Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Russian economy meltdown as cities abandoned by business – shops closing in droves | World | News – Full Analysis.
Russia’s economy is preparing for yet another blow as business experts warn of bankruptcies and a “mass exodus” of shops. St Petersburg has been particularly badly affected, as business owners face the difficult decision of whether to shut up shop or sell. Videos posted on social media show vacant commercial spaces lining the main street in Russia’s second city.
Lyalya Sadykova, president of the Association of Beauty Industry Enterprises, said about 10% of beauty industry businesses in St Petersburg closed, and another 10% sold their companies in December and January alone. Anticipating more closures this spring when taxes are due, she said, more people will soon realise that their businesses are no longer financially viable.
She told The Associated Press: “People will do the math. The first deadline for taxes is in April, and people will see that they have nothing to pay with, and that’s when the collapse will begin.
“I think there will be bankruptcies and mass exodus from the market, because now it seems to me that not everyone has done the math and understood it.”
This comes after the State Duma – the lower house of the Federal Assembly – announced plans to revise the federal budget as there are currently significant discrepancies between revenue and spending.
Government plans showed a proposed personal income tax increase of 180% and a corporate income tax increase of 110%. VAT is also set to shoot up by 17%, putting many small and medium-sized businesses at risk of bankruptcy.
Small and medium enterprises account for just over 20% of Russia’s economy, but it’s still significant, says Chris Weafer, CEO of Macro-Advisory Ltd Consultancy.
Increasing the application of VAT to those businesses will create “a meaningful amount” of money for the state budget.
It’s “a deliberate strategy by the Finance Ministry to create more stable, predictable sources of income” at a time when oil revenues are down and the budget deficit is up, Weafer said.