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. Last Updated: 07/27/2016

Shuttle Tax: Painful but Sensible Step

The spectacle of Russia's chelnoki, or shuttle traders, returning from trips abroad with bulging bags of everything from textiles to telephones has always underscored the still-primitive nature of the country's evolving market economy.

Shuttle trade is a huge social phenomenon in Russia that, according to government estimates, accounted for as much as one-fourth of all imports last year.

Chelnoki survive and flourish here for a range of factors related to Russia's high import tariffs and poor distribution system.

Chelnoki bribe their way past customs officials that official importers cannot avoid. They provide an alternative to Russia's highly monopolized and mafia-controlled regional distribution system.

In imposing new tax rules on these traders, President Boris Yeltsin has brazenly broken one of his campaign promises to an electorate estimated at 10-million strong. Before the election Yeltsin told voters, "Read my lips: no new taxes on chelnoki."

It will be a pity, however, if Yeltsin's hypocrisy places a cloud over the whole idea of taxing chelnoki. The move, although painful, is long overdue.

There is no reason why small business people should pay no import tax. The government has a right to tap a sector of the shadow economy, with an estimated $1 billion in lost tax revenues.

Leaving such vast sums out of the grasp of the tax police not only deprives the budget, but -- as government officials noted -- distorts and hurts domestic industry, which must develop the ability to make consumer goods and get them to market at a reasonable price.

There is no denying that higher taxes will cause pain to millions of individual traders who rely on frequent "shop tours" for their family income. The duty-free threshold has been slashed from $2,000 to $1,000, with a flat 30 percent tax applied on goods above that value. Margins will shrink in a business where it's already tough to earn a livelihood.

The government's problem is that this regime is still susceptible to the vagaries of low-level customs officials. Corruption may indeed grow now as traders offer sweeter bribes in order to avoid far stiffer taxes.

There undoubtedly will be plenty of evasion under this imperfect regime. Moreover, these rules are clearly no substitute for more sweeping measures to streamline the tax system or reduce the threat of criminal interference -- the factors that have made shuttle trade a $10 billion-a-year business. The new rules on shuttle trade are just a piecemeal effort in what must be a full-scale overhaul of Russia's entire tax system. Whether government officials have the stomach to tackle interests with more powerful lobbies than the chelnoki remains to be seen.