Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Taxes Set to Boost Cost of Living

Unknown
If your daily routine includes driving to work in a Volga, smoking a pack of Ducats and downing a bottle of Kristall vodka, your lifestyle could well end up costing you at least 70 rubles [$2.55] more a week come the new year.

Russians’ cost of living would inch up thanks to new tax legislation recently signed into law by President Vladimir Putin and slated to go into force Jan. 1.

The laws are part of a broad revamp of the tax system designed to boost collection by lowering some taxes in a bid to cut down on tax evasion. Other taxes — such as those on tobacco, alcohol and gasoline — are being hiked to make up for the difference.

Under the law, 97 kopeks will be added to the cost of a liter of 92-octane gasoline, 30 kopeks to a pack of cigarettes, and 40 kopeks to a liter of vodka.

The new excise tax on gasoline will be 1.42 rubles per liter, spirits will be taxed at 8 rubles per liter, and cigarettes at 1.5 rubles per pack of 20.

The government says that these excise taxes, which are regressive in nature, are needed to make up for revenue that will be lost from implementing a flat 13 percent income tax, reducing payroll taxes and cutting turnover taxes from 4 percent to 1 percent.

While the total amount of revenues that the hiked taxes will ultimately bring in to government coffers is unclear, Alfa Capital economist Natalya Orlova estimated that the budget would rake in at least 40 billion rubles ($1.45 billion) next year.

"It’s hard to draw comparisons between different years because the tax base is always changing," Orlova said.

Whether the sum will make up for any revenues lost from eliminating the upper 20 percent to 30 percent income-tax brackets also remains to be seen, economists said.

The government, which admits that tax evasion is rampant, is itself unsure about how much unreported income it loses each year.

Excise taxes are seen by the government as effective taxation because demand for products like vodka, gas, and tobacco rarely wavers.

"People who drink vodka won’t stop drinking vodka because of 1 ruble," said Svetlana Dikanskaya, a store manager at the Kristall store on Pyatnitskaya Ulitsa. "For those with little money, higher taxes will change their behavior as how far they’re willing to travel for cheaper vodka. For those with money, a ruble or two isn’t going to make a difference."

The tax levels that the government passed are a far cry from what was initially proposed in May. The government had sought a sixfold increase on gasoline excises and a twofold increase for cigarettes. If the increases proposed by the government had passed, the price on 95-octane gasoline could have grown by up to 30 percent.

A 97-kopek hike on a liter of gas would be an increase of about 15 percent.

Still, the increased excise taxes are almost certain to bite at the pockets of consumers, tax experts said. But how much of the additional tax will end up being passed on to the consumer will largely be left up to store managers, wholesalers, and individual companies.

Economists and traders said the hike on gasoline taxes would probably have the most impact on prices because most goods are ultimately shipped by road.

Svetlana Burlakova, head of investor relations at the oil giant, Sibneft, agreed that oil companies would have to increase prices as a result of the new taxes. What happens after that, however, is out of the company’s hands, she said.

"It’s very difficult to predict the price increase at the pump, because it will turn into a trial-and-error situation," Burlakova said. Gas station operators will test the waters before gas prices stabilize at the beginning of next year.

"Any drop in demand will be temporary," she said. "People will at first cut down on driving because they see the price rise, but then they will get over the shock and driving will go up to normal levels."

Traders interviewed Thursday said they had not yet decided how they would price the higher taxes into their wares.

During a routine check of one of his several vegetable stands around Tretyakovskaya metro station, Alexander Tekhov pondered a reporter’s query about the tax increases before finally replying, "Yes, they could make a difference."

Tekhov, like many other small sellers in Moscow, delivers fruits and vegetables to his stands by car.

Fluctuating gas prices directly affect the prices of his goods, Tekhov said. But often when prices jump sharply — such as during the fuel shortage of the summer of 1999 — the entrepreneur covers the lost profits himself and keeps prices the same, he said.

But under a long-term tax hike, he would be forced to increase prices.

"It’s all a chain," he said, pulling at an invisible chain around his neck with his fingers. "Wholesalers have fleets of 50 cars, and to offset expenses they will increase prices. That will be passed down to me."