial and commercial ventures, something that has never happened in our recent economic history, or indeed ever.

On December 21 the State Duma passed the three readings of the corresponding amendments to the tax code. The next step is a dramatic expansion in the process of the application of a patent, when the entrepreneur pays a fixed sum and goes about his business with minimum reporting requirements. The Ministry of Economic Development has been working on and promoting that idea. We think it should also play a positive role in supporting entrepreneurship.

The necessary changes will be introduced in the tax code soon. The procedure for calculating the cost and using the patent will be simplified; an application for a patent can now be sent by mail or via the Internet and the tax agency will be obliged to make the decision on granting it within five days. And that would be it, end of story.

I would like to draw your attention to one more thing: Almost all the proceeds from the sale of patents (90%) will go into the municipal budgets. We expect that this measure will provide a major stimulus for local authorities to develop and support small and medium-sized enterprises because the local authorities will derive direct income from them.

Of course I would like to hear your remarks and proposals on legislation, on the patents draft law, on what things need to be adjusted and what needs to be added.

We have also done a great deal to remove infrastructure obstacles for small and medium-sized business. We have introduced an installment plan for connections to the power grids for small and medium capacity facilities (up to 750 kW). As of 2011, the cost of developing existing networks will not be allowed to be included in connection charges. The consumer will pay only the costs of building the so-called last mile. True, more thought needs to be put into this because businesses continue to have questions concerning the power industry. I am aware of that. We will discuss that too. It is also true that the cost of connecting to the central heating and water supplies is still high.

We discussed that topic at a meeting with Delovaya Rossiya in October. I suggest that we revisit that topic during our exchange today.

Next. It is extremely important to relieve business of the debilitating administrative and corruption load. The Opora Rossii organisation, which represents the interests of small business, conducts annual studies of the business climate in the country, and one of the questions it asks businessmen concerns so-called informal costs. The statistics are not comforting. True, they are improving and the improvements appear considerable, but this is still a major scourge. You yourselves report that the load has dropped from 10% to 5%, it was 10% in 2006 and it is 5% today. However, 5% is a trillion roubles, a staggering figure of course.

We will continue to combat corruption, to severely punish dishonest bureaucrats, and to continue cleaning up the legislation to make corruption impossible. On the other hand, of course, we will support those of our colleagues who work in administrative jobs and structures at all levels and who perform their duty diligently and honestly.

We have made a thorough review of the system of state supervision. This year we looked into the situation in practically every supervisory agency eliminating redundant and unreasonable requirements in education, healthcare, construction and agriculture.

As you know, the requirements for legitimate and reasonable grounds for inspections have been fundamentally changed. All the inspections are under the control of the Prosecutor's Office. As a result, the number of inspections dropped by a third this year alone. True, there are complaints in some sectors that the small and medium business supervisory organisations have found some other umbrella government agencies to work from, but nevertheless we will consistently move forward on every count.

The list of goods and services subject to mandatory certification will be cut by more than half. We are creating a national accreditation system which will reduce costs and streamline the process of clearing new goods for distribution.

As for licenses, most of them will be no longer required, and those that remain will be issued for an indefinite period so that businesses would no longer have to submit the same set of formal documents every few years, which as a rule are "expensive."

The State Duma has passed the first reading of the draft law that introduces indefinite licenses and cancels the extension procedure.

Make no mistake: we will closely watch how the authorities at all levels remove administrative obstacles. You might like to know that next March the Ministry of Economic Development will for the first time submit to the Government a report on the efficiency of federal and municipal supervision measures in the country. This will become a permanent practice.

From these results we will make administrative decisions and adjust the amounts of financial assistance to the regions. If a region actively works with business and encourages initiative, it will receive funds for development accordingly.

Another major area that we will help small and medium businesses is access to new orders and loans. Let me remind you that from next January a law regulating micro-financing activities is coming into force. In addition, the work of regional guarantee funds will be expanded.

Compared with the end of last year, the amount of credit Russian banks issued to small and medium-sized business increased by 1 trillion roubles to about 3.25 trillion roubles.

We will continue to encourage our banks to work with small and medium-sized companies and farms and we will use the potential of Vnesheconombank for that purpose. By 2015 the bank will increase its financial support for small and medium-sized businesses two and half times to 250 billion.

Additional opportunities are being created for small and medium-sized business to take part in federal and municipal procurement. This involves the wide use of electronic auctions. The financial qualifications to submit a bid will be eased to enable small companies to win orders.

Beginning in 2011 – I hope we can do it - about 70% of state orders will be placed through electronic auctions.

We intend to make it mandatory to involve small business in tenders organised by state-owned companies and natural monopolies. Obviously, there are some specific features in their operation: They work in the market, they must work in the market. Still, they must bring in small and medium-sized business.

And another important thing: We are planning to introduce administrative sanctions for those who avoid their financial obligations under state contracts so that officials and various government offices are not tempted to delay payments and fail to meet payment deadlines. You see what I mean? Not to keep money that needs to be transferred to companies in bank accounts with their pet financial institutions.

We also expect that small and medium business will be our partner in implementing key national programmes. I am referring to the modernisation of single-industry towns, the development of the pharmaceutical and medical industries, the auto parts industry, environmental tourism and energy efficiency services.

Special mention should be made of entrepreneurship in agriculture, support of private farms. Today this is a powerful segment in the country's agro-industrial complex. Farms and locally managed land account for nearly half of all the agricultural produce in the country: More than 20% of grain and sugar beet, 48% of meat, 56% of milk and 80% of vegetables. Impressive figures.

Farmers benefit from all types of government support, including government subsidies of interest rates on loans to small farms. We are also helping small farms overcome the consequences of the drought that hit Russia this year. Having said that, I would like to note that during the course of my "live phone-in" show we received many letters, cables and SMS messages from people in rural areas, including those who have organised small enterprises. What is their complaint? The government is prepared to and has already helped those farms that have been hit by the drought. However, that assistance is very slow in getting to the farmers and sometimes assistance is denied to alleged late comers. One letter came from somebody who had been told that he had missed the deadline for claiming assistance by one day. That is not a good approach. Some farms are in a very difficult situation. Two farmers, two brothers I think, have written to me to say that if they do not receive immediate help they will simply be ruined. We have allocated the money and the opportunity for assistance exists... I will show you the letters later.

One question under consideration now is whether to preserve discounts on fuel and lubricants in 2011. I have issued the relevant instructions. And by the start of the spring sowing season we will provide additional seed and fertiliser.

And of course we should address the systemic problems that impede the development of entrepreneurship in agriculture. All the problems that hold back the development of entrepreneurship in rural areas must be dealt with as quickly as possible. We should establish a workable mechanism for consumer cooperation enabling farmers to sell their produce at a profit. We should accelerate and cut the cost of the procedure to define property lines so that small farmers feel secure in property ownership and can freely use their resource, including as collateral, to obtain loans from lending agencies.

In closing I would like to say the following: improving the business climate should be an ongoing process. In this area, the state must work closely with employer organisations to take into account their opposition, their thoughts and their criticisms. I suggest that business be more extensively involved in the work of government agencies. Representatives of business associations could be members of the administrative reform commission and the commission for the introduction of information technology, that is, the agencies whose main task is to improve the quality of governance and remove bureaucratic barriers. I know that dialogue is taking place and that generally all the proposals that come from you are considered, and also that the ideas generated in government circles are reviewed by your organisations. But I think it would help if we work together on a permanent basis and put an institutional seal on these issues.