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. Last Updated: 07/27/2016

Don't Kill Off Imports With Taxes

Through its ill-considered decision to hike taxes on imports yet again, the Russian government risks creating a new source of popular resentment: the disappearance of one of the few visible benefits of its market-oriented reforms.


As of Monday, a 20-percent value-added tax applies to most imported goods and new excise tariffs -- ranging from 10 to 90 percent -- are being imposed on imported cars, alcohol, cigarettes and jewelry. These new taxes come on top of previous import tariffs and are expected to increase some prices by as much as 110 percent.


There are good reasons for Russian authorities to levy import taxes, among them protection of local producers and enhanced revenue for the government. But the confusing and wanton way these taxes appear to have been implemented, as well as the negative impact they will have on imports, suggests that the government urgently needs to rethink its policies.


Excise tariffs on luxury goods like cigarettes, imported cars and alcohol make sense. There is no reason why a packet of Marlboro should be cheaper on the streets of Moscow than, say, in Paris or Amsterdam, as is the case now.


But as is often the case in Russia, the new regulations were introduced without proper preparation and information. Store owners do not understand which taxes and tariffs apply and when they took effect.


We must assume, as indeed the government must, that these store owners and other hard-currency enterprises want to operate legally within the system. But they will do so only when the system is seen as fair, when store owners see their competitors paying the taxes and when they can understand what they should pay.


Any other situation would cause businesses to ignore the laws, undermining the government's taxing authority.


A more fundamental question is the effect these taxes have on the economy.


The general assumption is that import tariffs protect and stimulate the local industry. In Russia's case this is debatable. With private enterprise still in its infancy, it is by no means sure that local producers will jump in to fill the gap if sought-after foreign goods are priced out of the market.


The net result could be that imports will become largely inaccessible. Those who have worked hard in order to be able to buy something special will not be able to afford it. In a worst case scenario, importers might decide the taxes are so punitive that it is not worth importing anymore. If this happens and foreign goods just dry up, it will remove a source of pleasure for Russians and reduce the attractiveness of Moscow as a city for foreigners.