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Debates on social tax for self-employed

President Vladimir Putin has charged the government with examining the optimal level of social tax for people who are self-employed within the next two weeks. He also noted that since the end of November last year, 352,000 SME have closed, but only 27% of those reported to the tax service. Separately, Deputy Minister of Finance Tatiana Nesterenko objected to the proposal to reduce the social tax for self-employed entrepreneurs from double the Minimum Statutory Monthly Pay to just one MSMP, as it was prior to this year’s change (the respective draft law was submitted to the State Duma on 14 March.
Since 1 January 2013, social taxes for self-employed entrepreneurs, lawyers, notaries and other persons who engage in private practice has been doubled. This concerns contributions to the Pension Fund only, not the Compulsory Medical Insurance Fund. This contribution to the Pension Fund is fixed and calculated on a special formula, under which it is RUB 32,479 for this year (vs. RUB 14,386 in 2012).

This measure was designed to cover the State Pension Fund deficit, as the authorities had to find ways to compensate for at least part of the gap in the pension system without taking such unpopular decisions as hiking the retirement age (currently 60 years for men and 55 for women, which could be increased) or increasing the minimum working experience. The measures had a negative effect on small sized business, but, in our view, this has had a limited impact on the macroeconomic data so far. As this year’s measures cannot cover the pension system deficit, we are reiterating our view that in the medium to longer term the growing funding needs of the State Pension Fund will push the government to opt for more substantial measures (in particular, hiking the retirement age to 63 years for both men and women).

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

ruble, pension

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