MOSCOW, April 9 (Reuters) - Valery and Tatyana Panteleyev make a good living selling flowers from a tiny shop in a Moscow suburb. But setting up and running a small business in Russia was no bed of roses.
"No bank would give us a loan as we had no real property to offer as collateral, the rouble was devaluing rapidly, inflation soared and we had to repay a $5,000 debt to our friends," said Tatyana, 44, a florist who turned her hobby into a livelihood.
The Panteleyevs' business may be small, but it is vital for an economy still heavily influenced by post-Soviet oligarchs -- businessmen with financial and political clout who built up fortunes by snapping up state assets cheaply.
A decade after Russia nurtured industrial giants, President Vladimir Putin is now launching a tax overhaul to facilitate small business and clear the way for millions like Tatyana to test the waters of private entrepreneurship.
This amounts to a ray of hope in a vast country where the state sector, the main provider of jobs in the communist era, is shrinking fast and average monthly wages stand at no more than the equivalent of $100 and frequently less in the provinces.
Putin promotes his plan, due to be presented to parliament this month, as fundamental and sweeping, offering big tax cuts to small enterprises. Some members of parliament say the plan is more liberal than even ardent liberals had hoped for.
"I believe we can consider these proposals as just as revolutionary in their nature as introduction of the 13 percent flat individual income tax," Putin told academics in Siberia last month in comments broadcast on national television.
Putin was referring to Europe's lowest income tax rate brought into force last year and credited with giving tax revenues a big boost in a country where tax evasion had become a national pastime.
SMALL ROLE FOR SMALL BUSINESSES
Small businesses constitute the backbone of most economies. In Russia, they account for only around 10 percent of gross domestic product.
According to official data, some 850,000 small businesses are registered. No reliable information is available on entrepreneurs who offer retail goods and services in the shadow economy, steering clear of confrontations with local authorities which could prove more expensive than the tax bill.
Tatyana says circumstances worked in her favour when she opened her shop a month after the August 1998 crisis which brought many financial institutions to the ground and plunged millions into poverty.
Like other entrepreneurs, she is proud the shop helped her maintain a decent living through a period of uncertain reforms -- launched in 1992 with an overnight shift from socialism to the market that never gave a middle class a chance to get started.
She persuaded her husband to quit his job as a computer programmer at a struggling state enterprise and help her.
"Our lives have since become better, but more complicated," she said. "We still have to find our way around certain things."
The main obstacles remain a Byzantine bureaucracy, complicated accounting rules and murky dealings with local officials to keep her business afloat.
But the principal threat, she says, has been unstable laws.
"When you run a private business it is crucial not to lose hope," she said. "Changes in Russia never end and as you can imagine few changes have led to improvements."
According to the new plan, small enterprises with an annual turnover of 10 million roubles and up to 20 employees will be entitled to choose between an eight percent profit tax and 20 percent turnover tax.
The plan also provides incentives to allow firms to write off expenses and pay tax quarterly, instead of monthly.
The government is also examining a cut from 35 to 14 percent in a "unified social tax" which companies pay for employees to contribute to the state pension fund, medical insurance and other benefits.
SIMPLIFYING TAXATION
Businesses like car repair shops, hairdressers and cafeterias will also be subject to an imputed tax intended to simplify accounting rules so that even "a child could manage it," as some officials put it.
"It will give each citizen the chance to start his own business with simple accounting rules, minimum taxes and minimum amount of licences," said Finance Minister Alexei Kudrin.
Commentators have applauded the government's plan, which could come into force next year if it is approved quickly by parliament. But they said the key to the matter was winning the trust of ordinary people.
"For people to trust the system and work with it rather than try to evade it, the government must show it can consistently implement it and not change it every six months," said Bryan Nielsen, a programme coordinator at Russia Small Business Fund.
The fund set by the European Bank for Reconstruction and Development (EBRD), an institution supporting eastern Europe's transition to capitalism, extended $233 million in loans to small business last year alone.
Some 85 percent of the 27,000 loans averaging $5,000 went to individual entrepreneurs, many of whom often start their career with retail trade, Nielsen said.
"They (small businesses) are making more of a contribution to the economy that is perceived now," Nielsen said. "They have much more ability to change compared to large enterprises and they are very responsible in regard to their credit."
Tatyana said she planned a champagne toast to celebrate the new bill, with the expectation that it will provide long-term stability for her family.
But for older generations, who spent most of their lives under 70 years of Soviet rule, when private initiative was subject to punishment, the change will probably come too late.
"This is all about young people who have money, energy and an understanding of how to live this new life," said Ksenya Karpova, 52, an employee of a confectionery shop. She said she was unlikely to take up the challenge of small business.
"I don't think there will be much difference for us. We're used to taking orders from other people."