Economic Development Ministry says no to tax-free shopping in Russia

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The Economic Development Ministry has slapped downa proposal to introduce a tax-free shopping system in Russia, a ministry representative said. “There is no clear-cut benefit from implementing this measure,” he said. Officials believe that tax free would have an insignificant influence on the number of foreign tourists coming to Russia or on the number of purchases they make.

This is not the first time that the idea of VAT refunds has been considered. Two years ago, the Chamber of Commerce and Industry sent the Finance Ministry draft changes to the second part of the Tax Code, with the aim of introducing a tax-free shopping system in Russia. According to those changes, there would be a 2,000-ruble minimum threshold on the value of goods purchased in Russia that would qualify for a VAT refund. The draft made no progress.

There are currently 41 countries in the tax-free shopping system, Belarus being the latest to join. The tax is not refundable for citizens from the member countries of the Customs Union (Russia, Kazakhstan, and Belarus).

For the most part, private companies provide tax refund services to tourists throughout the world. The minimum purchase value to participate in the tax free shopping system varies by country. The refund ranges anywhere from 7 percent to 22 percent of the price of the goods, regardless of the size of the VAT in a given country. In several countries, there is an expiration date on a receipt to get a refund.

Even though the tax-free shopping system aims to attract buyers, boost trade turnover, and increase the amount of profit tax that a country’s budget receives, the VAT refund mechanism is viewed as a complementary service in Russia.

“It’s impossible to attract an extra tourist flow by introducing tax-free [shopping], but it would be a pleasant bonus for foreign tourists,” said the Press Secretary of the Russian Tourism Agency, Irina Shchegolkova.

There are no concrete statistics available on how much money foreigners spend when they are in Russia. According to Olga Maximova, development director of tax consultancy Mark Prior, which specializes in VAT refunds for companies, foreigners spend the majority of their money on food and drink.

Read the full article in Russian at RBC Daily

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