173,000 Small Businesses and Farms have Shut Down in Russia during First Quarter of 2021 Alone

Paul Goble

            Staunton, April 22 – Although Vladimir Putin and the pro-Kremlin media continue to talk about Russia coming out of the pandemic year on an upward trajectory, one statistic alone calls that into question. In the first quarter of this year, 173,189 small businesses and farms shut down in Russia, far more than last year’s 1300 or the small gains each of the previous ten.

            Some of this spike reflects the fact that courts were closed during the pandemic, and firms and farms that might have closed over the previous 12 months had to stay on the books until now. But it also reflects fears among many small businessmen and farmers that their situation is about to become even worse.

            Ilya Grashchenko, head of the Moscow Center for the Development of Regional Policy, says Moscow is “preparing the population for an increase in taxes” with its constant refrain that Russians pay far less than do businesses and individuals in other countries (newizv.ru/news/economy/22-04-2021/tsifra-dnya-v-2021-godu-v-rossii-ischezli-pochti-200-tysyach-ip-i-fermerskih-hozyaystv).

            It is true that the top income tax rate in Russia is only 15 percent, far less than elsewhere. But, the political scientist who specializes on regional affairs says, in Russia, many government levies that would be called taxes elsewhere are called something else in the Russian Federation.  Consequently, the real tax burden in Russia is far higher than Moscow routinely suggests.

            In fact, Grashchenkov continues, the real tax burden in Russia is currently so high that it puts Russia among the leaders in that regard. Businessmen and farmers can see this and so are getting out before they have to pay even more.

            He also points out that there are many in Moscow who believe that small and mid-sized businesses aren’t really much needed in an economy based primarily on rents and that they can be taxed more heavily to support what the government really cares about. For such people, small businesses not directly tied to the state are at best fellow travelers and at worse “enemies.”

            In reporting Grashchenkov’s concludes, Novyye izvestiya also cites the Kremlyevsky bezbashennik telegram channel whose experts say that “having destroyed the destruction of the labor market,” Moscow won’t be able “to restore it quickly.” In its struggle to do so, it will tax those it feels it can afford to; but the latter will respond by leaving, hurting the economy more.