Russia’s food and drink industry to be hit with increase in VAT

From: FoodBev

Russia has increased its standard rate of VAT by two percentage points, adding more pressure to a food industry constrained by ongoing trade restrictions.

The higher rate of 20% was signed into law this week by Vladimir Putin, less than a month after the Russian president extended a ban on some Western food imports dating back to the country’s annexation of Crimea in 2014. The original embargo – on fresh produce, meat and fish, and dairy products – was a response to sanctions imposed by the European Union (EU) and US.

Russia turned to countries including Brazil and New Zealand to compensate for the lost import volumes. That ban will now remain in place until the end of 2019.

By the start of this year, authorities in the country had destroyed 19,000 tons of outlawed food in line with the embargo, according to the English-language Moscow Times.

Media outlets inside Russia, including the independent Gazeta.ru, have suggested the most recent increase in VAT will further squeeze the average Russian consumer; in poorer parts of the country, disposable net income is typically as low as $360 a month.

Gazeta.ru noted that, according to the state statistics agency Rosstat, the real income of Russians has fallen for the past four years consecutively: a 0.7% decrease in 2015 was followed by drops of 3.2%, 5.8% and 1.7% in the following three years respectively.

The government aims to raise more than RUB 620 billion ($9.8 billion) through the VAT increase, which it has earmarked for infrastructure, education and healthcare.

The preferential rate of 10%, which applies to some basic foodstuffs, as well as the zero rate will remain unchanged.

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