Retailers may boost activity in regions due to anticipated major benefits for SMEs
A draft decree on SME development in the regions proposes to replace the existing taxes with a fixed monthly payment. The decree aims to stop the closure of retail facilities in rural areas and create additional jobs. Should benefits also apply to large business, it would boost their activity in the regions, too, which could kill local SMEs unable to sustain the competition.
The draft decree “On creating environment for the development of trade, catering, and public services” envisages to replace the existing taxation system with a fixed monthly fee (one basic value) from a single retail facility, catering and consumer services facility with the trade area less than 100 square metres. The said benefit would apply to all facilities throughout the country, except Minsk, regional centres and 16 other towns. In addition, the decree proposes to exempt such facilities from the land tax. In order to boost turnover, the decree proposes to enable alcohol sales in small shops (less than 50 square metres) and car shops. Such tax benefits would apply from 2018 to 2027.
The necessity for the decree was due to a decrease in the number of shops in rural areas and their retail space. Since 2013, retail facilities decreased in number by 10% to 9,000. Due to the lack of competition, prices for food and non-food products in rural areas are higher than in the city and goods supply requires additional logistics costs; meanwhile, incomes in rural areas are 80 % of those in urban areas and the proportion of low-income households is double that. Amid staff cuts in agriculture, simplifications in the business environment in rural areas aim to create additional jobs and attract investment to the regions.
Should the decree be adopted as is, it could, along with positive changes for SMEs bring changes for large retail chains, leading to consequences opposite to those initially planned. The draft decree provides an opportunity for large businesses to take advantage of the SME benefits, which could boost their activity in the regions due to a minimal tax burden. Reduced tax burden on business in the regions could create a shortage of budget revenues in local budgets, which are subsidised anyway. Hence, the local authorities would seek for new income sources and could step up informal pressure on SMEs, for instance, increase the number of inspections. In the given circumstances, retail chains could lower their costs and large players could increase their market share by absorbing small regional chains. Meanwhile, SMEs would continue to reduce in number unable to sustain competition with retail chains.
Overall, the draft decree aiming to stimulate small business activity in the regions, if adopted in the current version, would significantly reduce the tax burden on both, large businesses and SMEs. In the end, large retail chains would step up their presence in the regions, prices would go down, however, instead of developing, SMEs would be forced to curtail their activity unable to survive the competition.
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