New reforms for Russia’s convoluted customs regulations will be up for review this week, potentially lowering duties on many goods and simplifying a law that has long been abused by tax evaders and corrupt officials.
The package of reforms, which the Trade Ministry began drafting six months ago, will be evaluated by the other ministry heads Sept. 7. If they agree to it, the proposal will be passed on to the prime minister, who will put it into effect. Otherwise, it will be returned to the Trade Ministry for revision.
But Andrei Kushnerenko, a Trade Ministry grandee and one of the key drafters of the package, is confident that the proposed reforms will be realized. "The government is just losing too much money with its current tariff policy," he said.
In the current system, tariff evasion is said to be rampant. Most everyone agrees that the seven classifications under which goods must be declared are complicated and nebulous. Importers say that corrupt customs officials use the categories’ vagueness to extract bribes; the government argues that businesses exploit the same regulations to avoid full taxation.
The seven classifications put tariffs on a scale from 5-55 percent; in reality, though, Russia only collects 3-4 percent of the duties, said Andrei Klepach, deputy director of the Russian economics think-tank Development.
The reform package is designed to simplify the laws and lower rates. The seven categories would be collapsed into only four – at 5, 10, 15 and 20 percent – and duties would, for the most part, be lighter. Trade Ministry officials expect that these measures will allow Russia to collect 20 percent more in tax revenues.
Economists have hailed the reforms as a step in the right direction. Some even add that, with Russian’s economic recovery hanging on a thread, they should be implemented now, so as not to inflict too much pain on Russian industries.
"I don’t think reducing duties [now] would hurt domestic producers too seriously," said Yaroslav Lissovolik, an economist at investment consultancy Renaissance Capital. The devaluation of the ruble, which followed the August 1998 financial crisis, has given domestic companies a good advantage over foreign imports, he said. "This is the best time to make the revisions."
Klepach, the analyst at Development, was equally sanguine about the Trade Ministry’s proposal. "Consumers could feel the positive effects very soon," he said.
Since voted into office, the current administration has tinkered with Russian customs law but has yet to offer the kind of sweeping reforms provided by the Sept. 7 proposal. In May, taxes on the import of concentrates and fruits not grown in Russia were dropped from 15 to 5 percent; tariffs on certain kinds of cereals were also reduced.
Similarly, this April, the government blocked all imports of poultry from the Baltics in an effort to staunch the flow of smuggling. With some 90 percent of foreign poultry entering through the region, the new law sought to force importers to use Russian ports to provide the government with better control of the industry.
Some importers then looked to other means to stay a step ahead of the authorities, experts said. One way, according to insiders, was for them to fiddle with classification of chicken parts due to the fact that various parts of the chicken were taxed at different rates.
In a response that foreshadows the current reform, the government then simplified the import categories, hoping to encourage people to pay.
"Everyone was cheating," said an analyst at Souzkontrakt, which imports 20-30 percent of all chicken legs into Russia. But after the reforms, the incentives to swindle were no longer there, he said. "Key importers of poultry breathed freely."
Souzkontrakt is looking forward to the Sept. 7 reforms, he said.
But importers that have not benefited from previous changes to Russia’s custom’s law are wary about the new proposal. They fear that whatever the reforms, they are the product of territorialism and infighting among corrupt bureaucrats, rather than a sincere effort to legalize and simplify Russia’s complex tariff regulations.
"We hope the government will improve the situation this autumn," said Yulia Belova, spokeswoman for Wimm-Bill-Dann, a Moscow-based juice producer that imports many of its concentrates. But she said she is suspicious. In May, when Russia lowered tariffs on concentrates, it did so only for those containing high amounts of sugar. This was little help to Wimm-Bill-Dann, which only produces high-quality juices that require concentrates made with low amounts of sugar, she said.