Reformation procedure of Russian cleaning market
Tax inspection enforces measures on the whitening of the Russian cleaning market – now 70 to 90% of this segment with a capacity of 360 billion rubles is in the shadow. This year Federal Tax Service is going to inspect 8,000 cleaning contractors throughout the country.
Cleaning market in Russia is one of the most non-transparent, although it has been around for 15 years. The impetus of this industry was given by foreign investors – IKEA, Auchan, Metro Cash & Carry, and others, who brought with them the already developed requirements and standards of cleaning. But until last year, this segment of the economy continued to exist as if in itself: no one paid attention to the processes taking place there and did not control it.
It is not surprising that experts strongly differ in assessing the capacity of the cleaning market. Thus, according to Tekart’s analysts, the segment grew by 4.3% and reached 259.7 billion rubles in 2017. The specialists of the National Association of facility operators (NAFO) have much higher ratings: they are confident that the turnover of this market, during the same period, amounted to 360 billion rubles. (for comparison: according to the International facility managers association (IFMA), the volume of the global market for this industry exceeded $ 1 trillion last year).
The largest customers in the industry are government agencies and utilities companies. They account for 80% of tenders. But the number of orders from commercial companies and the potential of the Russian cleaning market are growing, according to experts, is huge – about 2.1 trillion rubles. At the same time, the potential of the facility market (integrated management of the infrastructure of buildings) is twice as high – 4.2 trillion rubles.
Meanwhile, according to various estimates, 70–90% of the market remains in the shadow. In total, according to the Federal Tax Service of Russia, there are 8 thousand organizations in the industry (the number of large and medium-sized companies is estimated at 500). We note that the exact number of people employed in this area is unknown: according to various sources, it ranges from 500 thousand to 2 million people.
60 to 90% of manual labour is used in this segment, and this is the temptation to save on obligatory contributions to social funds and, consequently, on tax payments for many players.
Blame the customers
Only this year, at the initiative of the Russian tax authorities, a radical re-forming of the cleaning market began. The goal of a large-scale inspection of cleaning firms is to legalize business of professional participants, multiply tax revenues, stop using illegal “tax optimization” mechanisms, which primarily include cashing out and a curtailment of labour relations, including illegal migrants.
By the end of the year, the FTS will initiate inspections of all 8 thousand companies that are in its registry. As a result, tax revenues are expected to grow from the current 3-5% to 30-35% of the total turnover of companies in the industry.
According to Tekart’s analysts, the segment grew by 4.3% and reached 259.7 billion rubles in 2017. The specialists of the National Association of facility operators (NAFO) have much higher ratings: they are confident that the turnover of this market, during the same period, amounted to 360 billion rubles.
The inspections will be carried out not only at enterprises that provide professional cleaning services, but also their customers will be checked, since many violations in the segment are related to procurement policies.
“Facility managers are under serious price pressure from customers, primarily state ones. The initial price of contracts at auctions is constantly decreasing (by 40–60% compared to the stated one), while maintaining the requirements for the volume and quality of services. At the same time, customers are guided by “historical costs”, striving to lower prices compared to the previous year and do not always take anti-dumping measures,” – NAFO complain.
To stay afloat in such a situation, business has to save – on staff, on taxes, on equipment and on materials. This, alas, does not always happen in a legal way.
According to Andrei Dragunov, the head of the NAFO, it is difficult to call civilized the existing Russian market of cleaning services. According to him, players dump and often behave incorrectly in relation to each other. Based on the cost structure, cleaning is most vulnerable to the effects of currency volatility, real inflation growth, changes in legislation and macroeconomic parameters, as this directly affects the customer’s expenses and the contractor’s income, the NAFO head believes. “At the same time, the cost of consumables is growing. It is not surprising that players try to optimize them by any available means. And the far from the Russian capitals, the more non-transparent relations become on the market,”- noted Dragunov.
To become squeaky clean
Interestingly that the idea to change the current situation has matured, as they say, from below. All members of NAFO have signed the Ethical Charter – a document where compliance with tax, labour and immigration laws, as well as caution when choosing contractors, are proclaimed as the basic principles of business.
“We agreed on the rules of the game between members of NAFO. These rules allow us to develop healthy competition not due to violation of laws, but due to well-built and high-quality work,” explained Oleg Lobanov, the President of CorpusGroup.
“At the moment, the Charter was signed by 209 companies that are part of two associations of facility business (they will merge into one SRO “ Market Council of FM” by the end of the year). From January 1, 2019, in accordance with the agreement, they should gradually become squeaky clean. Who will not – will lose business. The FTS warned about this strictly,” says Victor Naishuller.
“Today, the main goal of the cleaning service provider and the customer is the transition to an ethical business model. And if the market made a noticeable movement in this direction in two capitals, then the regions are still lagging behind. There, customers prefer to hire local cleaning companies, with whom it is easier to build communications. Their services cost less than the services of federal players, because the regions later and not so actively were involved in the whitening of the cleaning industry,” – NAFO comments.
By the way, cleaning service prices are still indefinite, so the question remains undetermined. Prices for cleaning the interior premises are from 40 to 200 rubles. per sq. m per month with VAT. But the cost depends on many factors: the size and crossability/ traffic of the facility, composition of the ar0eas, frequency of cleaning, type of floors, special requirements of the customer, season, etc.
Depending on the region, the prices differ slightly – within 20%: the higher the market wages of line staff in the region, the higher the cost of cleaning services will be.
You did not bring a Pole – you did not earn money
The Russian cleaning industry lags behind the European market by at least ten years, and the domestic way is not original, experts say.
“In the 1980s, in France, a similar process took place under the motto “We are seen.” It was a revelation for many people there that hundreds of thousands of people who do not pay taxes are working in this industry. A few years ago in Poland, as a result of the whitening, the prices for services of facility managers increased by 50%. In Germany, the reform was very tough – the customer had no right to pay for services in this country until the contractor brought a certificate of tax payments to it. You know as they said before there? “You didn’t bring a Pole – you didn’t earn money”. There were many migrants in the industry. And some firms eventually returned millions of euros in taxes to the treasury, ”- they say in NAFO.
This reform has brought tangible benefits in Europe. “Now the contractor in Europe is not afraid to come to the customer with real data on the volume of costs for personnel, materials, and equipment. The question of how to reduce these costs does not even arise. Moreover, the states of Europe, encourage customers and contractors with various bonuses and benefits to use more environmentally friendly, innovative and economical means of cleaning. The buildings themselves are designed and built in Europe using technologies that reduce the cost and simplify the subsequent cleaning. For us this is ahead” concluded Elena Kuzmina, the Director of the NAI Becar Department.
“How the whitening of the industry in Russia will end is difficult to say now. We hope that everyone will come out of the shadows and continue to work according to the law. But an unexpected side effect may arise: large companies will begin to break up into dozens of small ones, which are not visible to the tax service, and will continue to play in the market. Such examples already exist. We are absolutely dependent on the tax authorities in this matter. If they are consistent and systematic in their work, everything will be fine. And we just have to go with the flow and wait for the conclusion,” – Viktor Naishuller summarized.