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. Last Updated: 07/27/2016

How Athletes Became Major Vodka Dealers

On March 1, a special presidential order from December 1993 which granted special customs privileges to Russian sports organizations is set to expire. The order exempted all sports organizations from paying customs duties, value-added taxes and excise duties on all goods intended to help them participate in international competitions.


One organization that benefited from this fantastic, sweeping order was the National Sports Fund, or NSF, which chose to import the goods that normally are subject to the highest excise and customs duties -- strong, alcoholic beverages. According to information provided by the State Customs Committee, which studied 140 registered import agreements involving the NSF, 80 percent of the contracts involved either alcoholic beverages or tobacco products. In all, sportsmen concluded deals worth $3.3 billion, although last year they were only able to actually import goods worth $315 million.


Foreign trade privileges have always been one of the tastiest tidbits that one could receive from the federal government. The economic benefits for the recipient are so great that in 1992-3 they became a powerful political tool in buying the support of key sectors of the economy and geographic regions.


Although exact figures for 1994 are not available, there is every reason to suspect that the government continues using this tool. Moreover, while in the past such privileges generally meant exemption from export duties, an entirely new form of privilege has emerged over the last year: exemption from customs duties on imported goods.


The primary recipients of import privileges have been athletes and the handicapped, whose organizations have also been exempted by presidential decree, and the products most often imported under these exemptions are vodka, cigarettes and cars. Several sources affirm that nearly 80 percent of all foreign automobiles imported into Russia last year passed through organizations for the handicapped.


The value of these import privileges is stunning. Furthermore, such imports also cause considerable harm to Russian producers of analogous products, undermining important sources of state revenue.


According to the official handbook of the State Customs Committee, the amount of money that did not reach state coffers last year as a result of import privileges offered to sports organizations alone equaled 1.37 trillion rubles ($315 million). However the newspaper Commersant Daily estimates the figure at about 10 trillion rubles.


I can't say how reliable Commersant's figure is, but there is good reason to suspect that the official figure is too low. Experts estimate that the total volume of trade in alcoholic beverages in Russia is about 190 million decaliters annually. Not less than one quarter of that total is imported -- about 500 million one-liter bottles. Each one-liter bottle, officially speaking, should be subject to duties of about $8. However, except for a very few "deluxe" brands of alcohol, hardly any liquor in Russia sells for such high prices. It follows logically that all those $3 to $5 bottles of imported vodka in Russian kiosks must be either smuggled in, manufactured illegally in Russia or brought in by exempted organizations.


But ending this abuse is not that easy. Contracts have already been signed and if they are not met, then the sports organizations could face huge penalties. The State Customs Committee has already come out in favor of continuing the privileges. The Economics Ministry is opposed. We are still waiting to hear what the Finance Ministry will say.