Taxes turn cheap wine into Russian luxury

The Russian government is under pressure to reduce high customs duties, which some importers claim are an unnecessary throwback to Russia’s economic strife in the 1990s. Russia’s import duties are among the highest in the world.

As Russia is not the best land for vineyards, the wine retail trade is dependent on imports.

After traveling from Europe to Russia a 5 euro bottle of wine becomes unaffordable for many Russians as the country’s 20% import duties – along with other taxes – makes it almost a luxury.

“The question is not how much money you collect, but how much business you develop,” Maksim Kashirin, a wine importer says.

“If you develop the wine importation, because your wine growers can’t survive in any case – they cannot give a lot of wine, first – you give them more competition to transform faster. Second, you offer people better quality products for less money, or have better market,” he says.

Wine importers in Russia have to pay customs duties, and excise taxes and Value Added Tax (VAT) – all this adds around 43% to the price of each bottle they sell, leaving Russian consumers paying some of the highest prices in the world.

Meanwhile, jewellers, car makers and machinery importers face even higher import taxes.

Some analysts say this is only way to protect local producers:

“You impose import duties and allow local industries to develop in a very comfortable environment. When the industries develop, you withdraw import duties and allow competition to enter your local markets. This was the way the UK and the U.S. developed their industry and production,” Evgeny Nadorshin, Chief economist from Tryst Bank says.

However, importers say duties are hurting Russian distributors, retailers, and even manufacturers who depend on imported components or machinery. That leads many to evade taxes.

Alex Popov, President of Diamond Bourse says that “in any business there is a certain amount of taxation which is excessive, when people start cheating.”

“At certain point when you lower the taxes, you still got money from the businesses, but people stop cheating as they figure out – it’s not worth it,” he adds.

It’s expected duties will fall as Russia prepares to join the World Trade Organization.