The Moscow government has come out with an initiative to slap a new tax on small and medium businesses.

City Hall wants to get from SMEs operating in retail and services industries a fixed fee in advance. If the company posts profits over the year, the size of the tax will be deducted, if the business has only losses to report, the fee will not be returned.

Nikolay Ostryakov, from Business Russia association, says the move could further force entrepreneurs into the shadow economy.

According to the Federal Tax Service, the first quarter of 2012 saw 165,000 loss-making businesses in Russia.