Kremlin Uses Technology To Get Self-Employed Taxpayers To Pay Up
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This next story takes us to Russia and inside the gray economy. This is not the black market, where people sell banned goods. The gray economy is where people work off the books without formal jobs, often paid in cash without paying taxes. Now the Kremlin aims to use technology to get the country's nannies, cleaners and after-school tutors to pay up. NPR's Lucian Kim reports from Moscow.
LUCIAN KIM, BYLINE: Anastasiya (ph) is a successful entrepreneur, a single mom who's built up a state-of-the-art nail salon with a lot of hard work and grit.
ANASTASIYA: (Through interpreter) I offer the full range of nail services, from manicures, nail design, nail repair and nail art, to pedicures and toenail design.
KIM: Anastasiya - we're only using our first name because she fears prosecution - works 10 hours a day six days a week and has so many customers, she's had to start turning them away.
ANASTASIYA: (Speaking Russian).
KIM: She shows me her entertainment system, her goldfish Jason and a fluffy Pomeranian called Chip, who runs to meet every customer.
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KIM: The thing is, her business is technically illegal since it's not registered anywhere and she runs it out of the kitchen of her Moscow apartment. Anastasiya is one of an estimated 15 million Russians who are self-employed and don't pay any taxes. All the government's past efforts to get Russia's small-time entrepreneurs on the tax rolls have failed. So starting this year, the finance ministry is running a pilot project to broaden the tax base.
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ILYA TRUNIN: (Speaking Russian).
KIM: Ilya Trunin, a deputy finance minister, told state television the government wants to make things easier for taxpayers. Using a smartphone or tablet, he says, self-employed Russians can now go legal without ever stepping into a government office. Startup entrepreneur Alexey Gidirim helped the government develop the app.
ALEXEY GIDIRIM: It has very modern features like face recognition, passport recognition, etc., so you can verify yourself. And in two minutes, you will become a legit person in terms of government law.
KIM: His company, called YouDo, connects people looking for a service with, say, plumbers or Web designers, most of whom would qualify as self-employed.
GIDIRIM: This is the crucial problem for the government, how to bring those people from the gray market. And it's challenging. That's why the new law is designed to motivate people to get out from the gray market rather than to force them to do this.
KIM: To entice people to sign up, the tax rate for self-employed people is just 4 percent for most jobs. That's just a fraction of Russia's flat income tax rate of 13 percent. But entrepreneurs like manicurist Anastasiya remain skeptical.
ANASTASIYA: (Through Interpreter) So this project is starting at 4 percent. But what happens in the future? Right now, we're seeing taxes being raised across the board. I think the same will happen with this tax.
KIM: Anastasiya says it's important to pay taxes, and she'd like to make her business legit and start hiring her own staff. The real barrier, she says, is the endless bureaucracy and constantly changing rules.
Lucian Kim, NPR News, Moscow.
(SOUNDBITE OF AK'S "FINALLY") Transcript provided by NPR, Copyright NPR.