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. Last Updated: 07/27/2016

Taxes Leap On Imports To Protect Industry

In a move to increase protection of domestic industry and boost its trade surplus, Russia has drastically raised import taxes on cars, alcohol and tobacco.

Traders said Tuesday that they had received no formal notice of the move, which involved customs increases of up to 250 percent, from the government.

The government order, signed last week without fanfare, was delivered to customs Monday, a Finance Ministry official said Tuesday.

A number of importers and store managers said they expected major increases in the prices of alcohol, tobacco and autos and a sharp reduction in sales of imported goods.

Deputy Prime Minister Yegor Gaidar, a key proponent of free markets, reversed field somewhat Tuesday, saying that the government should protect domestic producers. However, he added that it should not establish prohibitive import tariffs, which would isolate the Russian economy from the world market.

"The tendency toward more protectionism will continue to grow in Russian policy", he said.

Gaidar explained that "in 1992, when shops were bare and goods were in short supply, we lifted import restrictions for six months. Since last summer we have started reinstating these import tariffs. The internal market should be protected within reasonable limits".

He also said the tariffs would be used "to raise some additional revenues".

The latest action raised the import tax on pure alcohol to 250 percent from 90 percent and increased taxes on liquor to 150 from 85 percent.

It also doubled import tax on cigarettes to 100 percent from 50 percent and increased taxes on imported cars and trucks to 35-70 percent, depending upon engine capacity, from 25-35 percent.

The raises come on top of the imposition of a 20 percent value added tax in February on tobacco, alcohol and cars. In April the government introduced excise taxes of between 10 and 90 percent on the same so-called luxury items, triggering a sharp rise in prices.

Just last week the government said in its 1994 economic plan that it "would try not to raise import taxes".

Russia expects a trade surplus of $21. 5 billion this year, Interfax reported Tuesday, quoting figures from the Foreign Trade Ministry. Total Russian exports were worth $31. 4 billion in the first 10 months of this year, 11. 2 percent more than in the same period of 1992, while imports were worth $15. 5 billion, 50 percent lower than last year.

Alexander Borzyakov, supervisor at the Julius Meinl supermarket, said there was no warning about the impending increases. "If we do not keep alert, we learn about it only at the customs, when the supplier charges extra money for the goods".

Borzyakov said as a result of the new duties, the store had already refused to purchase several brands of wine and cigarettes, "If we had bought Marlboro at the price they offered us, we would have to sell a carton at DM 40, which is unacceptable".

Sergei Dmitriyev, commercial director of Galerie du Vin, said customers will be scapegoats in the new situation.

Dmitry Shchuchko, sales manager at F&C Trading Corp. , a Ford dealership, said: "It is so disappointing that I do not have much to say, except that we are going to loose many clients". He said consumers will have to pay much more for the cars they have already ordered.

Sergei Pirozhenko, general director of Antarex, Fiat's official dealer in Russia, said the raise could "bury" the sales of imported cars in Russia. "This kind of protectionism does not protect a customer at all", he said.

Importers of cars, he said, were awaiting the new tax raise after AvtoVAZ, Russia's biggest car-maker, hiked the prices of its cars to near world levels from Nov. 1, with top-of-the-range models selling for $11, 400.

Borzyakov said most shops buy big stocks of goods, when they learn about an expected rise, keeping prices down for some time. "But storage facilities are not made of rubber and it is not profitable to buy big quantities", he said.