MPs in the ruling United Russia party are up in arms over a government decision to double taxes for small and mid-sized businesses, with a leading MP creating a powerful lobby to scrap the plans.

Small and mid-sized firms currently pay 14% of gross income in tax. From January 1st 2011 that rate will more than double to 34%. Dubbed the ‘pension’ tax, it comes after the government hiked payments to the elderly from next year by almost half.

But with many companies already brought to their knees by the credit crunch, United Russia MPs have broken with party lines to fight the move, according to Ekaterina Semenova, United Russia MP.

“Firms will either have to fire workers or ‘disappear into the shadows’ – that is, stop paying tax altogether.”

Sergey Pepelaev, Managing Director of Russia’s largest law firm, Pepelaev, Goldsblatt & Partners, warns the tax won’t even bring much benefit from the companies it catches.

“The move will require 10,000 new tax collectors. Much of the money they collect will go on their salaries.”

Despite a giant majority in parliament, the government’s shown willingness to listen in the current economic turmoil. Two weeks ago United Russia scrapped plans to double taxes after drivers arranged protests. For her battle against the pension tax, MP Ekaterina Semenova says she’s gathered a supporting cast of top businessmen, politicians and lawyers.