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. Last Updated: 07/27/2016

New Tax Hitting Hard-Currency Shoppers

The Moscow Tax Wars are escalating in the New Year, and hard-currency customers are paying the price.

The latest round began as a bitter Christmas present to hard-currency shopkeepers - late December visits by Russian tax inspectors who informed them that a new value-added tax of 20 percent was being imposed on imported goods, and that in some cases the tax was due retroactively.

In at least one case, the tax authorities did not wait for a store to pay the tax. They seized the money from the store's bank account.

The stores - from Stockmann to the Irish House - are predictably up in arms over the new measure and the arbitrary way it is being enforced.

And clients are finding the tax translating into significantly higher prices at shops and restaurants.

Store owners say the recent visits by tax authorities are evidence that the government is serious about collecting the value-added tax.

But they complain that the levy, and the Russian tax situation, remains confusing. They say they do not fully understand the new law and that even some officials appear perplexed.

Imported goods had previously been exempt from Russia's value-added tax. But in an effort to give Russian goods a competitive edge, parliament lowered the tax from 28 percent to 20 percent and lifted the exemption for imported goods as of Jan. 1.

Most store owners contacted by The Moscow Times said they had begun raising prices by the full 20 percent.

And a look at menus at some hard-currency restaurants indicates that they used the opportunity to raise prices more than the amount of the new levy. At one popular hotel cafe, for example, the price of a soft drink rocketed up by 50 percent, from $2 to $3, on Jan. 1 in a move explained as due to the tax.

Since the breakup of the former Soviet Union, taxes in Russia have been repeatedly passed, annulled, modified and often ignored by both officials and those they were trying to tax.

"The legal edict about the VAT tax was issued, but nobody was aware how or to whom it should be paid", said Igor Filatov, chief of the purchasing department for the Soviet Irish Trading company, owners of the Arbat Irish House.

Store owners complained this week of being charged the tax retroactively, in some cases as far back as August.

Filatov said the levy for back taxes extended to millions of dollars for the Irish House. He said that the store has been gradually increasing its prices to include the tax.

"We are forced to implement this price increase", Filatov said. "Since most of our customers are Russian, it will cause problems for them".

Russian tax authorities refused to comment on the situation, saying that it was necessary to write a letter to get information on the tax.

Some store owners have taken the position that since they already paid customs duties between 15 and 50 percent on the imported items, the new 20 percent levy amounted to double taxation.

"It's a very ugly the situation right now", said Nikola Samsonov, an executive with Kalinka, owner of Stockmann.

In late December, owners and managers of several hard-currency stores held a meeting and sent a letter to the Finance Ministry. Samsonov said they were still waiting for a reply.

"If they want to charge it from last year, we don't have enough information on how to calculate it", said Pavo Ullgren, area manager of Stockmann. "It is against international law to tax on the time already past".

He added, "We are not against any laws in Russia. But there should be some sense in it all".

The manager of one hard-currency store, who asked not to be named, said that Russian tax authorities had simply taken the money they calculated his store owed from the store's bank account.

He explained the background to the situation this way:

Many hard-currency stores were operating under the theory that because they were selling for dollars, they were importing and therefore exempt from the value-added tax.

On Jan. 1 last year, the parliament enacted a law saying that all companies dealing in hard currency were to convert half of it into rubles. This "was ignored by everybody", the store manager said.

On June 1, another law was passed saying that companies that had followed the earlier law and converted half of their hard currency into rubles did not have to pay the value-added tax from January until June.

In November, still another law was passed - which store owners said was not published until December - stipulating that all stores were subject to the value-added tax, whether they were hard-currency or not.