From Russia with Caviar and VAT

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By Marina Romanova

caviar-and-vatStarting from January, 1 of 2017 Russia may introduce VAT refund to allow foreign visitors obtain a refund of 18 percent value added tax on certain purchases, Russian media reports.

Earlier on November, 10 first Deputy Prime Minister Igor Shuvalov has ordered Ministry of Finance to submit a bill for introducing tax-free system in Russia, Shuvalov’s secretariat told journalists. According to Deputy Prime Minister, VAT refund for foreign visitors will increase the flow of tourists and enhance goods turnover.

The issue of introduction of tax-free system in Russia was first raised yet in October 2013, when Shuvalov supported the idea to develop a mechanism permitting to return VAT to foreigners leaving Russia. However, at that time the Ministry of Economic Development presented its objections to this plan. Later, in September 2014, Prime Minister Dmitry Medvedev gave the same instructions to the Finance Ministry and the Ministry of Economic Development, but at that time the Finance Ministry has found the scheme to be “not suitable for the country and could cause in budget losses.”

Russian daily Kommersant explains that taxes are supposed to be returned if the products are bought in certain stores in Moscow, St. Petersburg and Sochi. Stores, where applications for VAT refund will be found include Moscow’s down-town located GUM and TsUM, Russian capital’s well-known and most expensive retail venues.

From 2018 onward, the system is expected to expand to cover the entire country. The minimal purchase amount for which foreigners will be able to get a value-added-tax refund is 10,000 rubles (US$160).

According to Deloitte Consulting Group estimation, introduction of tax free system in Russia will exceed the loss of VAT refunds in less than five years.

“The initiative could stimulate trade in regions near Russia’s western borders,” the RBC quoted Yaroslav Kabakov, deputy general director at Moscow investment company Finam Holding, as saying.

In his words, EU residents may be interested in the import of alcohol, with the fall of the ruble making the cost of alcoholic drinks in Russia very advantageous. The tax-free system will only strengthen this trend.

Vodka, Caviar and Chocolate

caviar-and-vat2Stores and chains with a turnover of at least 100 million rubles (around US$1.6 million) and which have no tax debts will be able to join the tax-free system. According to the GUM store press service, black and red caviar, crabs, varieties of Russian vodka, Alyonka chocolate, honey, candy and Russian marshmallows “Zefir” are among the most popular tourist souvenirs. The tax-free system will apply to all these products.

Black caviar is one of the most famous and expensive delicacies in the world. Anyone who wants to purchase Russian beluga black caviar abroad should expect to spend at least US$50 to US$75 for 30 grams (1 ounce) — enough caviar to make a few good bites for two people. But the prices can get astronomically high for purchases made in Europe, U.S. or Asia.

In China 30 gram black caviar tin costs over 1,000 yuan (US$150), the Russia Today reported Dmitry Kirilenko, Russian Caviar House representative in China, as saying.

In Russia’s domestic retail venues, a 250-gram jar of beluga caviar will cost you on average US$130 minus 18 percent VAT starting from January 1, 2017.

Russia produces about 50 tons of black caviar, and exported 4.71 tons last year. Although, caviar imports fell from 8.67 tons in 2014 to just 3.5 tons in 2015, the export of Russian black caviar has tripled in 2015 compared to 2014, according to the Russian Ministry of Agriculture.

As per the latest Russian Customs regulations, a person leaving Russia is only allowed to carry 250 grams of black caviar.

Million Dollars a Year

According to the UN World Tourism Organization (UNWTO), Russia ranks tenth in the ratings of the most visited countries in 2015. Foreign tourists spent in Russia at least US$1 billion as of last year, Russian tourist officials reports.

According to the organization, 31.6 million foreigners visited Russia last year, which is a 6.2 caviar-and-vat3percent increase from 2014. Most of these visits (22.9 million) were paid by citizens of the former Soviet Republics and 10.9 million were by citizens of the non-CIS countries, of which 2.93 million were visits for tourism purposes.

The weak ruble had made travel in Russia more accessible to foreigners. The key markets for increasing the number of foreign guests are Southeast Asia, China, and the Middle East. Chinese visitors are taking advantage of a visa-free group travel. The number of tourists from China driven by Communist nostalgia and capitalist bargain-hunting was exceeded one million people in 2015. The tourist flow from Iran also doubled from last year.

More than 1.1 million Chinese tourists are expected to visit Russia this year, which is about 16 percent more than in 2015, according to figures from market-research firm Euromonitor released in June, 2016. That puts Russia at No. 16 on the list of top destinations for Chinese tourists, behind the U.S. and France but ahead of the U.K.

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