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. Last Updated: 07/27/2016

Tax Hikes Predicted On Imported Cars

Western car dealers predict that the Russian government will be forced to raise taxes to protect Russia's local car industry, which has raised its prices to near world levels.

Dmitry Shchuchko, sales manager at F&C Trading Corp. , one of Ford's dealers in Russia said in an interview that he expected excise taxes and customs duties to rise, following recent increases in the price of locally manufactured cars. "The excise is likely to triple", he said.

Alexander Yezhov, sales expert with Antarex, FIAT'S official dealer, also said he believed that the government will change the tax regime for imported cars. "It will happen, and the only question is when", he said.

AvtoVAZ, Russia's biggest carmaker, announced this week a 50-percent increase in the price of its cars, putting it on a par with much more highly taxed imported brands.

Shchuchko said that since June 1992, Russia has raised duty and other import taxes on cars to 90 percent from almost nothing, forcing many firms, including F&C, to cut sales.

Shchuchko said that imported cars already paid a 35-percent excise tax, a 25-percent customs duty and a 20-percent value-added tax. Russian cars pay only the 20-percent value-added tax, he said.

After the latest price rises, the wholesale price of the top-of-the-range AvtoVAZ car is now $11, 400. The price of the cheapest Volkswagen, FIAT and Ford cars ranges from $7, 700 to $10, 800, before taxes.

The Volga, another popular Russian car made by the GAZ factory, is also close to world levels at 9 million rubles. The Moskvich made by AZLK sells for only 4. 8 million rubles but is regarded as unreliable. Both prices may also rise from Nov. 15, according to the factory sources.

Government officials would not comment on the possibility of tax rises but Deputy Prime Minister Yegor Gaidar, one of the government's strongest free market liberals, said recently that the government would continue to protect domestic car production.

AvtoVAZ's dealers believe that Ladas and Zhigulis, a smaller, cheaper version of the Lada, will sell well even at the new prices. Lasha Meinabde, sales manager with LogoVAZ, the biggest AvtoVAZ's dealer, said that the latest rise in the Ladas and Zhigulis price will not hurt LogoVAZ's sales.

He said that Russians knew the Lada brand and Lada spare parts were much cheaper than imported parts. Meinabde said, however, that LogoVAZ, once focused on selling Lada cars only, but is now developing cooperation with major Western companies, including Mercedes, Volvo, Chrysler and Honda.

AvtoVAZ plans this year to produce 670, 000 Ladas and Zhigulis, with about a third going for export. GAZ, one of the two other major carmakers, produces 100, 000 Volga cars a year. AZLK manufactures about 110, 000 Moskvich cars a year.

According to the Russian State Statistics Committee, car imports fell to 12, 900 in the first six months of this year, down from 46, 900 in the same period last year but dealers say the actual figure for imports is much higher.

Yezhov of Antarex said that sales of luxury cars were rising but cheaper imported cars had fallen because of high taxes, although not as much as the official figures showed.

He said that the figures on car imports did not reflect the well-developed gray car market in Russia, which accounts for significant share of the sales.

He said that many unofficial importers falsely registered sales as direct import purchases by individuals, avoiding all import duties and excise taxes.