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Retailers To Cut Prices As Russia Says Goodbye To Sales Tax

by Tatiana Smolenska, Tax-News.com, Moscow

31 December 2003


A consortium of Russia’s largest retailers is set to carry out its promise of lowering prices by 5% following the expiration of the temporary sales tax next year.

According to the Association of Retail Trade Companies, which includes chains such as Kopeika, Paterson and Petrovsky among others, all members have agreed to cut their prices from January 1st.

"Some companies will lower prices for their entire range of goods, others for specific items. But all of them will keep their promise," the managing director of the Association told Interfax.

However, the decision to let the temporary tax expire has had its fair share of heavy-weight opponents, especially since the Finance Ministry has estimated that its elimination will deprive regional budgets of around $2 billion a year in tax revenue. Moscow's Mayor Yury Luzhkov has also warned that the city will be a substantial loser. Calling the move “pointless”, Luzhkov claimed that 10%, or $1 billion, will disappear from Moscow’s tax income.

Many lawmakers were also deeply sceptical that the retailers would follow through with their promise to cut prices, forcing the retail association to write to the speaker of the Duma earlier this year explaining that they would have nothing to lose from dropping their prices by 5%, as they had forecast a 15% hike in sales in the post-tax period. Vladimir Karnaukhov, a member of Sedmoi Kontinent's board observed at the time that the retailers' gesture was met with “total distrust” by legislators.

However, for all the debate, some observers, such as Alexei Krivoshapko, a retail analyst with UFG, argue that the move will make little difference to shopping habits. "For the vast majority of consumers the 5 percent price drop is unlikely to become a determining factor in a decision to buy," he told the Moscow Times.


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