FOCUS: Russia seeks to slash duty-free limit for orders from foreign e-stores

By Yekaterina Yezhova

MOSCOW, Jun 25 (PRIME) -- The Russian government perseveres in its wish to reduce a duty-free threshold for foreign online orders with plans ranging from reducing it to 100 euros per parcel from the current 1,000 euros per month to a fee charged on each order. Experts say local Internet stores and big electronics sellers with online channels will certainly win at the expense of customers.

“Foreign online stores’ tax burden is 30% lower than that of their local peers, because the latter must pay value-added tax, customs duties and other fees for certificates and the like. It’s impossible to compete in such conditions,” President of the Association of Internet Trade Companies (AITC) Artyom Sokolov told PRIME.

“Terms should be equal for all market participants, like it was done in Europe and in China, for example. Each country tries to protect their firms by enhancing exports and controlling imports.”

At present, Russia does not levy any import duties on household orders from foreign online stores worth up to 1,000 euros with the weight limit of 31 kilograms per month in total. Extra is charged with a 30% duty, but no less than 4 euros per kilogram.

The Customs Code of the Eurasian Economic Union – comprising Russia with neighboring Armenia, Belarus, Kazakhstan, and Kyrgyzstan – says the duty-free threshold will be halved to 500 euros from 2019 and to 200 euros from 2020. Moscow has not made up its mind yet.

The AITC calculated that Russian buyers’ spending at foreign online stores jumped 24% in 2017 to 374.3 billion rubles, or 36% of all online purchases. On the whole, the share of cross-border commerce jumped to 36% in 2017 from 8% in 2010, according to AITC figures.

In monetary terms, online orders from China accounted for 53% of the 2017 cross-border trade, the E.U. for 22% and the U.S. for 12%, which means that an average check from China is small.

On the whole, 61.4% of purchases in foreign online stores were below 22 euros; 22.2% were from 22 euros to 55 euros; and 11.6% were from 50 euros to 150 euros, the AITC said. Anastasia Sosnova, an analyst at investment company Freedom Finance, said that prices of foreign Internet stores are by 15–20% lower than those of Russian peers.

The number of parcels from abroad spiked 25% in 2017 to 292 million, and 91% of them came from China, 3% from the E.U. and 2% from the U.S., the association said.

The AITC head Sokolov said, “Chinese sellers won’t reject the Russian market regardless of the conditions.”

Options vary

The government has not made a final decision yet, but suggestions are abundant. Mass media reported that the finance and digital development ministries offer to decrease the duty-free threshold to 500 euros per month from January 1, 2019 and to 100 euros per parcel with no monthly restrictions from July 1, 2019.

The Federal Customs Service was rumored to have offered the idea of charging a duty on every purchase in a foreign online store from 2020 with a combined duty rate, which could improve competitiveness of the national e-commerce and bring the country’s budget 25 billion rubles per year.

“It’s almost guaranteed that expenses on administration of such a duty will make budget revenue much more modest than the mentioned figures and could even ignite a rise in illegal traffic,” said Karen Kazaryan, a chief analyst at the Russian Association for Electronic Communications (RAEC).

“The Russian Internet trade is already competitive. National companies dominate the market. Sellers with a serious share in offline, like (electronics seller) M.Video, will enjoy most advantages.”

Not all see the point in charging a duty on cheap purchases. Sosnova at Freedom Finance said that the minimum threshold for duties should be high, because, as research proves, expenses on processing import fees are usually large, and taxes should at least cover such spending. “So, the imposition of duties on small purchases does not make sense,” she said.

A slash of the duty-free threshold will give an easy win to national Internet stores, both large and small. “But the future belongs to large players,” Sosnova told PRIME.

Investment company UralSib Capital said in a research note, “A zero duty-free threshold for Internet purchases should support competitiveness of Russian online retailers, which could be hit, among others, by an expected increase of value-added tax (to 20% from 18%).”

“The zero threshold could be also good for traditional market players, like (children’s goods seller) Detsky Mir or M.Video, which actively raise the share of their online sales.”

As to the consumer, the analysts said clients would have to pay.

(63.2396 rubles – U.S. $1)

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