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. Last Updated: 07/27/2016

Discriminatory Foreigner's Tax Hurts All

Foreign companies are charged 50 percent more than Russian companies for the same display space at the Moscow International Motor Show. Following a recommendation of the European Business Club, most foreign carmakers are boycotting the show because of this "foreigner’s tax."

Bravo! Open price discrimination against foreigners is one of the most disgusting current business practices in this country. It is uncultured, hurts all Russians, and — in the long run — is bad for local business. It is also blatantly against the law.

Unfortunately, there are many biznesmeny willing to flout the law and few officials willing to stop them. The foreigner’s tax is not actually charged by the government, but officials usually allow lawbreaking only when they or their friends directly benefit.

One of the few ways to stop the foreigner’s tax is an organized boycott. A second is to publish a list of those firms that post discriminatory prices. A third is for a firm that feels that it cannot afford to join the boycott (in this case, it might be Volvo Trucks, Renault, Hyundai or Kia Motors) to sue the discriminators — in this case, the motor show’s organizers, ASM-Holding and the British firm ITE.

The average citizen probably doesn’t realize how he is hurt by the foreigner’s tax and might even get a kick out of knowing that he is not the only one getting ripped off in this country. Nevertheless, all Russians are hurt by this practice.

Russians are getting a bad reputation throughout the world. Crime and the government’s failure to repay its loans are just part of the problem. The faults that many see in "new Russians," the "local elites" and the "Mafia" are magnified when these people travel abroad. What better way to confirm this image than to invite foreigners here, only to rip them off? For many visitors, their first impression is formed by the taxi Mafia at the airport or from checking the posted prices at their hotel.

It is, of course, unfortunate that this view of Russians as being uncultured is spreading, but people who tolerate the foreigner’s tax are helping to spread this view.

The foreigner’s tax also hurts ordinary Russians in their own pocketbooks. Foreign firms know that, while in the short run they may be able to raise prices, in the long run they cannot compete here if their costs are always higher than those of local firms. Thus, making foreigners pay more drives away many investors, customers and employers, while also driving up prices on quality foreign products.

The government says it wants foreign investment and foreign companies in this country, but its actions don’t match its words. Equal treatment under the law is a requirement for any foreign investment, but the government doesn’t enforce the law.

The law is exceptionally clear: Section 62.3 of the Constitution states that foreigners have the same rights under the law as do Russian citizens, with specific exceptions made only by federal law or international treaties. The courts have used this part of the constitution to overrule price discrimination against foreigners at hotels, though many hotels ignore this ruling. Businessmen who continue charging the foreigner’s tax are thus showing either their ignorance or their contempt of the courts and the Constitution.

And contempt of the law results in a lawless society, affecting everybody.

Peter Ekman is a financial educator based in Moscow. He welcomes e-mail at pdek@co.ru .