Jewelers looking for a compromise: small business outraged by the abolition of special tax regimes

Cancellation of special tax regimes - the simplified tax system (STS) and the patent system of taxation - for the jewelry industry is aimed at reducing tax evasion by small companies and prevent the production of jewelry from investment bars, the press service of the Ministry of Industry and Trade explained to the editorial office of Made in Russia.

Previously, the law was amended to cancel a 20% tax on the purchase of investment gold for Russians. In addition to this, companies and individual entrepreneurs who produce or sell jewelry either wholesale or retail, were deprived of the right to use special tax regimes as of January 1, 2023. The community of entrepreneurs and founders of jewelry brands from small and medium-sized businesses were outraged by the decision because of fears that the market would be monopolized by big players.

"The logic behind these changes is to transfer jewelers to a general system of taxation paying VAT both on production and sales. The fact is that there were recorded cases when effective special tax regimes for the jewelry industry led to deliberate "splitting" of large manufacturers into small companies to avoid taxes," - explained the ministry.

In addition, they noted, the initiative was aimed at preventing the use of investment bars bought without payment of VAT in the manufacture of jewelry.

"It is important that the current version of the amendments regarding jewelers will not take effect until 2023, while the Russian Finance Ministry is already working on amendments to the Tax Code to support and develop small-scale jewelry manufacturing," the ministry noted.

Manufacturers of jewelry may also receive support through the Ministry of Industry and Trade - the Industry Development Fund.

They are granted preferential loans within the program "Projects of development" and "Components". The loans are given for an amount from 50 to 500 million rubles for 5 years. The interest rate is 1% for the first three years, and up to 3% for the next two years. If Russian equipment amounts to at least 50% of the loan amount, the rate will be 1% for the whole term, the department reminded.

INDUSTRY PROPOSALS

Discussions of this law began in 2018, Eduard Utkin, general director of the association "Guild of Jewelers of Russia", told the editorial board of "Made in Russia". Already at that time the authorities voiced fears that due to the abolition of VAT on the purchase of bullion bars they would be used to make jewelry, without paying VAT on their sale. Therefore, the Tax Service demanded to resolve the issue of special tax regimes - to cancel them.

The Association suggested as a compromise solution to introduce VAT on all metal, including purchases at pawnshops and pawnshops.

"Everyone agreed to this, except small businesses. We could not reach an agreement, so we could not come up with a consolidated position and bring it to the authorities. Now, when there was an emergency situation, the law was passed as it was," Utkin said.

Another nuance after the adoption of the amendments is that the general taxation system also requires an accountant, otherwise the risk of facing claims from the tax authorities increases, he explained. In addition, under the new law not only metal will be taxed, but also the work itself and the stones, said the general director of the association.

"Small businesses in the negotiations proceeded from the position that everything should remain as before. But it doesn't work out that way. I believe that here small businesses should agree: it is better to pay VAT than to lose the opportunity to work in the industry. Otherwise not only metal will be taxed with VAT, but also the work itself and the stones. If the community of jewelers manages to develop a consolidated position, if they agree to VAT on metal purchases, then the authorities will meet us halfway," Utkin concluded.

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Authors: Karina Kamalova, Ksenia Gustova