According to RBC, the Ministry of Finance of Russia together with the Federal Tax Service is working on the possibility of reducing the tax burden for large catering companies. According to the sources of the publication, the agencies are assessing the feasibility of adjusting taxation, including reducing the rate of value added tax (VAT), but without the right to deduction. Representatives of business addressed the Ministry of Finance with such an initiative. Tax consultant TC Anastasia Arzhanova in the material RBC commented on possible changes.

The expert notes that the initiative considered by the Ministry of Finance was discussed by the business community throughout last year. Such wishes of companies are not groundless.

Firstly, as soon as a company's turnover increases, it loses the right to apply tax benefits, which leads to a significant increase in the tax burden: taxes on FTP increase from 15% to 30%, and there is an obligation to pay VAT in the amount of 20%. Currently, large companies in the catering industry with a turnover of more than 2 billion rubles have no significant competitive advantages that would allow them to withstand a significant additional tax burden compared to medium-sized companies exempted from VAT, since such large companies bear a tax burden 2 times higher than small companies and have significant management costs (back office).

Secondly, the catering industry is a so-called «human-intensive» industry, where business expenses strongly depend on the number of employees. This circumstance, among other things, does not allow the industry to achieve «economies of scale», which is achieved in industrial production. In particular, if in the industrial industry due to conveyor production it is possible to achieve 2-3 times savings in production costs, in the restaurant business such savings are impossible to obtain. The specifics of the restaurant business do not imply full automation of the process and always require the involvement of a large number of personnel (e.g. cook, cashier, order collector).

In fact, this leads to the fact that when revenue increases by more than 2 billion, profit does not increase on the same scale. At the same time, the volume of taxes paid differs by more than 2 times.

In this regard, the existing parameters of tax relief for catering: 

• Do not give development opportunities to already existing large companies with a turnover of more than 2 billion rubles.
• Do not allow established market players to become large companies. 
• Lead to a number of large chain companies entering the SME segment by splitting their business into several separate legal entities.
• Significant limitation for growth - due to high inflation rates, many catering chains will soon face the fact that they will pass the revenue threshold of RUB 2 billion.

Adjustment of the terms of application of VAT tax exemption in terms of increasing the amount of revenues will be a significant support for the industry as a whole and will reduce the risk of developing a scenario associated with artificial «splitting» of large companies for the purpose of using tax exemptions.

The Tax Compliance team will continue to monitor the development of the situation.