Russia halves VAT on all fruits, berries, melons and gourds one year after increasing


Russia halves VAT on all fruits, berries, melons and gourds one year after increasing

01/09/2020

Reduced VAT on fruits, berries and melons will make them more accessible to consumers and stimulate the development of civilized forms of trade

The good news came from Russia – exactly one year after raising the VAT on fruits and berries from 18% to 20%, the Russian government decided to reduce it again. At the same time, the decrease became significantly more significant than the increase a year earlier – the VAT rate on fruit and berry products was reduced exactly two times or by 10 percentage points. The document can be found here.

EastFruit analysts suggest that the Russian government has realized the low efficiency of raising VAT rates on fruit and berry products from all points of view. First of all, it negatively affects the consumption of fruits and berries, which has a negative effect on the health of the population. In addition, according to Andrei Yarmak, an economist at the Investment Department of the Food and Agriculture Organization of the United Nations (FAO), an increase in the VAT rate on fruits may also be unreasonable in terms of budget revenues.

See also: Russia has reduced or not reduced VAT on fruits and berries?

“The specifics of the production of fruits, berries and melons is in small-scale production and a relatively low percentage of their sales through organized channels, such as supermarkets, compared to packaged food products. In this regard, a significant part of these products is sold in cash, which avoids paying taxes. The higher the VAT rate, the higher the motivation to sell these goods for cash. Therefore, the reduction in VAT on fruits, berries and gourds can only be welcomed – this will make them more accessible for consumers and stimulate the development of civilized forms of trade that can more effectively compete with markets for the price of goods, ”notes Andrei Yarmak.

Earlier, EastFruit analysts reported negative trends in the consumption of fruits and berries in Russia. So, according to their estimates, the consumption of fresh apples in Russia after the introduction of counter-sanctions decreased by 31%, and the average Russian citizen on average began to consume 4.4 kg less apples each year. The consumption of apricot, table grapes, fresh berries and citrus fruits, that is, all those fruits that were supplied in large volumes from the European Union and Ukraine, also decreased.

Interestingly, the reduction in VAT affected not only local products, but also almost all imported fruits. Also, VAT on imports of seedlings will decrease, which will further stimulate the already active expansion of the production of fruits and berries in the country, because seedlings of berry and fruit crops will become cheaper.

By the way, with regard to imports, the situation, according to Russian traders, is very similar – the higher the VAT, the greater the “temptation” to lower prices in official invoices to minimize tax payments. Accordingly, a reduction in the VAT rate can lead to a “bleaching” of trade and, possibly, will not lead to a significant reduction in tax revenues to the budget. Moreover, if imports increase, then income from import VAT may even increase.

According to EastFruit estimates, Russia is one of the ten largest importers of fruits in the world, ranking sixth after the United States, Germany, China, the UK and France. In 2018, despite the growth in the production of its own fruits and berries, Russia spent about $ 5.1 billion on imported fruits, according to official statistics. Analysts estimate that in 2019, fruit imports will remain at about the same level as a year earlier – about $ 5.0-5.2 billion

The main suppliers of fruit to Russia are Ecuador, Turkey, China, Egypt, South Africa, Azerbaijan, Argentina and Moldova. It is matched to them by the volume of Morocco, actively increasing deliveries in 2019. Traditionally, Russia spends the most money on banana imports (about $ 1.2 billion). In second place among imported fruits are apples, followed by tangerines, table grapes, oranges, peaches and nectarines, pears, lemons, persimmons and cherries. Tangerines and clementines are the fastest growing positions in Russian imports. Imports to Russia of cherries, grapefruits and berries are also growing quite rapidly.

The reduction in VAT on fruits and berries is undoubtedly great news for fruit exporters from Uzbekistan, Moldova, Tajikistan, Georgia, Belarus and other countries in the region, as well as for suppliers of citrus and tropical fruits to Russia. This is also good news for consumers who get a wider selection of cheaper fruits and berries. Gardeners, too, should not be left in the loser, despite increased competition from imports – because the tax pressure on the sale of their products will also decrease, and they will be able to buy high-quality imported seedlings now cheaper.

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