Value added tax under the simplified taxation system: consequences for business and budget

Abstract

The emergence of special tax regimes in the Russian tax system is directly related to the development of small and medium-sized enterprises (hereinafter referred to as SME). The birth of a simplified taxation system (hereinafter referred to as STS) can be linked to the adoption of the Federal Law No. 222-FZ which replaced a large number of taxes with a single tax. The introduction of Chapter 26.2 of the Tax Code (hereinafter referred to as TC) of the Russian Federation (hereinafter referred to as RF, Russia) on January 1, 2003 was significant. Despite the measures taken, in terms of small business development indicators, Russia lags far behind developed countries. According to the Federal State Statistics Service (hereinafter referred to as Rosstat), the share of SME in gross domestic product for 2022 was 21%. The share of the “income” object predominates, trade and services continue to be the spheres of activity, the share of SME in regional budget revenues is insignificant. The purpose of the study is to analyse the changes in Chapter 26.2 of the TC of the RF introduced from 2025 by the Federal Law No. 176-FZ, in particular, imposition of the obligation of STS users to pay value added tax (hereinafter referred to as VAT), their impact on the financial position of small business entities, their counterparties, and budget revenues. The study uses methods of analysis, synthesis, comparison, and the tabular one. The work is based on federal laws, official documents of the Government of the RF, Rosstat data, and reports of the Federal Tax Service of Russia on the topic in question. The study has found that introduction of the VAT at a rate of 5 or 7% without the right to deduction into the STS increases the price of goods or products sold by a STS user.