Three-quarters of business owners in Russia face profit declines due to VAT

A large-scale survey by the OPORA Russia organization, covering 3,500 small and medium-sized business representatives across 86 regions, showed a sharp decline in entrepreneurial confidence. According to the study, 95% of respondents believe the situation in 2026 has deteriorated compared to 2025, with 76.5% stating a significant deterioration.

Tax burden and revenue decline. The main pressure factor was Tax Code changes effective in 2026. The annual income threshold for VAT exemption under the simplified tax system was reduced from 60 million rubles (approx. $789,500) to 20 million rubles (approx. $263,200). This led to micro-enterprises facing a 5% or 7% VAT burden.

In early 2026, 68.7% of entrepreneurs recorded revenue drops. The situation is complicated by the fact that 45% of companies made no profit or suffered losses in 2025. The most affected sectors regarding profitability decline include vehicle maintenance and repair at 87.2%, healthcare and pharmacy at 84.2%, and the hotel business at 82.8%.

Market transformation and outlet closures. The general economic background directly affects specialized retail. As previously reported in a survey on pet retail transformation amid store closures, 53% of market participants confirm a physical outlet reduction trend. Additionally, 21% of respondents noted that closures are occurring on a mass scale.

This situation appears paradoxical against stable demand: in 2025, pet product sales grew by 15.7% in value and 6% in volume. However, rising costs and taxes offset consumer activity. Across the country, 233,000 legal entities were liquidated in 2025, which is 26% more than the number of new registrations.

Adaptation strategies. To survive, businesses are implementing several measures. Price increases were adopted by 82.7% of entrepreneurs, with more than half increasing them by up to 20%. The popularity of the automated simplified tax system, which does not require VAT payments, grew by 11.5%. Optimization is also widespread, as 91.4% of companies report supply cost growth, forcing them to reduce staff and switch to cheaper raw materials.

Experts predict that approximately one-third of small and medium-sized enterprises could cease operations in the foreseeable future. Currently, only 23.7% of respondents are fully confident they can continue business under current conditions.