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. Last Updated: 07/27/2016

Import Goods Face A Hefty New Tax

Imported goods will face a tougher time competing in Russian markets following changes to tax laws that will raise the price of imported goods by 20 percent and more.

Imported goods were previously exempt from Russia's value-added and excise taxes but parliament passed a law on Dec. 23 stating that both taxes will be payable on all imported goods starting Jan. 1.

The tax law is only part of a series of measures reshuffling Russian foreign trade policy.

The tax burden on importers will more than likely to rise even more in the next month when the Customs Committee is expected to announce a new and higher schedule of import tariffs.

Sources inside the committee say the basic tariff rate is sure to rise from its current level of 15 percent in order to protect Russian manufacturing interests.

The Customs Committee also decided Dec. 11 on a new system of export duties to be raised from Jan. 1 on so-called strategically important exports.

Timber producers, for instance, are expected to benefit from a big drop in tax.

The basic rate for the value-added tax which will now apply to imported goods from Jan. 1 will be 20 percent next year, though there will be selected exceptions.

Food and medicine, as well as goods for children, will get a reduced rate.

Excise taxes apply mostly to luxury goods such as spirits, automobiles and carpets.

The rate ranges from 25 percent for most cars to 90 percent for pure alcohol.

The inclusion of imported goods into the value added tax rules "puts Russia in line with Western Europe", said Irina Rusakova, senior consultant of Coopers & Lybrand. "It was just a mistake that imported goods had been excluded".

All the same, the imposition of value added and excise taxes will push up prices of imported goods, after months of increases due to the falling exchange rate of the ruble.

In recent years, Western-based corporations and their Russian distributors have already faced difficulty following the steep rise in the cost of imported spaghetti, chocolate and electronics.

Demand for luxury Western imports may be less affected by any price hikes.

"Maybe consumers won't care", said Dmitry Shuchko, sales representative for the FNV Ford dealership. "Most buyers of imported cars want only the most expensive models and another 20 percent would not matter to them", Shuchko said.

Full details of the changes to the system of export duties have not yet been published. But according to Vladimir Golyakov, deputy director of the economics section of the Foreign Trade Ministry, among the key points are cuts on export duties on sawn timber.

Rates will fall by as much as 50 percent providing a big boost to Russia's fourth largest export earner.

The rate of duty on the export of refined oil products will also fall 30 to 40 percent but no relief has been given to crude oil exporters who have complained bitterly at the $6-a-barrel tax on crude oil.

Golyakov said the duty had even been raised slightly.

Export tariffs on other raw materials such as aluminum, scrap and grain, would also be raised on the rationale that it would discourage exports of goods that Russia has been forced to import.