Forte Tax & Law team involved in improving Tax Calculator service

The presidential commissioner for protection of entrepreneurs’ rights together with the Federal Tax Service of Russia have conducted tests on the Tax Calculator service which has been devised to alleviate pressure on entrepreneurs and increase their tax literacy.

Leading experts, entrepreneurs and representatives of business associations have been involved in this testing. The purpose of this testing was to come up with proposals for improving the Tax Calculator service. The Forte Tax & Law team was honored to take part in this service testing and prepared a number of suggestions for its improvement.

Anton Kabakov, partner at Forte Tax & Law, put forward our proposals to the commissioner for protection of entrepreneurs’ rights at a round table which was held last Tuesday in St. Petersburg. Heads of the Federal Tax Service in St. Petersburg and representatives of business associations also attended this round table.

We put forward 5 proposals including both specific adjustments to the calculator methodology and more general confidence generating proposals. For example, we recommended disclosing the sources and formulas used to calculate industry profitability and tax burden.

One of our main proposals was to differentiate profitability and tax burden indicators by type of economic activity based on the group or subgroup of the Russian Classification of Types of Economic Activity (OKVED) (the first 4 or 5 digits of OKVED code) rather than based on subclass (the first 3 digits of OKVED code) as now. We consider that taking into account the first 3 digits of OKVED codes (subclass) is indeed not sufficient and gives rise to significant miscalculations. The business of enterprises with the same OKVED code subclass is often cardinally different with completely different margins. We therefore consider that using the same calculation for such taxpayers makes for inaccurate results and unnecessary tax risks for taxpayers.

We have also proposed to consider introducing an additional criterion for assessing the tax burden, i.e. the business life span.  In our opinion, how long an enterprise has been running considerable affects its business life and profitability so the same methodology should not be used to calculate the tax burden for a startup and for an established business.

We have also recommended that the Tax Calculator developers set for taxpayers a profitability and tax burden range rather than single average values (as with transfer pricing rules). We are convinced that there can be no single figure for the market profitability of a particular activity in free market conditions. So providing taxpayers with a specific profitability value often misleads taxpayers into thinking that their business is in the so-called “risk zone”.

To read the full text of the proposals we have submitted to the commissioner for protection of entrepreneurs’ rights in St. Petersburg, please click on the link.

If you have other proposals to improve the Tax Calculator or would like to discuss our proposals, please write to Anton Kabakov.