23 march 2010

Prime Minister Vladimir Putin addresses a small and medium business innovation forum hosted by the public organisation Opora Rossii

Vladimir Putin

At a small and medium business innovation forum hosted by the public organisation Opora Rossii

“The government must create the conditions necessary for small and medium businesses to succeed. <…> The most important thing is that officials of all ranks understand that the ban on unwarranted interference in businesses is not a campaign slogan, a temporary government response to the recession, or a temporary break for businesses. It is the long-term, final policy of this country.”

Prime Minister Putin's opening remarks:

Good afternoon, ladies and gentlemen,

We met here in this very hall almost a year ago, and I am glad that it is becoming a tradition of sorts.

We met last time amidst a mounting crisis, a time of great concern about the future. You have no doubt seen for yourself how quickly the decisions made at the previous forum were turned into government decisions and laws.

I hope we will carry on our work in this same manner. We will be able to keep moving forward by coordinating and refining our positions and searching for acceptable solutions to the problems we face.

Small and medium businesses will make an impact on R&D projects, engineering, telecommunications, healthcare and education.

At the same time, traditional industries have vast potential to bolster the economy through the use of energy efficient technology and materials in construction, a new approach to trade, more convenient public transport, higher living standards, higher quality in the area of housing and utilities, and the development of farms and other forms of ownership in rural areas. And there are many more challenges that Russian businesses must meet in order to become truly competitive and to supply high-quality, affordable and safe goods and services to the Russian market.

The government, for its part, must create all the conditions necessary for your success.

I am not going to speak in detail about what has been done in the year since our last meeting. The government will soon deliver a report to the State Duma, as required by the law, which will give all the relevant figures and estimates.

The main thing, as I see it, is that we managed to improve the environment in which small and medium businesses operate by reducing the number inspections and introducing a new notification procedure for new businesses starting out in large industries.

The most important thing is that officials of all ranks understand that the ban on unwarranted interference in businesses is not a campaign slogan, a temporary government response to the recession, or a temporary break for businesses. It is the long-term, final policy of this country.

This is especially true for our municipal authorities. They are the ones who decide all the major issues regarding the operation of small businesses and individual entrepreneurs. They should create normal working conditions for them, not interfere with their businesses. They should not take administrative initiative by re-imposing restrictions repealed by the federal government.

Allow me to emphasize once again that we will fundamentally change the ideology and practice of oversight bodies. You may have noticed from reports in the media that we are carrying out this work consistently and in practically every industry. We will rein in the unjustified, excessive powers of various bodies and close the loopholes that create opportunities for abuse and corruption.

Oversight will be aimed at revealing and curbing real threats to the life and health of our people and the environment, while the liability of entrepreneurs (both administrative and financial) for violating the rights of consumers and producing dangerous goods will greatly increase.

I hope that the business community will show understanding for this approach. I believe that honest companies only stand to gain by shutting down businesses that rely on cheating customers and paying protection money to corrupt officials.

Now a few words on the new measures being discussed by the government, which have been coordinated with various agencies. To be perfectly honest, before coming here I checked again to see to what extent they have been coordinated.

I did this because some ideas can get derailed if they have not been fully worked through first. What I am about to say is the unified position of our government.

Many of the measures we are proposing are designed specifically with small and medium enterprises in mind. Others are more general, but they also directly affect you and your business.

I'd like to start with the main topic of today's forum - incentives for innovation. The most urgent problem here is the increase in insurance contributions to the pension and other social funds, primarily for the payment of pensions. In making this decision for the good of the elderly, we understood that the financial burden on business would increase.

Our goal is to minimize the negative effects of these steps. This is why we have promised to offset the higher taxes on high-tech companies by keeping their insurance contributions at the level of 14%.

The corresponding draft law will be submitted to the State Duma in the next few months and will enter into force starting in 2011. Companies working in the IT sector and residents of technology development zones will also be entitled to this benefit.

We'll see what else can be done to alleviate the tax burden resulting from the transition to insurance contributions.

Companies using energy efficient equipment will be exempt from the property tax for up to three years. We need to develop the necessary methods to accomplish this, but this is a technical issue and we will address it.

Another coordinated proposal is to repeal the profit tax on the sale of securities, an issue that I have already raised. The condition is that investors must own the securities for more than five years without changing hands on the stock exchange. I believe this proposal will allow small innovative companies to attract long-term investments on better terms.

Finally, companies involved in healthcare and education will be exempt from profit tax. This includes both non-profit and for-profit companies. You've no doubt heard about this. I have already addressed this issue in public, and there is one other small improvement. For these companies (commercial companies working in education and healthcare) the tax holiday was for eight years. We have agreed that it will be nine years to round up to 2020.

And here is one more incentive for the development of the high-tech sector. During the past year, institutions of higher educational and scientific centers were granted the right to establish small innovation and research enterprises. All restrictions preventing them from switching to the simplified taxation scheme will be lifted. Currently, companies owing more than 25% of shares are not allowed to do this. Soon they will be.
Moreover, they will be able to use the facilities and equipment of their founders on preferential terms. In fact, this is already taking place. Experts use the same equipment in institutions of higher educational and in small innovation and research companies. This system just needs to be established in law.

We will also help companies with facilities. I am referring to companies working on federal property in various institutions, major enterprises using federal property. They will also be able to legalise their activities and rent these facilities at normal, acceptable rates.

As for institutions of higher education, they have already set up about 200 small enterprises. We believe that there should be many more. In the long run, these enterprises have the potential to become an essential element of the national innovation system.

Next: the tax code provides for a patent system.
Individual entrepreneurs who purchase patents at fixed prices are free to do business with a minimal amount of accounting.

However, patents have not become widespread because regions are not moving quickly to implement the system. The reason is clear - municipal authorities don't have much of a stake in its implementation. They won't see much in the way of revenue when small businesses transition to the patent system.

Therefore, it is the opinion of the government that we must reconsider our approach to patents and compile a federal list of activities that require patents. Local governments will be able to expand on that list.
In addition, those who work under patents will no longer have to use cash registers.

One more thing I'd like to point out: I have just mentioned that 90% of revenues from patent sales go to regional budgets. As a result, municipal authorities essentially have no interest in promoting entrepreneurship, whereas it should be the other way round.

I believe that we need to correct this imbalance. We need to redirect substantial funds - and perhaps even most of them - to local budgets, which will create powerful incentives for municipal authorities and improve their financial situation. Regional budgets may experience shortfalls, but it should be relatively easy to tweak the financial relationship between regional and municipal authorities since most municipalities are subsidized by the regions.

Ladies and gentlemen,

While there have been obvious achievements, Russian business still has lots of problems. We understand this perfectly well.

The process of buying out real estate leased by entrepreneurs is still far from complete.

As a matter of fact, local authorities, instead of making things easier for private business, are engaged in business themselves. They aren't racking their brains too much. They simply rent the property out. On the national scale, this adds up to tens of millions of square metres of facilities. In some places it's justifiable, and not quite in others.

Since 2008, when the law on the preferential buyout of rented property was passed, only 8,500 companies have taken advantage of it, an average of slightly more than 100 for every constituent entity of the Federation. And there are constituent entities where the law was never applied. These are the Republic of Sakha (Yakutia), Moscow, the Republic of Karachayevo-Circassia, Ingushetia, and the Chechen Republic.

Therefore I consider it necessary to renew the preferential procedure for real estate privatisation for three years and to exempt these transactions from the value-added tax. Thanks for your applause. Let me repeat that for three years, these transactions will be VAT-free. We also need to grant small businesses the right to demand the buyout of rented facilities, so that officials do not have a chance to skirt the problem.
Another set of issues revolve around the ongoing work to put an end to excessive administrative barriers.

First of all, many disputes are caused by the cadastral value of land to be incorrectly calculated and consequently the land tax can instantly grow several-fold. In order to avoid such misunderstandings, the adoption of the law on the pre-judicial procedure for contesting the results of a cadastral appraisal will be expedited. This pre-judicial procedure calls for disputes to be reviewed by local authorities with the involvement of the tax inspectorate.

Second, based on the results of audits of existing licensing mechanisms, we have reached the conclusion that licences need not expire. There is no need to subject people to the long, burdensome, and sometimes humiliating process of renewing their licence every five years.
Moreover, licensing will soon be moved online, which I hope will limit opportunities for corruption.

Third, we will continue to reduce the number of the goods subject to mandatory certification, while considerably expanding the list of types of business where notification of the start of a new business applies.

I hope that these measures will make life easier for entrepreneurs who plan to enter the market with new goods and services. But let me repeat: the end of excessive oversight should not impact consumers negatively. We will make sure that businesses bear full responsibility and do not hide behind all manner of certificates, permits and other unnecessary, ineffective pieces of paper that have piled up around us in recent years.

Fourth, 10 billion roubles have already been appropriated in the 2010 federal budget for the development of small and medium businesses. We are now working on increasing this support and intend to use money from our anti-crisis fund for this purpose.

Specifically, an additional three billion roubles will be allocated to support small and medium innovative companies. Two billion roubles will be put toward programmes providing assistance to small businesses in single-industry towns and another one billion roubles will fund business development in the North Caucasus.
In addition, the Housing and Utilities Reform Fund will provide for greater participation of small companies in programmes to repair blocks of flats and emergency relocation. These companies will receive orders totalling no less than five billion roubles.

It is true that small changes will have to be made to legislation, to the law on the Housing and Utility Services Fund. But this will be easy, and we will do it in a timely manner.

An additional two billion roubles will be allocated to support small and medium companies exporting high-tech products. Again, this is aimed at supporting exports alone.

As a result, we will create an additional support package for small and medium businesses in the amount of 13 billion roubles.

Finally, as you know we have launched a system of online bidding for government contracts. The system has been in operation for less than a year, yet in that time over 35 billion roubles in contracts have been awarded in this way.

Presumably, not all contractors have been able to fully appreciate the advantages of this extremely open and transparent bidding process. Nevertheless, they are becoming increasingly popular. Therefore, I would like to take this opportunity to call on small businesses to more actively participate in online bidding.

Ladies and gentlemen,

When we talk about small and medium business in Russia, we are talking about 17,000 medium and 228,000 small companies, over one million microenterprises, and four million individual entrepreneurs and farmers.

And still our citizens are growing more and more interested in opening their own businesses. People want to take their fate and the wellbeing of their families into their own hands. They want to contribute to the creation of a modern and competitive Russian economy.
Our common objective is to help businesses realize their potential and capabilities as well as accomplish their most ambitious plans and projects.

I wish you every success. That being said, allow me to draw your attention to something. As I mentioned earlier, we held a similar meeting last year. I don't want to put words in your mouth, as I am sure there will be critical comments as well. Still, you can't help but notice that we have carried out almost everything that was discussed last year. It may not be enough, but that is precisely why we have offered you a new and quite substantial support package.

We may not be able to offer such packages every year, and therefore, I suggest that you thoroughly examine each of the measures proposed by the government and take maximum advantage of them in your work.

Naturally, with your assistance we will continue to identify any remaining problems and make every effort to resolve them as we move forward.

Thank you very much and all the best to you once again.

* * *

Measures proposed by the federal government to support small and medium businesses:

- providing compensation to high-tech business to offset tax increases, in effect freezing insurance payments for said business at the current 14%;

- exempting businesses that install new energy-efficient equipment from property taxes for up to three years;

- exempting income earned from the sale of securities from corporate taxes (for securities out of market circulation and held by the seller for longer than five years);

- exempting healthcare and educational companies from corporate taxes;

- removing all obstacles to the transition of small, innovative businesses set up under the auspices of universities and research centres to the simplified taxation scheme;

- granting innovative businesses preferred status for the use of the premises and equipment of their founding institutions;

- preparing an official federal list of businesses that must receive mandatory licenses (with the possibility of expanding the official list in various municipalities);

- abolishing the mandatory use of cash registers by licensed businesses;

- channelling a major percentage of licensing revenues to local governments;

- extending the programme for privatising government property for three years or longer, exempting relevant transactions from the value added tax and granting small businesses the right to apply to purchase premises they currently lease;

- passing as quickly as possible a law reforming the pre-judicial procedure for challenging assessments of a property's value according to the national cadastre of real estate, introducing a mechanism to provide indefinite licenses and digitising the information from these licenses as quickly as possible;

- removing products from the official list of commodities that require mandatory certification and significantly expanding the official list of companies that must only notify the government of their establishment;

- allocating an additional three billion roubles from the federal budget to support small and medium-sized innovative businesses; two billion roubles to support small businesses in single-industry towns and a billion roubles to support businesses in the North Caucasus;

- allocating two billion roubles to support small and medium high-tech export businesses; and

- using the Housing and Utilities Reform Fund to encourage small businesses to become involved in the major renovations of apartment houses and the efforts to relocate tenants out of dilapidated housing.