At the St. Petersburg International Economic Forum, the representatives of public organizations of small-scale jewelry businesses discussed the tax legislation with federal officials, including the Head of the Federal Tax Service Daniil Egorov and Deputy Finance Minister Alexey Sazanov.
The Deputy Finance Minister spoke at the panel explaining why gold has been removed from the simplified taxation systems as a luxury item.
He stated that the Ministry of Finance is ready to consider lowering the tax burden on silver and possible applying the Simplified Taxation System to silver again. But as for gold, it should be subject to the VAT as a luxury item.
This statement by Alexey Sazanov is related to the problem that has arisen in the Russian jewelry industry since the beginning of this year when all jewelry companies made their transition from the Simplified Taxation System (STS) and the Patent Taxation System (PTS) to the General Taxation System (GTS) as it was stipulated by law. The participants in the discussion noted that this move brought 19,000 enterprises and entrepreneurs to the brink of survival and many companies had to shut down their business.
This decision to cancel the jewelry industry’s right to use the STS was caused by cancelling the Value-Added Tax (VAT) in 2022 on the gold bars sold to individuals for the investment purposes. Although the purchase of gold bars by organizations from individuals is prohibited, it is not yet possible to fully trace the sale of gold bars. Therefore, gold that is not subject to the VAT can also be used for manufacturing the jewelry, and “the premium jewelry pieces that will be sold in retail can be VAT-free”.
“We, as a state, cannot put up with this,” said A. Sazanov.
Anna Romanovskaya, Chairman of the Board of the Small Jewelry Business Association and the owner of the OKS (Very Beautiful Silver) company entered into a discussion with him and draw the participants’ attention to Article 145 of the Tax Code of the Russian Federation that sets a revenue limit for small businesses.
“Since 2005, this limit has never been raised,” noted A. Romanovskaya. “For jewelers, this is very significant, because input costs have grown incredibly, and 2 million rubles in three months is an extremely small amount that can allow the small-scale and micro-businesses be exempt from VAT under this article.”
A. Romanovskaya said that taking into account this limit (in accordance with Article 145), all other small businesses work without any problems using a Simplified Taxation System and are to be exempt from VAT, except for jewelers who were deprived of this opportunity. And the Automated Simplified Taxation System (ASTS) is rather a social project because very few micro-businesses fall under the ASTS’ requirements. And today, just several regions have taken advantage of it, including the jewelers working in these regions.
The Head of the Federal Tax Service Daniil Egorov promised to consider this issue.
The regional public organization “Assistance to Small Businesses” and the Association of Small Jewelry Businesses made two specific requests to the authorities. One of them relates to bill No. 369931-8 on the changes to the Tax Code in connection with the use of the Automated Simplified Taxation System. If this bill is passed, small jewelry companies will not be able to use the ASTS, this is an additional ban for the industry that has already made its transition to the General Taxation System (GTS).
“This will result in losing 15,000 to 20,000 jobs, as well as reducing tax revenues to the budget. Increasing the tax burden for small-scale and micro-businesses in the industry is complemented by tougher regulatory measures that require the entrepreneur to bear the higher physical burden and more time is required than for running the business itself,” the message says.
The second part of the request relates to the upcoming bill of amendments to Article 145 of the Tax Code of the Russian Federation that appeared at the initiative of the State Assembly of the Republic of Sakha (Yakutia). “The purpose of this bill is to increase the revenue limit established by Article 145 of the Tax Code of the Russian Federation in the amount of 2 million rubles for three months for the purposes of the VAT exemption up to 15 million rubles for three months.”
The threshold of 2 million rubles for three months for the purposes of the VAT exemption has not changed since 2005 and is too low for the jewelry industry where the objects of turnover (jewelry and raw materials for their manufacture - precious metals and precious stones) are of high value.
“At the same time, this change will not have an impact on other industries and negative consequences for the country’s budget, since almost all industries apply the Simplified Taxation System or the Patent Taxation System if the threshold of 15 million rubles has not been exceeded for three months. That is, this change will allow the smallest-scale companies in the jewelry industry to carry on their business and give them an opportunity to work relieving them of the exorbitant administrative burden they faced with during the forced transition to the General Taxation System. The rejection of this legislative initiative may bring losses to the budget much larger than the estimated 1.8 billion rubles of shortfall in revenues due to the shortfalls in VAT and result in negative social consequences,” they say in the request.
According to Head of the RPO “Assistance to Small Businesses” Yanina Grishina, the authorities must do something regarding the free sale of gold bars to avoid the appearing of a “black” market. And to help in this work, the State Integrated Information System in the Sphere of Control over the Circulation of Precious Metals and Precious Stones (SIIS PMPS) - a traceability system - works in the jewelry industry that is not yet stable”, according to officials. And although they admit that “as for jewelers, there are mistakes”, the number of small jewelry companies that keep on carrying on their operations in the market when the ban on their use of the Patent Taxation System and the Simplified Taxation System comes into force is rapidly declining.
Galina Semyonova for Rough&Polished
