‘It’s utopian’: how tax reform affects sole traders in Yugra

The business community is concerned about the tax reform set to take effect in 2026. According to a survey by Opora Rossii (a Russian business association), among 13,000 entrepreneurs, 70% plan to raise prices for goods and services. The rest, according to the organization«s head Andrey Shubin, may resort to illegal schemes to stay afloat or shut down despite honest work, unable to cope with the new conditions. We discussed this with experts and the owner of a cleaning company in Yugra (Khanty-Mansi Autonomous Okrug, Russia).

“This is a certain dead end”

“This is one of the most discussed topics for the overwhelming majority of business representatives, and we already need to talk about the consequences of the tax reform,” notes financial advisor Alexey Rodin.

One of the key measures of the reform is lowering the threshold for the simplified taxation system (STS) from 60 to 10 million rubles (about $110,000 at current rates). According to the financial advisor, this is “a certain dead end,” especially for those whose annual turnover is on the verge of survival.

“10 million a year is not a successful project, but balancing on the edge of survival or a very small business. That is, the risk of reduction for small and medium businesses or their complete shift into the ‘gray’ zone, which cannot be ruled out at this stage,” warns Alexey Rodin.

At the same time, many small business representatives will become value-added tax (VAT) payers: workshops, ateliers, or small cafes. In addition to the main tax under the STS, they will have to pay VAT, which will multiply their fiscal burden and, consequently, costs.

The forecast of a 70% price increase looks absolutely realistic and logical from the point of view of economic behavior, says tax consultant Dmitry Shumeiko in a conversation with MSK1.RU.

“Business does not operate at a loss. If costs rise (and taxes are one of the main items), it will look for ways to compensate. The simplest and most legal way is to raise prices. This is a direct transfer of additional costs to the end consumer,” reflects the tax consultant.

Alexey Rodin added that companies that are not even directly subject to the new reform requirements will face price increases. Their suppliers, under increased tax pressure, will be forced to raise the cost of their products, triggering a “chain reaction of price revisions.” Consequently, this will lead to a new round of inflation, negating any attempts to stabilize the economic situation.

Some entrepreneurs will be forced to “go underground” or resort to “gray” optimization schemes, all the experts surveyed agree.

“People are forced to cheat”

The owner of a cleaning company in Khanty-Mansiysk, Olga Filimonova, also believes that with excessive tax burden, business will gradually disappear or resort to sophisticated tax schemes.

“In fact, it«s utopian. If before in Khanty-Mansiysk, for example, there were six companies providing cleaning services, now only three remain. It is very hard for sole traders to simply withdraw money now; you have to pay a huge tax. We are being squeezed out, plain and simple,” says Olga.

Olga created the company to help mothers raising special needs children and provide them with an opportunity to work and earn. The entrepreneur recalls that 7 years ago, when they just entered the market, there was no end to customers. Now, staying afloat and keeping the team (not to mention personal profit) is helped by cooperation with large companies and participation in tenders.

“Requests from clients remain, but they have become significantly fewer. Mostly, cleaning is ordered if needed after repairs. Consumption has decreased now, people have started refusing services more often. They have started saving and spending money more consciously,” noted Olga Filimonova.

In her opinion, increased tax pressure on small business may provoke the emergence of unauthorized companies or lead to the market being taken over by monopolists, resulting in the disappearance of competition. In both cases, this will affect the quality of services.

“We had a case where girls accidentally damaged the handles of a gas stove. They were so greasy that it was impossible to identify which cleaning agent needed to be applied. As a sole trader, I could not transfer responsibility to the employees, but I was obliged to bear it before the customer. As a result, I compensated for the damage. Imagine if the organization had been illegal? In that case, no one would have compensated for the damage,” explains the entrepreneur.

Fuel is added to the fire by the initiative discussed by legislators aimed at whitening the economy and combating tax evasion, with the possible transfer of former sole traders into legal entity forms after 2029, but at the moment there is no official bill on abolition.

According to the cleaning company owner, if the proposal is implemented, which is unlikely, it is even scary to imagine what might happen.

“Unemployment will begin. People become sole traders not to evade taxes. It«s the very small sole traders who obscure taxes, otherwise they wouldn»t survive. People are forced to cheat,” believes Olga.

She is currently in the process of transferring the company from sole trader status to a limited liability company (LLC). This is largely due to the fact that larger contracts cannot be handled “alone”; she needs to unite with a partner and act together.

The essence of an LLC (limited liability company) is that it is a legal entity where founders do not risk personal property, but are liable for the company«s debts only within the limits of their contributions to the charter capital, which protects their assets, unlike a sole trader.

However, Olga Filimonova believes that an LLC has more disadvantages than advantages, so the transition does not inspire her:

“For legal entities, there are fewer preferential tax regimes than for sole traders. If we talk about the general taxation system, then the profit tax rate is higher than the personal income tax rate. In addition, LLC participants, receiving dividends, pay personal income tax on them at a rate of 13%, and on amounts over 2.4 million rubles (about $26,400 at current rates) — 15%. Sole traders do not pay such tax.”

At the same time, profit earned by an LLC is the property of the company. It can be distributed among the founders no more than once a quarter and subject to a number of conditions. So founders cannot simply take money from the cash register at any time or transfer it from the company account for personal needs. They have to wait for dividend payments.

Are you an entrepreneur and ready to share your experience? Write to us in the chat-bot or by email! Earlier we told how apartment prices will change in Yugra after the increase in value-added tax (VAT).