Russia Plans to Raise Domestic VAT Rate to 20 Percent in 2019, Export VAT to Stay Zero

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russia-taxRussia’s State Duma has proposed raising value-added tax to 20 percent from 18 percent, starting 2019. The raised funds are planned to be allocated for the development of infrastructure and new sectors of the economy. The VAT rate increase is expected to generate an additional 620 billion rubles (US$9.82 billion).

However, the reduced VAT rate at 10 percent and the list of goods to which it applies will remain unchanged, as will the zero VAT rate for all exported goods. The respective bills may be submitted to parliament this week.

New VAT regime in Russia

  • In most cases, VAT will be 20 percent.
  • Reduced VAT rate at 10 percent on children’s products and food products.
  • VAT charged on both assets and services in Russia, as well as on imports into Russia.
  • Imports of medication, medical products, and technological products are exempt from VAT.
  • Exports are not subject to VAT.
  • Income from medication sold and medical services as well as income from insurance and banking services is exempt from VAT.
  • The threshold for VAT registration is a turnover exceeding RUB 2 million in the previous three months.
  • VAT returns are made once in a quarter. The payment is made up until the 25th day after the current quarter, paying the VAT due by up to three installments.

Proposed changes to the reduced VAT rate were scrapped for two reasons:

  • The resulting growth of prices of basic foods would be hugely unpopular, adding to pressure from the retirement age hike; and
  • The change is supposed to come in parallel with targeted social support, but there is no capacity to introduce such a system for now.

Russian economists have already stated that the decision to raise VAT is preferable to previously discussed alternatives such as an increase in personal income tax or a new sales tax, as VAT targets consumers only and will be easier to absorb by Russian citizens generally.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “Governments change their tax regimes all the time, and VAT is a good way to spread the tax burden. Additional fiscal revenues are needed to help Russia keep abreast of the infrastructure developments and new industries it has planned to better fit an increasingly digitized economy and better integrate the wealthy West of the nation to the opportunities now apparent in the Far East. That needs to be paid for and an additional 2 percent VAT imposition is the fairest way of achieving this.”


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